With a vie to get parity between Indian and overseas venture capital funds, stock market regulator Securities & Exchange Board of India (Sebi), in its announcement on Friday, has made it compulsory for foreign venture capital investors (FVCIs) to attain firm commitment from investors for contribution of at least Rs 5 crore before the start of operations by the venture capital fund.
Sebi, in its order, stated, ?Each scheme launched or fund set up by a venture capital fund shall have firm commitment from the investors for contribution of the minimum stipulated amount before the start of operations by the venture capital fund.?
However, the Sebi (Foreign Venture Capital Investors) Regulations, 2000, do not stipulate a similar requirement for FVCIs. The market regulator has decided to bring in parity between domestic venture capital funds and FVCI.
?It has been decided to bring in parity between domestic venture capital funds and FVCI by requiring the applicants desirous of registering with Sebi as FVCIs to obtain firm commitment from their investors for contribution of an amount before the start of operations,? Sebi said.
Overall, this move is not expected to have a major impact on the overseas funds. According to Sandeep Singhal, director, Nexus India Capital Advisors, ?Most of the funds have firm agreement with the limited partners for committing money into the fund. As there is a firm commitment for it, I don?t see a major impact with Sebi?s decision.?
Another venture capitalist, on the condition of anonymity, mentioned that this could be a move to cleanse off several shell venture capital companies that have secured permission to operate in India. Many of them, he alleges, are owned by Indian promoters and do not have any client commitments. They are often used as conduits for dubious transactions.
?It can also be looked at a signal that the regulator is looking at the venture capital space closely and there could be more streamlining in the coming days,? he added.
There were around 129 foreign venture capital firms registered with Sebi as on May 12, 2009, and 132 domestic venture capital funds. Most of the overseas funds are registered in Mauritius and have International Financial Services, IFS Court in Cybercity, Ebene in Mauritius as their address.