SUMMARY
As per Sebi Regulations 2012, category-I and II AIFs are not permitted to invest more than 25% of the investible funds in one company
The IVCA has pitched for 25 points recommendations in the white paper submitted to the DIPP
The White Paper was jointly prepared by the IVCA and PricewaterhouseCoopers (PwC)
The Indian Private Equity and Venture Capital Association (IVCA) has recommended that the investment threshold of 25% in companies be increased. This was one of the 25 recommendations it made in a white paper submitted to the Department of Industrial Policy and Promotion (DIPP) on Tuesday.
According to the Securities and Exchange Board of India (Sebi) Regulations 2012 for the alternative investment fund (AIF) category, category-I and category-II AIFs are not permitted to invest more than 25% of the investible funds in a single company. The ceiling of a 25% investment was introduced to meet the requirement of diversification of risks of AIFs.
Category-I AIFs include venture capital funds, social venture funds, SME funds, infrastructure funds, and other funds as specified by Sebi. Category-II AIFs include private equity funds and debt funds for which no incentives or concessions are given by the government or any other regulator.
The white paper submitted by the IVCA also made a case for Sebi to allow venture capital funds to invest in companies registered as non-banking financial institutions (NBFCs).
The white paper, which discusses the issues and challenges faced by the startups and VCs of India, was jointly prepared by the IVCA and assurance, advisory, and tax services consulting firm PricewaterhouseCoopers (PwC), and was submitted to DIPP secretary Ramesh Abhishek.
DIPP secretary Ramesh Abhishek chairs a roundtable discussion with domestic venture capital fund managers. Twitter Image
Inc42 earlier reported that Startup India, run by the government under the Ministry of Commerce and Industry, directed the country’s venture capital industry to work on a white paper containing policy recommendations for regulators.
The Growing VC Industry In India
According to Inc42 DataLabs’ annual Indian tech startup funding report 2017, Indian tech startups raised $13.5 Bn in funding across 885 deals in 2017. The investor-wise breakdown of deals revealed that 302 VC funds participated in funding activities in 2017.
VC investments in Indian startups have seen a lot of change in the past few years. More than 302 VC firms participated in 650 deals in 2017 alone. According to Inc42 estimates, from 70 active VC firms in 2014, this number grew to 230 in 2015 and 253 in 2016. In 2017, the number of active VCs in India jumped by 19.3% to 302.
Concurrently, the number of deals that VCs have participated in has also grown in recent years. Starting 291 deals in 2014, the number grew to a staggering 711 deals in 2015. The number of deals fell to 634 in 2016 but reported a small hike in 2017, with 650 deals.
Over the years, VC participation in seed funding in India has also increased. While in 2014, 18.5% of the total VCs participated in seed funding, this number reached 38.74% in 2017.
[The development was reported by The Business Line.]
Update 1 (23 August, 1:47 pm IST) Post publishing this news, we received more inputs via statement.
It said, DIPP secretary insisted that the recommendations, submitted by IVCA for regulatory changes, be considered by the Committee headed by Finance Secretary, including all the relevant departments and regulators.
The statement further said that SIDBI (small industries development bank of India) –principal financial institution for promotion, financing and development of the micro, small and medium enterprise –has been asked to commit $470 Mn (INR 3300 cr) by March 2019, and take a higher stake in the selected AIFs to make it possible.
