India – Foreign Venture Capital Investor.

12 August 2021

 

Foreign Venture Capital Investor (“FVCI”) is defined under the Securities and Exchange Board of India (Foreign Venture Capital Investor) Regulations, 2000 (“FVCI regulations”), and means an investor incorporated and established outside India, registered under FVCI regulations which proposes to make investment in Indian venture capital fund or venture capital undertaking. 
 

An applicant seeking registration as FVCI is required to make an application to the Security Exchange Board of India (“SEBI”) in the manner as specified under the FVCI regulations. On receipt of the application for registration as FVCI, the SEBI considers the applicants track record, reputation, financial soundness, nature of entity etc. 
 

On being satisfied that the applicant fulfils the eligibility criteria, SEBI grants registration certificate after payment of requisite registration fee as provided under the FVCI regulations. Further, the registration certificate is granted subject to certain conditions such as appointment of domestic custodian, entering into an arrangement with designated bank for operating a special non-resident rupee or foreign currency account. 
 

The investments made by an FVCI in India are regulated by the FVCI regulations and Foreign Exchange Management (Non-debt instruments) Rules, 2019 (“NDI Rules”).

 

1. Investment conditions under NDI Rules

 

As per the NDI Rules, an FVCI is permitted to invest in the following sectors in India:-

 

1. biotechnology;

2. IT related to hardware and software development;

3. nanotechnology;

4. seed research and development;

5. research and development of new chemical entities in pharmaceutical sector.

6. dairy industry;

7. poultry industry;

8. production of bio-fuels;

9. hotel-cum-convention centres with seating capacity of more than three thousand; and 

10. Infrastructure sector (as defined under Harmonised Master List of Infrastructure sub-sectors approved by Government of India vide notification F. No. 13/06/2009- INF, dated the March 27, 2012 as amended or updated).

 

Further, an FVCI can make investments by purchasing securities or instruments as mentioned below, either directly from the issuer of such securities/instruments or from any other person holding these securities/instruments, at a price that is mutually acceptable to the seller/ issuer:-
 

1. securities, issued by an Indian company engaged in the aforementioned sectors and whose securities are not listed on a recognised stock exchange at the time of issuance of the said securities;

 

2. units of a VCF or of a Category I Alternative Investment Fund (“Cat-I AIF”) or units of a scheme or of a fund set up by a VCF or by a Cat-I AIF;

 

3. equity or equity linked instrument (optionally or compulsorily convertible into equity share) or debt instrument issued by an Indian ‘start-up’, irrespective of the sector in which the start-up is engaged.

 

2. Investment conditions under FVCI regulations

 

As per the FVCI regulations, the investments to be made by an FVCI in securities of a listed company is subject to the following conditions:-

 

1. The FVCI should disclose its investment strategy to the SEBI;

 

2. The investments should be made in the following manner:

 

1. at least 66.67% of the investible funds shall be invested in an unlisted equity shares or equity linked instruments of venture capital undertaking;

 

2. maximum 33.33% of the investible funds may be invested by way of:

 

1. subscription to initial public offer of a venture capital undertaking whose shares are proposed to be listed;

 

2. debt or debt instrument of a venture capital undertaking in which the foreign venture capital investor has an equity investment;

 

3. preferential allotment of equity shares of a listed company subject to lock in period of one year.

 

4. it shall disclose the duration of life cycle of the fund;

 

5. special purpose vehicles which are created for the purpose of facilitating or promoting investment in accordance with the FVCI Regulations.

 

Conclusion
 

India being an ever growing economy and its potential to grow further makes it one of the most appealing countries to the foreign investors. With the addition of foreign funds, India can perform better towards realising its goals and to mark its position in the world economy.