SUMMARY
Currently, co-investors have to offload their shares at the same time as AIF on the same terms and exit price, reducing the investors’ freedom.
Thus, several VC funds have made representations to SEBI, requesting to reconsider exits around co-investments
Several investors want to stick to their investments independently even after the AIF has exited or have the freedom of exit price and term of sale
Private equity (PE) and venture capital (VC) funds have reportedly asked the market regulator SEBI to relax co-investment norms within the alternative investment fund (AIF) route.
According to the ET report citing sources, several VC funds have made representations to the securities and exchange board of India (SEBI), requesting to reconsider exits around co-investments.
The report added that the current rules are restricted in several instances. For example, several investors want to stick to their investments independently even after the AIF has exited or have the freedom of exit price and term of sale.
With the current rules of co-investment, co-investors have to offload their shares at the same time as AIF on the same terms and exit price, reducing the investors’ freedom. Therefore, the funds are lobbying for relaxation to these rules.
All venture funds and private equity funds fall under the AIF Category I & II funds and are thus SEBI-regulated.
For the past year, the duo have been working together to work on regulating AIFs as more and more high-net-worth individuals increasingly partake in the startup ecosystem.
SEBI has been looking to bring an increased compliance onus on AIFs. For instance, it has asked for valuation methodology for startups from funds, has kept an eye on funds’ statutory disclosures and updated several definitions of venture capital undertakings. Last year, it also made certain rules that prevented funds from spilling from one pool to another and the appointment of independent trustees on the funds’ boards.
Alternately, it has also eased certain compliance requirements such as extending the lifecycle of funds, removing the ‘Indian connection’ clause for an investee company and simplifying the round-tripping structures.
As the Indian startup ecosystem reels under the effects of the funding winter, the market regulator is mulling measures to accelerate investments within the ecosystem. Thus, recently, the finance minister has formulated a panel that will examine regulatory and other frictions within the ecosystem.
