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SECURITIES AND EXCHANGE BOARD OF INDIA

INVESTMENT MANAGEMENT DEPARTMENT

Division of Funds – Venture Capital

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HOW TO GET REGISTERED AS A FOREIGN VENTURE CAPITAL INVESTOR

1. The Applicant is advised to go through the SEBI (Foreign Venture CapitalInvestors) Regulations, 2000 for checking the eligibility criteria (Reg 4) and suchother information while submitting the application to SEBI. The application in Form A as specified in First Schedule to SEBI (Foreign Venture CapitalInvestors) Regulations, 2000 and other documents should be filed along withrequisite fees (Application fees of US $ 2500) as prescribed under Second Schedule to the Regulations.

2. The application in Form A along with other documents as enumerated below should be submitted in duplicate. One set of Application along with all thedocuments is forwarded by SEBI to Reserve Bank of India (RBI) for its approval from FEMA angle.

Procedure to be Followed :

3. The Applicant should follow the procedure given below so as to expedite theregistration process. Normally, all replies are sent within 21working days fromthe date of getting each communication from the applicant during the process ofregistration. Thus, the total time period for registration depends on how fast therequirements are complied with by the applicant.

4. The following are the main requirements under SEBI (Foreign Venture CapitalInvestors) Regulations, 2000:

1. While filling the Form A please ensure the following.

a) Details about the sponsor/group to which the applicant belongs.

In Form A under pt 3 (c), the applicant should disclose the details pertainingto the sponsor or the group to which it belongs. Also disclose the experience,approximate funds being managed by the sponsor/group, the registrationparticulars with any regulatory agency abroad, along with website details, if

any, etc.

b) Details about designated bank branch and Custodian.

Please ensure that the applicant appoints a designated bank and a SEBIregistered Custodian. Also enclose a copy of Letter from the Custodian in support of Reg. 8(b).

c) Other Documents as prescribed in Form A:

i. Copy of certificate of registration with home regulator; or ii. Copy of income tax return filed in the home country; or iii. Copy of bankers certificate fair track record of the applicant

2. Apart from the above, the applicant has to submit the following documents/details/declarations in support of registration.

a) Contact Person details along with name, address, contact no. and email ID.

b) Details of all the directors along with name, address, proof of identity, proof

of address, contact no and email ID.

c) Copy of Memorandum and Articles of Association/Constitution Documentof the applicant. Please ensure that the main objects permit the applicant tocarry on the activity of venture capital.

d) Structure Diagram of the Applicant. e) State whether the applicant or any of its directors has not been refused a

certificate by the SEBI Board. f) State whether the applicant is registered with SEBI or any other regulatory

authority in any capacity in India or has filed for registration with SEBI in anyother capacity.

g) Write up on Directors/Key personnel of the FVCI. The write up should include

the educational qualifications, the past experiences etc. h) Disclose the investment strategy as required under Regulation 11(a) of the

SEBI (Foreign Venture Capital Investors) Regulations, 2000. The Investmentstrategy should disclose the sectors for investment and the approximate amount proposed to be invested in India along with the Life cycle of the Fund.

i) Declaration that the foreign venture capital investor will not make investment

in any area listed under Third Schedule to SEBI (Foreign Venture Capital

Investors) Regulations, 2000.

j) Declaration in respect of “Fit and Proper Person” criteria as per regulation 4 A of the SEBI (Foreign Venture Capital Investors) Regulation, 2000 and as specified under Schedule II of the Securities and Exchange Board of India(Intermediaries) Regulation, 2008.

5. Grant of Certificate of Registration

Once all above requirements have been complied with including the Fit andProper Person Regulations, 2004 and necessary approvals have been granted by RBI, SEBI will issue a letter stating the same and on payment ofrequisite fees (registration fees of US $ 20,000) as per Second Schedule toRegulations, SEBI will grant a certification of registration as a ForeignVenture Capital Investor.

Please note the following:

• Application (in 2 sets) which is incomplete or without the necessary documents/information/declarations would not be accepted and they would be treated as not filed.However, an intimation to this effect will be addressed to the applicant withinreasonable period of time.

• Applications involving policy decisions or other considerations, might get delayed inprocessing and in getting registration approvals.

• Documents/annexures submitted along with the application need to be numbered andduly signed.

• In case of an Authorized signatory, please submit an authorization letter from theDirectors of the Fund.

• The application in Form A along with all the necessary information as enumerated above will be addressed to The DGM, Division of Funds-Venture Capital, Investment Management Department, and forwarded to our T&A Division, SEBI, Plot No. C4-A, “G’ Block, Bandra Kurla Complex, Bandra (East), Mumbai – 400051. Such applications will be submitted along with the demand draft of US $ 5000 towards application fees paid infavour of SEBI, Mumbai.

FIRST SCHEDULE FORM A

SECURITIES AND EXCHANGE BOARD OF INDIA (FOREIGN VENTURE CAPITAL INVESTORS) REGULATIONS, 2000

(REGULATION 3)

APPLICATION FORM FOR GRANT OF CERTIFICATE OF REGISTRATION AS FOREIGN VENTURE CAPITAL INVESTOR WITH THE SECURITIES AND EXCHANGE BOARD OF INDIA

SECURITIES AND EXCHANGE BOARD OF INDIA Plot No. C4-A, “G’ BLOCK, BANDRA KURLA COMPLEX,

BANDRA (EAST), MUMBAI – 400051 INDIA

1. Name, address, telephone no., telex no. and fax no. of the applicant. In case the applicant has a representative office in India, the particulars may also be given for that office.

2. Please indicate whether the applicant belongs to any one or more of the followingcategories:

Pension Fund, Mutual Fund, Investment Trust, Investment company, Investment trust,Investment partnership, Asset Management Company, Investment manager,Investment Management Company, Endowment fund, University fund, Charitableinstitutions or any other investment vehicle incorporated and established outside India

3. a) The date and place of incorporation of the applicant. (Details of statute under which incorporated).

b) Brief description of the principal activities of the applicant and the year ofcommencement of such activities.

c) Brief description of the group, if any, to which the applicant belongs.

4. Whether any of the following documents are submitted?

i. Copy of certificate of registration with home regulator; or ii. Copy of income tax return filed in the home country; or iii. Copy of bankers certificate fair track record of the applicant

5. Please also state whether there has been any instance of violation or non-adherence to the securities laws, code of ethics/conduct, code of business rules, for which theapplicant, or its parent/ holding company or affiliate may have been subjected to economic, or criminal liability or suspended from carrying out its operations, or the

registration has been revoked, temporarily or permanently. If no, submit an undertaking.

6. Please indicate the names of the clients on whose behalf you propose to invest in India.

7. Please indicate the manner in which you propose to conduct your investments in Indiai.e. whether through an establishment in India or through any other office outside India. Please give details, and also the name of the contact person/compliance officer.

8. Name and address of the designated bank branch in India through whom investment is proposed to be made.

9. a) Name, address, telephone no., telex no., and fax no. of the domestic custodian. Please also present the background information on the custodian, including volume ofbusiness handled, organisational infrastructure and the number of investmentcompanies for which the domestic custodian is acting, or has acted, as custodian.

b) Particulars of the agreement entered into with the domestic custodian.

We hereby agree and declare that the information supplied in the application, including the attachment sheets, is complete and true.

AND we further agree that we will immediately notify the Securities and Exchange Board of India of any change in the information provided in the application.

We further agree that we shall comply with the provisions of the Act, and regulations issued thereunder and all other relevant laws.

We further agree that as a condition of grant of certificate of registration, we shall abide by such operational instructions/ directives as may be issued by Securities and Exchange Board of India under the provisions of the Act from time to time.

For and on behalf of_____________________________________ (Name of the applicant)

Authorised Signatory ___________________ ___________________ (Name) (Signature)

Date:

Place:

Note:

1. Securities and Exchange Board of India (SEBI) reserves the right to call for any further information from the applicant regarding his application.

2. Applications, superscribed "Application for Registration of Foreign Venture Capital Investors ", should be submitted in duplicate, in sealed envelopes, at Securities and Exchange Board of India's office.

Documents to be enclosed with the application:

a. Documents to support registration or regulation by a Securities Commission and / or Self Regulatory Organisation, or any other appropriate regulatory/registering authority or

b. Copy of income tax return filed in the home country; or

c. Copy of bankers certificate for fair track record of the applicant

PANKAJ SAHAI

S M O O T H R I D E T O

VENTURE CAPITAL

How to Get VC Funding for Your Business


Have you got a great business idea but not enough money to translate into a reality? Have you got a small ongoing venture that can grow truly big if only you had the money? Is your venture at too early a stage such that banks won’t fund you? In all such cases, you can grow your venture, create immense wealth and realise all your entrepreneurial dreams by using venture capital to fund your business.

This is the first comprehensive handbook of venture capital funding for Indian entrepreneurs. It deals with the whole gamut of issues related to the complex, multi-dimensional subject of venture capital in a simple and engaging manner. Using first person narrative, it explains lucidly all the concepts and intricacies of the venture capital raising process and guides the entrepreneur step-by-step,revealing the secrets of success at every stage of the process:

How is venture capital different from other sources of financing? How does the VC make money by investing in my business? How should I create my business plan to present to the VC? How will the VC value my business? How should I negotiate with the VC? How can I protect my interests once a VC funds my business? What legal agreements will I have to sign with the VC? How and when will the VC exit from my business? Would I have to pay him to do so?

This authoritative handbook is a must for ambitious entrepreneurs, business managers, management consultants, business advisers and finance professionals alike.

Rs. 495 www.visionbooksindia.com

PANKAJ SAHAI is a New Delhi based management consultant, entrepreneur coach, mentor and adviser. He is the founder of VentureAhead.com, an entrepreneur support and coaching portal, an enabling marketplace for ventures in need of strategic capital and partners. Previously, he worked, in responsible positions in India and overseas, with multinationals like Price Waterhouse, Ernst & Young, Schlumberger and Citibank, before becoming part of the core entrepreneurial team of shareholder-directors at IIS Infotech Ltd, a software services start-up, which was subsequently sold to FI Group Plc. (now Steria–Xansa). Pankaj Sahai is a Chartered Accountant (India) and a Chartered Management Accountant (United Kingdom).

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INVESTMENT

PANKAJ SAHAI is a management consultant, entrepreneur

coach, mentor and adviser. He is an entrepreneurial manage-

ment professional possessing the repertoire of skills to start,

grow and exit business ventures. He works through a network

of professional relationships, and uses his hands-on entrepre-

neurial experience of start-ups, financial and legal expertise,

abiding interest in HR and psychology, knowledge of venture

mechanics and understanding of the sweat and tears of entre-

preneurship, to provide professional advisory services to ven-

tures at various stages of growth.

Previously, he worked in responsible positions, in India and

overseas with multinationals like Price Waterhouse, Ernst &

Young, Schlumberger and Citibank before moving into the en-

trepreneurship domain by joining the core management team of

shareholder-directors at IIS Infotech Ltd., a software services

start-up which was subsequently sold to FI Group Plc (now

Steria-Xansa). After exiting, he founded VentureAhead.com, an

entrepreneur support and coach portal, an enabling marketplace

for ventures in need of strategic capital and partners. He is also

the founder of VentureFeedback.com, an online surveys and

tests portal which enables small businesses and others to con-

duct market and HR surveys and tests conveniently and eco-

nomically.

He is a Chartered Accountant (India) and a Chartered Man-

agement Accountant (United Kingdom). Before earning his

professional qualifications, he did his schooling from St.

Columba’s High School and then studied at Shri Ram College

of Commerce and obtained the Bachelor of Commerce (Hon’s.)

degree from Delhi University. He lives in New Delhi. He may

be contacted at [email protected] or +91 98110 21090.

www.visionbooksindia.com

Disclaimer

This book contains the author’s subjective opinion and views about the

subject matter under consideration. It is not intended to be a substitute for

professional advice. The readers are advised to seek definitive professional

advice suitable for their specific needs before acting on the views ex-

pressed in this book. The author and publisher cannot be held responsible

for any loss incurred as a result of specific investment or planning or other

decisions made by the reader as a result of reliance placed on the views

and opinions expressed in this book.

ISBN 10: 81-7094-748-0

ISBN 13: 978-81-7094- 748-6

© Pankaj Sahai, 2010

ALL RIGHTS RESERVED. No part of this publication may be reproduced,

stored in a retrieval system, or transmitted by any means, electronic,

mechanical, photocopying, recording, or otherwise, without the prior

written permission of the publisher and the copyright holder.

First Published in 2010 by

Vision Books Pvt. Ltd.

(Incorporating Orient Paperbacks and CARING Imprints)

24 Feroze Gandhi Road, Lajpat Nagar-III

New Delhi-110024, India.

Phone: (+91-11) 2983 6470

Fax: (+91-11) 2983 6490

e-mail: [email protected]

Cover Design by hutchdesign.org

Cover @ Vision Book Pvt. Ltd.

Printed at

Rashtra Rachna Printers

C-88, Ganesh Nagar, Pandav Nagar Complex

Delhi 110092, India.


PPPPANKAJ ANKAJ ANKAJ ANKAJ SSSSAHAIAHAIAHAIAHAI

This book is dedicated to my parents,

Late B. M. Sahai, “the wise one” and

Shakuntla Sahai, “the super mom”

For teaching me by example to how to navigate life happily,

carrying family and friends alongside.

Contents 5

}

Contents

Preface 7

G r o u n d Z e r o

Venture Capital Raising Plan 11

P a r t I

How the Venture Capital Industry Works How the Venture Capital Industry Works How the Venture Capital Industry Works How the Venture Capital Industry Works

1. What is Venture Capital? 19

2. How the Venture Capital Industry Operates 27

3. How VCs Make Money 33

4. Are All VCs the Same? 42

5. The VC Investment Process 51

P a r t I I

Assessing Your Readiness for Venture CapitalAssessing Your Readiness for Venture CapitalAssessing Your Readiness for Venture CapitalAssessing Your Readiness for Venture Capital

6. Do I Need Venture Capital? 59

7. Getting Over the Fear of the VC 64

8. To What Kind of Business do VCs Provide Money? 70

9. The Process of Raising Venture Capital 74

P a r t I I I

PreparPreparPreparPreparing for the VCing for the VCing for the VCing for the VC

10. Hiring Advisers 83

11. Doing an Internal Review of Your Business 92

6 Smooth Ride to Venture Capital

12. Doing a Growth Audit 105

13. Determining the Strategic Direction of Your Business 111

14. Building Your Board of Directors and Advisory Board 130

15. Understanding Ownership, Dilution and Rounds of Financing 139

16. Determining the Valuation of Your Business for VC Funding 155

17. Creating Your Funding Plan 171

18. Creating Your Business Plan 175

19. Creating the Elevator Pitch and the VC Presentation 210

P a r t I V

Negotiating and Structuring the DealNegotiating and Structuring the DealNegotiating and Structuring the DealNegotiating and Structuring the Deal

20. Selecting and Meeting the VC 219

21. Preparing to Negotiate with the VC 228

22. Negotiating the Term Sheet 235

23. Managing the Due Diligence 263

24. Closing the Deal 270

P a r t V

Managing the VC RelationshipManaging the VC RelationshipManaging the VC RelationshipManaging the VC Relationship

25. Getting Along with the VC 279

26. Exiting Profitably 291

P a r t V i

AppendicesAppendicesAppendicesAppendices

Appendix 1: History of Venture Capital in the US 301

Appendix 2: Venture Capital Industry in India 305

Appendix 3: Corporate Venture Capital 310

Appendix 4: Glossary of VC Terminology and Slang 314

Appendix 5: Recommended Reading 330

Index 334

Download - How to register as a foreign venture capital investor in india

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