Securities and Exchange Board of India
being purchased for cash or going public through an IPO. Such flexibility should be available for Indian startups as well. Similarly, shareholders can take advantage of the higher valuations in overseas markets while divesting their holdings.
Global investment opportunities for domestic VCFs
8.4.1With increasing global integration, it is important that the domestic venture capital funds also have the opportunities to invest abroad. This would enable them to generate better returns globally and also expose them to the international market practices. We need to encourage Indian enterprises to become global. The domestic VCF should be permitted to make investments abroad under certain transparent, automatic norms subject to ceilings.
8.4.2It is recommended that domestic VC Funds should be permitted to invest in securities of companies incorporated outside India. Such investment may be subject to a ceiling of higher of -
25% of the Fund Corpus, or
US$ 10 million per VC Fund or
to the extent of foreign investment in the corpus of the VC Fund
8.5 Liberalise Sweat Equity issuance norms
8.5.1Under Section 79A of the Companies Act, 1956, a company can issue sweat equity only one year after it is entitled to commence business. This provision negates the possibility of sweat equity issuances in start-ups. The government should relax the one-year lock-in period.
9.1As 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
Report of K B Chandrasekhar Committee on Venture Capital36