Venture capital funds (VCFs) registered with the Securities and Exchange Board of India (Sebi) will be allowed to invest only in those companies, which have an Indian connection, for example, a company which has a front office overseas, while back office operations are in India. Also, the VCFs cannot invest more than 10% of their corpus in these companies.
The directive is a part of the guidelines for overseas investments by VCFs issued by the capital markets regulator on Thursday. The guidelines come in the wake of the Reserve Bank of India (RBI) clearing the decks in April this year for VCFs to invest in equity and equity-linked instruments only of offshore venture capital undertakings, subject to an overall limit of $500 million and applicable Sebi regulations.
Accordingly, VCFs which wished to invest in offshore venture capital undertakings have been asked to submit their investment proposal to Sebi for approval. Sebi has defined ‘offshore venture capital undertakings’ as foreign companies the shares of which are not listed on any of the recognised stock exchanges in India or abroad. The allocation of investment limits would be done on ‘first come-first serve’ basis and depending on the availability in the overall limit of $500 million.
“In case a VCF who is allocated certain investment limit, wishes to apply for allocation of further investment limit, the fresh application shall be dealt with on the basis of the date of its receipt and no preference shall be granted to it in fresh allocation of investment limit,” said Sebi in its circular.
An applicant VCF shall have a time limit of six months for making allocated investments in offshore venture capital undertakings.
In case the applicant does not utilise the limits allocated in the stipulated period of six months from the date of its approval, Sebi may allocate such unutilised limit to other VCFs/applicants the applications of which are pending with it. As of February 2007, there are around 90-Sebi registered venture capital funds.
Source: Economic Times