9.1 As in the case of FIIs, SEBI�s primary role in the venture capital fund is envisaged as of a facilitator for growth rather than that of a regulator. SEBI Regulations should encourage more venture capital investments in a hassle free manner. The multiplicity of regulations, as far as possible, should be avoided and one set of regulatory guidelines may be issued under the aegis of one nodal agency for interface with the venture capital investors which could be SEBI. SEBI Regulations should focus more on adequate disclosure as investors in venture capital activities are institutions or high networth individuals who are expected to have the capability of taking an informed decision based on the disclosures. The regulatory requirement of seeking approval of the placement memorandum from SEBI may be dispensed with by strengthening the disclosure requirements. The SEBI Regulations also provide in the case of a VCF incorporated as a trust for compulsory registration of instrument of trust under the Indian Registration Act. As per the provisions of Indian Registration Act, the registration of trust document is optional. There are operational problems in the case of existing VCFs (in existence before SEBI Regulations were notified) to register the document of trust after lapse of four months period. It should be left to the choice of the applicant whether to register the trust document and there should not be any compulsion for registration of documents under the Indian Registration Act under the SEBI Regulation. The venture capital activity is in nascent stage in India as of today and many dimensions of it are still to be unfolded. SEBI Regulations therefore should not curtail the flexibility of investment by a VCF.

9.2 The present regulatory framework permits the investment by VCF in sick industrial undertaking needs a review. There are various agencies who are engaged in restructuring, financing to sick industries and there is no acute necessity for venture capital funds to invest mainly in sick industrial undertakings. The VCF should focus on investment in green shoe high technology oriented, knowledge based, research oriented industries, however, VCFs may also be provided flexibility to participate in the restructuring process of sick industries as and when required.

9.3 Recommendations

The following amendments are recommended under the existing SEBI Venture Capital Regulations :

  1. The definition of VCF should be amended to include any other structures and also the funds set up, scheme floated by a trust, company, body corporate or other legal entities.
  2. The Regulation should make provisions for registration of Foreign Venture Capital Investors (FVCI).
  3. The investment criteria needs to be redefined to permit investment by VCF primarily in equity or equity related instruments or securities convertible into equity of VCUs and also by way of subscription to IPO and preferential offer in case of companies to be listed or already listed. The limit of atleast 80% of the funds raised by the VCF may be dispensed with and new investment criteria as dealt under the heading Investment related issues may be incorporated.
  4. The relaxations for venture capital undertaking/funds under SEBI Takeover Code and SEBI (Initial Public Offer) guidelines as dealt under the heading of Exit related issues may also be incorporated.
  5. The provision for investment in sick companies and financial assistance in any other manner may be dispensed with.
  6. The existing provisions for approval of placement memorandum by SEBI may be dispensed with but the content of placement memorandum may be strengthened to include all the significant information necessary for an investor to arrive at a fair decision.
  7. SEBI regulations should be amended to dispense with the requirement of registration of the instrument of trust under the Indian Registration Act.