Setting up Venture Capital Fundin India

Doing Business in India SeriesJune 2009

CA Vinit V Deo

vinitdeo@gmail.com

+91 98220 88313

What Is a Venture Capital Fund?

It is either of the following:

� Trust

� Company

� Body Corporate

Has a dedicated pool of capital

Raised in the prescribed manner

Invests in a venture capital undertaking

Venture Capital Undertaking

It means a Domestic Company-

Whose shares are not listed

Which is engaged in the business of providing services, production or manufacture

Investors

Monies can be raised from any investor, whether Indian, Foreign or Non-resident

Contribution made by each investor should be equal to or more than Rupees Five Lakhs

The minimum capital at the start-up of the VCF should be at least Rupees Five Crores

Investment Conditions & Restrictions

Disclose the investment strategy at the time of application for registration

Shall not invest more than 25% corpus of the fund in one VC undertaking

Shall not invest in associated companies

Investment Conditions & Restrictions

Investment in A Venture Capital Undertaking-

� Equity - At least 75% of the investible funds should be invested in equity or equity linked instruments

� Debt - not more than 25% should be invested in debt or debt instruments, provided that investment has already been done in the company by way of equity

Invested In Listed Companies-

� Subscriptions to IPOs is restricted to 25% of the investiblefunds

� Such IPO investments shall not be liquidated for at least a year

� Investment in Debt or debt instruments in listed companies is not allowed

Investment Conditions & Restrictions

Listing of Venture Capital Fund

VCF is allowed to be listed on a recognised stock exchange

But such listing can be done only after the expiry of 3 years from the date of issue of units of the Venture Capital Fund

General Obligations and Responsibilities

Subscription or purchase of units of a VC fund shall not be made through public offerings

It shall be done only through private placements of its units

� The applicant will submit:

� Form A along with the Application fees of Rs.1,00,000 and documents as under-

� Copy of Memorandum and Articles of Association in case the applicant is set up in the form of a Company (Reg. 4(a) ), orCopy of Registered Trust Deed in case the applicant is set up in the form of a trust (Reg. 4(b) ), orCopy of Main objective of constitution in case the applicant is set up in the form of a body corporate. (Reg4(c) )

� Copy of Investment Management Agreement (only if applicable).

Registration of VC Fund

Other Documents to be submitted-

� Details of the Sponsor/Settlor

� Details of the Trustees/Trustee Company

� Details of the Investment Manager/Investment Advisor/Asset Management Company (AMC)

� State whether, the applicant is registered with SEBI in any capacity or has applied for registration in any other capacity with SEBI.

� List of all the associates registered with SEBI along with their Registration No. Please, refer to Reg. 2(aa) of SEBI (Venture Capital Funds) regulations, 1996 for the definition of the “associate company”.

� Investment Strategy

Registration of VC Fund

SEBI will grant the applicant, certification of registration as a SEBI Registered Venture Capital Fund -

� When all requirements including the Fit and Proper Person criteria have been complied with, and,

� On intimation from SEBI for payment of Registration fees of Rs.5,00,000 as per Second Schedule to Regulations,

Grant of Certificate of Registration

Eligibility CriteriaIf the application is made by a company :—

� The Memorandum of Association mentions the Venture Capital Fund as its main activity

� It is not allowed to make an offer to the public for subscription to its shares

� Its director or principal officer or employee is neither involved in any litigation connected with the securities market nor has at any time been convicted of any offence involving moral turpitude or any economic offence

� It is a fit and proper person

If the application is made by a trust—

� The instrument of trust is in the form of a deed and has been duly registered under the provisions of the Indian Registration Act, 1908 (16 of 1908)

� The main object of the trust is to carry on the activity of a venture capital fund

� Its director or principal officer or employee is neither involved in any litigation connected with the securities market nor has at any time been convicted of any offence involving moral turpitude or any economic offence

� The applicant is a fit and proper person

Eligibility Criteria

If the application is made by a body corporate—� It is set up or established under the laws of the Central or State Legislature,

� The applicant is permitted to carry on the activities of a venture capital fund,

� The applicant is a fit and proper person,� Its director or principal officer or employee is neither involved in any litigation connected with the securities market nor has at any time been convicted of any offence involving moral turpitude or any economic offence

The applicant has not been refused a certificate by the Board or its certificate has not been suspended

Eligibility Criteria

Winding UpA scheme of a venture capital fund set up as a trust shall be wound up:

� When the period of the scheme, if any, mentioned in the placement memorandum is over;

� If it is the opinion of the trustees or the trustee company, as the case may be, that the scheme shall be wound up in the interests of investors in the units;

� If seventy-five per cent of the investors in the scheme pass a resolution at a meeting of unit holders that the scheme be wound up; or

� If the Board so directs in the interests of investors.

A venture capital fund set up as a company shall be wound up in accordance with the provisions of the Companies Act, 1956 (1 of 1956)

A venture capital fund set up as a body corporate shall be wound up in accordance with the provisions of the statute under which it is constituted

The trustees or trustee company or the Board of Directors shall intimate the Board and investors, of the circumstances leading to the winding up of the Fund or Scheme under sub- regulation

Winding Up

vinitdeo@gmail.com

+91 9822088313

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