restriction on investment by a ventur capital fund
Venture Capital Fund
All investments made or to be made by a venture capital fund shall be subject to the following restrictions as down by SEBI (Venture Capital Funds) Regulations, 1996:
(a) the venture capital fund shall not invest in the equity shares of the company or institutions providing financial services;
(b) at least 80 per cent of funds raised by a venture capital fund shall be invested in :
(i) the equity shares or equity related securities issued by a company whose securities are not listed on any recognised stock exchange:
Provided that a venture capital fund may invest in
equity shares or equity related securities of a company whose securities are to be listed or arc listed where the venture capital fund has made these investments through private placements prior to the listing of the securities.
(ii) the equity shares or equity related securities of a financially weak company or a sick industrial company, whose securities mayor may not be listed or any recognised stock exchange:
Explanation: For the purpose of this regulation, a
financially weak company’ means a company, which has at the end of the previous financial year accumulated losses,which has resulted in erosion of more than 50% but less than 100 % of its networth as at the beginning of the previous financial year.
(iii) providing financial assistance in any other manner to companies in whose equity shares the venture capital fund has invested under sub-clause
(i) or sub-clause
(ii) as the case may be :
Explanation: For the purpose of this regulation,
‘funds raised’ means the actual monies raised from investors for subscribing to the securities of the venture capital fund and includes monies raised from the author of the trust in case the venture capital fund has been established as a trust but shall not include the paid up capital of the trustee company, if any.
Venture capital financing involves a high degree of risk. Moreover, the guidelines issued by the government for setting up of venture capital companies are too restrictive and unrealistic and have come in the way of their growth.In addition to the venture capital companies, the government of India has been instrumental in setting up a number of new financial agencies to serve the increasing needs of the entrepreneurs in the area of venture capital. These include:
(i) Venture Capital Scheme of IDBI.
ii.Venture Capital Scheme of ICICI.
iii.Risk Capital and Technology Corporation Ltd.
(iv) Infrastructure Leasing and Financial Services Ltd.
v.Stock Holding Corporation of India Ltd. (SHCIL) to provide help in the transfer of shares and debentures
(vi)The Credit Rating Information Services of India Ltd.(CRISIL) to undertake the rating of fixed deposit
scheme, debentures/bonds and provide credit assessment of companies.
(vii) The National Venture fund for Software and IT industry (NVFSIT) launched in the year 1999-2000.
The SEBI Committee on Venture Capital headed by Sh. K.B. Chandrasekhar set up in July, 1999, examined the impediments to the growth of V CF and suggested several measures to facilitate the growth of venture capital activity in India. The Finance Bill 2000-2001 has also proposed special provisions relating to tax on income distributed by venture capital companies and venture capital funds.