Venture capitalists are a financial institution which provides finance/capital to start up or to a company and a small business that is believed to have long-term growth potential.
Investment banks and any other financial institution are generally venture capitalist. Venture capital funds are an investment vehicle that seeks to invest in a firm that has a high-risk/high-return profile, based on a company size, asset and various stages of economic development.
Registration of Venture capital Fund is done through Security Exchange Board of India (SEBI).
Application for grant of registration:
- An application by any company or trust [or a body corporate proposing to carry on any activity as a venture capital fund on or after the commencement of these regulations shall be made to the Board for grant of a certificate.
- A Body which is carrying on the any activity as a venture capital fund without a certificate before commencement of these shall make an application to the Board for issuing of a certificate within a period of three months from the date of such commencement. The Board, in special cases, may extend the said period up to a maximum of six months from the date of such commencement.
- Form A (application) accompanied by a non-refundable application fee as specified in Part A of the Second Schedule to be paid in the manner specified in Part B shall be made to the board for grant of a certificate under sub-regulation (1) or sub-regulation (2) .
- Any company or trust [or a body corporate] referred to in sub-regulation (2) who fails to make an application for grant of a certificate within the period specified therein shall cease to carry on any activity as a venture capital fund.
- Directions may be issued by board in the interest of the investors with regard to the transfer of records, documents or securities or disposal of investments relating to its activities as a venture capital fund.
- Any person may be appointed by the board in order to protect the interest of investors to take charge of records, documents, securities and for this purpose also determine the terms and conditions of such an appointment.
The Board shall grant the certificate if applicant shall have to fulfil in particular the following conditions, namely:—
If the application is made by a company:
- Its main objective of MOA should be to carrying on of the activity of a venture capital fund
- It`s MOA & AOA should prohibit for making an invitation to the public to subscribe to its securities
- Principal officer or employee or director is not involved in any litigation connected with the securities market which may have an adverse bearing on the business of the applicant
An integral part of registration process the applicant will submit:
- Form A along with application fees of r.s1,00,000 & documents as under:-
- Copy of MOA & AOA in case the applicant is set up in form of a company
- Copy or registered trust deed in case the applicant is set up the in form of trust
- Copy of investment management agreement
Advantages of venture capital:
- Business expertise:
Aside from the financial backing, obtaining venture capital financing can provide a start-up or young business with a valuable source of guidance and consultation.
Critical areas, like legal, tax and personnel matters, a VC firm can provide active support, all the more important at a key stage in the growth of a young company. Greater success and faster growth are two potential key benefits.
This form of business is typically well connected in the business community. Tapping into these connections could have tremendous benefits.