The move is likely to provide a platform for `qualified institutional investors', said SEBI officials, in the light of the problems faced by venture capitalists and investors in their endeavour to find an exit route. OTCEI is also learnt to have started working on the modalities of this exclusive segment.

A proposal to this effect was suggested at the meeting held by SEBI with leading venture capitalists, exchange representatives, financial institutions, banks and legal experts. The group also suggested the usage of the buyback mechanism which could provide an exit route to the venture capital funds as well as investors.

The group discussed exit routes available for venture capitalist funds (VCFs) and investors in VCFs and felt that these need to be simplified. "Themeeting was called with an intention to closely study the problems faced by venture capitalists and the practical difficulties in even raising funds and tackling legal issues. We have decided to streamline the regulatory initiatives which could enable us to create a structure whereby the developmental process could be facilitated, " explained senior executive director of SEBI, LK Singhvi.

The group also came up with a proposal that the banks and financial institutions should offer exclusive windows to venture capitalists to meet their funds requirement. SEBI has also set up a small working group to suggest modifications to its guidelines for venture capital funds and identify issues that the regulator could take up with the government, the Central Board of Direct Taxes (CBDT) and Reserve Bank of India. The group is likely to meet in mid-June.

In the meanwhile, SEBI has also asked all the members to formulate their suggestions and forward them to it in order to enable them to take up the matter withRBI.

After a meeting with over 20 venture capitalists, including institutions and overseas bodies, SEBI felt the need to harmonise regulations governing VCFs. Currently, venture capital funds are governed by SEBI and CBDT guidelines while activity of overseas VCFs is subject to Government and RBI approvals.

Venture capitalists also expressed the need to align the interests of overseas and domestic VCFs, especially in matters of taxation, and bring about a level playing field in the industry.

Overseas VCFs which route their investments in India through tax havens like Mauritius enjoy certain tax benefits. Tax benefits to this industry also differ depending on the size of the fund, explained SEBI officials and legal experts who participated in the brainstorming session on Wednesday.