AVenture Capital Fund (VCF) is a privately pooled investment vehicle. It can be established or incorporated in the form of a trust, a company, a limited liability partnership, or a body corporate, which collects funds from investors, for investing in accordance with a defined investment policy for their benefit.
Current scenario in India. As per the report of Bain and Company “India Private Equity Report 2018”, last year was a good time for private equity in India as the country witnessed the highest investment of Private Equity (PE) /Venture Capital (VC) on record, i.e., amount of around US$26 billion.
The Securities and Exchange Board of India (SEBI) regulates both domestic and offshore funds using various rules. Domestic VC funds come under SEBI (Alternate Investment Fund) Regulations and offshore VC funds come under SEBI (FVCI) Regulations, 2000.
Instruments. Some of the preferred instruments for a VC fund outside equity: (a) compulsorily convertible preference shares are one such type of instrument as they carry a preferential right over dividend and gives investors a preferential right to recover ther nvestment in case the company is wound-up; (b) compulsorily convertible debentures are another investment instrument that may be considered. It is a debt instrument compulsorily convertible into equity after a specified time; (c) convertible notes as an investment option is permitted for start-up companies with effect from 10 January 2017. A foreign investor is permitted to invest in convertible notes up to Rs2 million or more in a single tranche (a start-up company issues convertible notes to acknowledge receipt of money initially as debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of such company, within a period not exceeding five years from the date of issue of the convertible notes, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument).
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Ravi Singhania is the managing partner and Arjun Anand is a partner at Singhania & Partners
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