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Group Members y Mr. Ayan Mukherjee y Ms. Anupriya Unnikrishnan Nair y Mr. Dickench Das y Ms.

Namrata Ayar y Ms. Samidha Phadke y Mr. Lovesh Jain

Meaning of Venture Capital

y Venture capital is long term risk capital to

finance high technology projects which involve risk, but at the same time has strong potential for growth. y Venture capitalists pool their resources including managerial abilities to assist new entrepreneurs in the early years of the project.


ySeed finance yStart up finance yAdditional financing yEstablishment financing

y Private equity, is generally, an asset class consisting

of equity securities in operating companies that are not publicly traded on a stock exchange.
y Among the most common investment strategies in

private equity are: leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital.


y VC is a subset of a larger PE assets class. y Historically, VC investors have provided high risk

equity capital to start up. y Due to increased competition, both PE and VC funds have expanded their horizons to capture new opportunities. y As venture capitalist tend to invest their money into emerging technologies, it gives an opportunities to the existing companies for their growth.


y Incubators y Angel Investors y Venture Capitalists y Private Equity Players

Venture Capital Investment in India

It plays a vital r le in the devel pment and gr wth f innovative entrepreneurships
Developmental financial institutions like IDBI, ICICI and State Financial Institutions They promoted private sector entities using debt as an instrument of funding

The need f r

w s rec nized in the 7th five year plan and the l ng ter fiscal p licy f the G vernment f India.
The first private Venture Capital sponsored by CFC, ADB and CDC

Formation of TDICI Ltd.

Drastic increase in the number of VC funds being registered in SEBI from 1996-2000
8 funds during 1996-98 14 funds during 1999-2000

In 2

, finance ministry announces tax li eralization for funds

Expected to give a strong boost to the NRIs in the silicon valley.

In order to promote the VC funds and to increase job creation.

Growth in

investment in India s IT- software and service sector

The credit can be given to the setting up of a National VC Fund for the Software & the IT Industry (NFSIT)

grown from US $150 millions in 1998 to over US $1200 millions in 2002.

SEBI (Venture Capital Funds) Regulations, 1996

y It took effect from 4th december,1996 y Venture Capital Funds under the regulations means
A fund established in the form of a trust or a company including a body corporate and registered under the regulations which Has a dedicated pool of capital,  Raised in manner specified in the regulations, and  Invests in venture capital undertaking in accordance with the regulations.

Registration of Venture Capital Funds (VCF)

o Make an application to the SEBI o If fails to make an application with in the period specified should cease to carry on any of its activity as a VCF.

Eligibility Criteria
Registration as VCF should fulfill the following conditions 1. If applications is made by a company2. If applications is made by a trust3. If applications is made by a body corporate4. The applicant has not been refused a certificate by SEBI or its certificate has not been cancelled or suspended under the Regulations 30.

Consideration of Application
oIf application is not complete in all respects, the same is liable to be rejected by SEBI. o Before rejecting, the applicant should be given an opportunity to remove (with in 30 days) the objections Indicated by SEBI. oSEBI can extend such period by such further time not exceeding ninety days.

Procedure for Grant of Certificate

SEBI after getting satisfied that the applicant is eligible for the grant of certificate should send intimation to the applicant and after the receipt of intimation, the application should pay the registration fee as specified.

Effect of Refusal to Grant Certificate

o Any applicant whose application has been rejected by SEBI cannot carry on any activity as a VCF. oSEBI In the interest of the investors has the right to issue directions with regard to transfer of records, documents or securities or disposal of investments relating to its activity as a VCF. o SEBI can also appoint any person to take charges of that venture capitalist fund.

Placement Memorandum
Before issuing any units / before making an offer inviting any subscription VCF should file with SEBI a Placement Memorandum which shall give details of the terms subject to which monies are proposed to be raised from the investors . Details of the securities that are being offered Details of investments that are proposed to be made. Details of directors of the company Tax implications that are likely to apply to investors. Manner of subscription to the securities that are to be issued. Manner in which the benefits accruing to investors in the securities are to be distributed. Details of the asset management company, if any, and of fees to be paid to such a company. Placement memorandum is to be issued for private circulation only after the expiry of Twenty one days of its submission to SEBI.

Investment Conditions
 No VC fund set up as a company or any scheme of a venture capital fund

shall accept any investment from any investor which is less than five lakh rupees.  Venture capital fund shall have firm commitment from the investors for contribution of an amount of at least five crore rupees.  Venture capital fund shall disclose the investment strategy at the time of application for registration.  Venture capital fund shall not invest more than 25% corpus of the fund in one venture capital undertaking.  Investment type: Shall not invest in the associated companies.  At least 66.67% of the investible funds shall be invested in unlisted equity

shares.  Not more than 33.33% of the investible funds may be invested in IPO or in debt instrument of a venture capital undertaking.

Prohibition on listing. y No venture capital fund shall be entitled to get its units listed on any stock exchange till the expiry of three years.  Prohibition on inviting subscription from the public. y No venture capital fund can issue any document or advertisement inviting offers from the public for the subscription or purchase of any of its units.  Restrictions on investment by VCF y should not invest in the equity shares of any company or institution providing financial services. y At least 80% of funds raised by the VCF should be invested in equity shares or related securities issued by a company whose securities are not listed on any stock exchange.

SEBI (Foreign Venture Capital Investors) Regulations, 2000

y Introduction:

An Investor incorporated and established outside India, which proposes to make investment in venture capital fund(s) or venture capital undertakings in India and is registered under the regulations.
y Application for grant of Certificate:

The applicant is required to make an application along with the registration fee to SEBI for the purposes of seeking registration.

y Eligibility Criteria:
 Applicants track record, financial soundness, professional

competence.  Approval from Reserve Bank of India for Investment in India  Entity of Applicants (Investment company, Investment trust, pension fund, university fund etc.)  Applicant regulated by an appropriate foreign regulator or is an income tax payer or having banker s certificate of its / its promoters track records.  Fit and proper person.

y Procedure for grant of Certificate:

 If Applicant is eligible, SEBI will send intimation.  Applicant has to pay the registration fee.  Then SEBI grants a certificate of registration.  SEBI has complete right to reject the application. Once rejected,

the applicant should not carry on any activity as a Foreign Venture Capital Investor.

Conditions of Certificate:
The certificate to be granted to the foreign venture capital is subject to the condition that: It should abide by the provisions of the Act and these regulations. ii. It should appoint a domestic custodian for purpose of custody of securities. iii. It should enter into arrangement with a designated bank for the purpose of operating a special non-resident rupee or foreign currency account.

Investment Criteria for a Foreign Venture Capital Investor

   o o

It should disclose to SEBI its investment strategy It can invest its total funds commited in one venture capital fund. It shall make investments as enumerated below: At least 66.67% of the investible fund should be invested in unilisted equity shares or equity linked instrument. Not more than 33.33% of the investible funds may be invested in IPO or in debt instrument of a venture capital undertaking.

Power to call for information from VCF and FVCI  With respect to any matter relating to its activity.  Should be furnished within the time specified by SEBI. Inspection and investigation  Appointment of Inspecting/ Investigating Officer.  For inspection/ investigation of books of accounts, records, documents.  Regarding complaints received from any investor / client.  To ascertain compliance with SEBI Act, 1992 and rules and regulations made thereunder. Maintenance of ooks and records y VCF and FVCI  To be maintained for a period eight years.  Giving a true and fair picture of the state of affairs. Notice before inspection / investigation.  Not required before surprise inspection.

Obligation of VCF and FVCI on inspection / investigation  Every officer or any other associate in possession of relevant information pertaining to the VCF / FVCI including AMC to produce such documents as may be required .  Examination / Recording of statements of any director, officer or employee of the VCF / FVCI. Submission of report by Inspecting / Investigating Officer and communication of findings  Enquiry and/or Adjudication  Show Cause Notice, Reply and reasonable opportunity of hearing to VCF / FVCI . Action in case of default  warning  suspension / cancellation of certificate of registration  monetary penalty. SEBI in the interest of investors and the securities market can issued such directions to the VCF / FVCI as is may deal fit Appeal in SAT.