Who Really Runs Your VC Fund? A Guide For LPs To Verify Ownership & Control

This article is part of our 10-part series, Insider Secrets: What LPs Must Know to Invest in VC Funds in India, where we decode key insights for navigating this asset class with confidence. We’re also hosting an AMA on Feb 13 at 5:30 PM to tackle the critical questions LPs often overlook and uncover what aspiring VCs need to know but rarely hear internally. Register here.

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When evaluating a venture capital (VC) fund, understanding the ownership and governance structure of the fund’s managing entity is critical for Limited Partners  (LPs). Entity checks involve verifying the ownership details, evaluating governance practices, and assessing the alignment of key stakeholders.

This chapter covers step-by-step methods for verifying ownership via MCA and SEBI,  analyzing overlaps in roles among designated partners, and understanding how ownership structures influence decision-making and fund stability.

Verifying Ownership And Governance Structure Via MCA & SEBI 

The Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI) provide tools and platforms for LPs to investigate the legal and governance structure of a VC entity. Proper verification can highlight potential risks and provide insights into fund stability. 

Step-by-Step Guide on Using MCA to Verify VC Firm Structure:

• Visit The MCA Portal: Navigate to the official MCA website (www.mca.gov.in) and access the e-Governance portal.
• Search For The Entity:
  • Use the “Company/LLP Name” or “CIN/LLPIN” search function to locate the VC firm.
  • Review the registration status, company type, and other basic details.
• Access Director & Shareholder Details:
  • Click on “View Signatory Details” to see a list of current directors and designated partners.
  • Cross-check their roles and verify their involvement in the fund’s operations. 
• Download Master Data & Charge Documents:
  • Access ownership structure details, financial filings, and registered charges against the firm’s assets.
  • Review liabilities or encumbrances that may affect the fund’s stability.
• Verify Regulatory Compliance Cia SEBI: Check SEBI’s database for fund registration.

Interpreting Findings For Fund Stability 

• LPs Consistency In Shareholding: Analyze the consistency of shareholders over time. Frequent changes might indicate instability. 
• Director Tenure & Turnover: High turnover among directors or partners can be a red flag, indicating governance or operational challenges. 
• Liabilities & Encumbrances: Registered charges or liabilities can impact the fund’s financial health.

Analysing Overlap Of Designated Partners & Senior Roles 

A strong correlation between designated partners (DPs) and senior roles is often a signal of commitment and alignment within a VC entity. Conversely, a lack of overlap may indicate potential misalignment or lack of accountability. 

Importance Of Overlap Between DPs & Senior Roles 

1. LPs Enhanced Accountability: When senior leaders are also designated partners, they are personally invested in the fund’s success. This alignment minimizes agency risks and ensures better decision-making.
2. Commitment To Long-Term Vision: Ownership by senior roles reflects their dedication to achieving the fund’s objectives.
3. Skin In The Game: Designated partners with ownership stakes have a personal financial commitment to the fund’s performance.

Red Flags To Watch For

• Senior Roles Without Ownership: If key decision-makers lack ownership stakes, it may suggest limited long-term commitment.
• High Turnover In Leadership: Frequent changes in senior roles or DPs can disrupt continuity and hinder strategic execution. 

Evaluating Alignment And Commitment 

LPs can assess alignment by:  

• Reviewing the fund’s LLP or company structure to identify overlaps.
• Comparing historical filings to track changes in senior roles and ownership.

Implications Of Distributed Vs. Centralised  Ownership For LPs 

The ownership structure of a VC firm significantly affects decision-making dynamics, governance style, and fund stability. Ownership can generally be classified as centralized or distributed, each with unique implications for LPs. 

Centralised Ownership 

• AIF Advantages 
  • Streamlined decision-making due to fewer stakeholders. 
  • Strong alignment when central owners are directly involved in fund management. 
• Disadvantages 
  • Higher dependency on a small group of individuals. 
  • Increased risk if key individuals leave the firm. 

Distributed Ownership 

• AIF Advantage
  • Stability due to shared responsibilities and diversified decision-making.
  • Greater resilience if one partner departs. 
• Disadvantage
  • Potential for slower decision-making due to conflicting interests.
  • Risk of misalignment among multiple stakeholders.

Case Study 1: Centralised Ownership Success 

A VC firm with centralized ownership led by two founding partners excelled in achieving rapid decision-making. However, when one partner announced retirement, the firm faced uncertainty until a clear succession plan was implemented. 

Case Study 1: Distributed Ownership Stability 

Another firm with distributed ownership across five partners demonstrated resilience when one partner exited. However, slower decision-making occasionally impacted their ability to seize timely opportunities.

Key Takeaways 

1. Ownership Verification: Using tools like MCA and SEBI ensures transparency and highlights potential risks in governance. 
2. Importance of Overlap: Strong alignment between designated partners and senior roles reflects commitment and accountability. 
3. Ownership Structures Matter: Both centralised and distributed ownership models have pros and cons that LPs must evaluate carefully.

This article is co-authored by Anup Jain & Rajeev Suri, Founder Partners @ BlueGreen Ventures