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How to start a Venture Capital Fund In India invest in startups

How an NRI can setup Venture Capital Fund In India

India been one of the most growing and boosting economy manages to attract a lot of Foreign Investors, Individuals and Entities to invest in Indian growing business. Businessmen always focuses on the growth and business in terms of money. There are many ways by which an NRI can invest in Indian Market one of them is setting a Venture Capitalist Firm in India. Venture capital is money provided by investors to start-up firms and small businesses with perceived long-term growth potential. India today is the second most preferred investment destination in Asia after China.

Indian Government has also helped in creating a favourable and likeable environment for the start-ups which adds a benefit in the working of new start-ups. To give boost to the new start-ups and innovative business ventures, government has provided various financial and non-financial benefits to the start-ups and Venture Capital Firms.

Ways to start a VC Firm In India

Venture capitalist firm can be incorporated in particularly 3 ways in India:-

  1. Trust
  2. Body Corporate
  3. Private Limited Company

VC firm irrespective of the manner it is formed shall be liable to get itself registered from the Securities and Exchange Board of India (SEBI), without SEBI’s registration certificate, a VC Firm cannot operate in India.

An NRI can invest in VC firms by creating an association with an Indian Investor and form a VC firm in their own name or by investing in existing VCF in Indian Market.  Setting a VC firm in India is always the best option as it creates a self-motivating factor in the minds of the people and there is always a competitive edge in Indian Market.

Venture capitalists act in the advisory capacity in the company and render their professional expertise to the venture. Apart from capital investment typically funds are pooled in for a period of around 10 years and investing it in venture capital undertakings for a period of 3 to 5 years with an expectation of high returns.

Pre-requisite to set up a Venture Capital Fund (VCF)?

As Company

  • MOA should have objects as carrying on of its activity as a VCF.
  • Should not make an invitation to the public to subscribe to its securities;
  • Past history of its directors or principal officers or employees are clean and are not in litigation and are not convicted of any offence involving moral turpitude or any economic offence.
  • Officers are fit and proper person.

As Trust

  • Trust Deed has been duly registered.
  • The main object of the trust is to carry on the activity of a VCF.
  • The directors of its trustee company or any trustee are not involved in any litigation or are convicted of any offence involving moral turpitude or of any economic offence;
  • the applicant is a fit and proper person.

For Body Corporate

  • Established under the laws of the Central or State Legislature.
  • The applicant is permitted to carry on the activities of a venture capital fund.
  • The applicant is a fit and proper person.
  • The directors or the trustees have not been convicted of any offence involving moral turpitude or of any economic offence or are not involved in any litigation connected with the securities market.

Other Key Information for Setting your Venture Capital Fund in India

  • A VC can raise funds from any investor whether Indian, Foreign or Non-Resident Indian.
  • Minimum investment from any investor should be a minimum of 5 lakh rupees.
  • Minimum commitment from the investors for the contribution for a scheme should be an amount of at least 5 Cr.
  • VCF shall disclose the investment strategy at the time of application.
  • It shall not invest more than 25% corpus of the fund in one VC undertaking and shall not invest in associated companies.
  • No listing of its units till the expiry of 3 years from the date of issuance of units by VCF.
  • It shall make investment in the following manner –
  • At least 66.67% of investible funds shall be invested in unlisted Equity Shares.
  • Not more than 33.33% of the investible funds may be invested by way of either of the following i.e. Subscription to IPO of a VC whose shares are proposed to be listed, Debt or Debt instruments of a VCF, preferential allotment of equity shares of listed company provided they have a lock-in period of 1 year, Equity shares of a financially weak or sick company who are listed or SPV created by VCF for the purpose of promoting investment.
  • VCF can receive monies only through Private Placement Basis.

Documents to be filed with SEBI:

  • Information Memorandum
  • Copy of Placement Memorandum
  • Copy of Contribution or subscription agreement
  • Report of money actually collected from investors.

We at Startup Scratch provides its business partners a an exposure to setup a venture capital fund in India and provide them a thorough support in terms of legal compliance and financial setting for smooth conduct of the VCF.

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