how to register a venture capital fund in india

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http://www.sebi.gov.in/vc/vcregistration.html[12-10-2010 14:01:58] Home Back SECURITIES AND EXCHANGE BOARD OF INDIA INVESTMENT MANAGEMENT DEPARTMENT Division of Funds – Venture Capital ------------------------------------------------------------------------------------------------------- HOW TO GET REGISTERED AS A VENTURE CAPITAL FUND The Applicant for grant of registration as a Venture Capital Fund under SEBI (Venture Capital Funds) Regulations, 1996 should make an Application to SEBI in Form A along with all the necessary documents. Generally on receipt of Application, the applicant will receive a reply from SEBI within 21 working days. The time taken for registration however, depends on how fast the requirements are complied with by the applicant. The applicant is advised to go through the SEBI (Venture Capital Funds) Regulations, 1996 for checking the eligibility criteria and such other details which may help expedite the registration process. As an integral part of the registration process, the applicant will submit: 1. Form A along with the Application fees of Rs.1,00,000 and documents as under: a) Copy of Memorandum and Articles of Association in case the applicant is set up in the form of a Company (Reg. 4(a) ) or Copy of Registered Trust Deed in case the applicant is set up in the form of a trust (Reg. 4(b) ) or Copy of Main objective of constitution in case the applicant is set up in the form of a body corporate. (Reg 4(c) ) b) Copy of Investment Management Agreement (only if applicable). Apart from the above documents/declarations as required under the Form A, the applicant will also be required to submit the details/information as under: 2. Details of the Sponsor/Settlor. 2.1 Write up on the activities of the Sponsor/Settlor, its shareholding pattern/profile of the directors. Incase of an individual, please state whether the individual is a director/employee of any entity registered with SEBI. 2.2 State whether, the Sponsor/Settlor has floated venture capital funds previously, which are registered with SEBI. If so details. Also state whether they (Sponsor

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Page 1: How to register a venture capital fund in india

http://www.sebi.gov.in/vc/vcregistration.html[12-10-2010 14:01:58]

Home Back

SECURITIES AND EXCHANGE BOARD OF INDIA

INVESTMENT MANAGEMENT DEPARTMENT

Division of Funds – Venture Capital-------------------------------------------------------------------------------------------------------

HOW TO GET REGISTERED AS A VENTURE CAPITAL FUND

The Applicant for grant of registration as a Venture Capital Fund under SEBI (VentureCapital Funds) Regulations, 1996 should make an Application to SEBI in Form A alongwith all the necessary documents.

Generally on receipt of Application, the applicant will receive a reply from SEBI within 21working days. The time taken for registration however, depends on how fast therequirements are complied with by the applicant.

The applicant is advised to go through the SEBI (Venture Capital Funds) Regulations,1996 for checking the eligibility criteria and such other details which may help expeditethe registration process. As an integral part of the registration process, the applicant willsubmit:

1. Form A along with the Application fees of Rs.1,00,000 and documents as under:

a) Copy of Memorandum and Articles of Association in case the applicant is set upin the form of a Company (Reg. 4(a) )

or

Copy of Registered Trust Deed in case the applicant is set up in the form of atrust (Reg. 4(b) )

or

Copy of Main objective of constitution in case the applicant is set up in the formof a body corporate. (Reg 4(c) )

b) Copy of Investment Management Agreement (only if applicable).

Apart from the above documents/declarations as required under the Form A, theapplicant will also be required to submit the details/information as under:

2. Details of the Sponsor/Settlor.

2.1 Write up on the activities of the Sponsor/Settlor, its shareholding pattern/profile ofthe directors. Incase of an individual, please state whether the individual is adirector/employee of any entity registered with SEBI.

2.2 State whether, the Sponsor/Settlor has floated venture capital funds previously,which are registered with SEBI. If so details. Also state whether they (Sponsor

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or their directors) were refused a certificate by the Board or its certificate hasbeen suspended under regulation 30 or cancelled under regulation 31.

2.3 State whether the Sponsor/Settlor is registered with SEBI, RBI or any otherregulatory authority in any capacity along with the details of its registration.

2.4 State whether any of its group companies are registered with SEBI, RBI or anyregulatory authority along with the details of its registration.

2.5 State whether Sponsor/Settlor or its holding company is listed on any of therecognized stock exchanges in India. If so details thereof.

2.6 State whether the Sponsor/Settlor or its directors are involved in any litigationconnected with the securities market and any order passed against them forviolation of securities laws. If so, details.

3. Details of the Trustees/Trustee Company

3.1 Write up on the activities of the Trustee Company/ Profile of Trustees.

3.2 Shareholding pattern and the write up on profile of the Directors

3.3 State whether the Trustee Company is registered with SEBI, RBI or any otherregulatory authority in any capacity along with the details of its registration.

4. Details of the Investment Manager/Investment Advisor/Asset ManagementCompany (AMC).

4.1 Write up on the activities of the Investment Manager/Investment Advisor/AMC.

4.2 Shareholding pattern along with the profile of the Directors.

4.3 State whether the Investment Manager/Advisor/AMC is registered with SEBI,RBI or any other regulatory authority in any capacity, along with the details.

4.4 Details of Key Personnel/Management Team. Also state whether they are alsothe employees of any SEBI registered entity. If so details.

5. State whether, the applicant is registered with SEBI in any capacity or has applied forregistration in any other capacity with SEBI.

6. List of all the associates registered with SEBI along with their Registration No. Please,refer to Reg. 2(aa) of SEBI (Venture Capital Funds) Regulations, 1996 for thedefinition of the “associate company”.

7. Investment Strategy :

Disclose in detail the investment strategy of the fund (Reg. 12 (a)).

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Investment strategy should disclose the investment style or pattern, preferredsectors/industries for investment, proposed corpus, the class of investors, life cycle ofthe fund and any other information.

8. Declarations to be submitted by the applicant:

8.1 An undertaking under Regulation 11(3) of SEBI (Venture Capital Funds)Regulations, 1996.

8.2 Undertaking under Third Schedule to SEBI (Venture Capital Funds) Regulations,1996.

8.3 Declaration in respect of “Fit and Proper Person” criteria as per regulation 4 A ofthe SEBI (Venture Capital Funds) Regulation. 1996 and as specified underSchedule II of the Securities and Exchange Board of India (Intermediaries)Regulation 2008.

Grant of Certificate of Registration

Once all requirements including the Fit and Proper Person criteria have been compliedwith and on intimation from SEBI for payment of Registration fees of Rs.5,00,000 as perSecond Schedule to Regulations, SEBI will grant the applicant, certification ofregistration as a SEBI Registered Venture Capital Fund.

Please note the following::

• “The applicant” means the entity seeking registration as a Venture Capital Fund

• Application which is incomplete or without the necessary documents/information/declarations would not be accepted and would be treated as not filed.However, an intimation to this effect will be addressed to the applicant within areasonable 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 numberedand duly 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 enumeratedabove will be addressed to The DGM, Division of Funds-Venture Capital, InvestmentManagement Department, and forwarded to our T&A Division, SEBI Plot No. C4-A,“G’ Block, Bandra Kurla Complex, Bandra (East), Mumbai – 400051. Suchapplications will be submitted along with the demand draft of Rs.1,00,000 towardsapplication fees paid in favour of SEBI, Mumbai.

---------------------------X----------------------------FIRST SCHEDULE – FORMS

FORM A

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SECURITIES AND EXCHANGE BOARD OF INDIA (VENTURE CAPITAL FUNDS) REGULATIONS, 1996

(SEE REGULATION 3)

APPLICATION FOR GRANT OF CERTIFICATE OF REGISTRATION AS VENTURE CAPITAL FUND

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

BANDRA (EAST), MUMBAI – 400051 INDIA

INSTRUCTIONS:

i. This form is meant for use by the company or trust (hereinafter referred to as the applicant)for application for grant of certificate of registration as venture capital fund.

ii. The applicant should complete this form, and submit it, along with all supportingdocuments to the Board at its head office at Mumbai.

iii. This application form should be filled in accordance with these regulations.

iv. The application shall be considered by the Board provided it is complete in all respects.

v. All answers must be legible.

vi. Information which needs to be supplied in more detail may be given on separate sheetswhich should be attached to the application form.

vii. The application must be signed and all signatures must be original.

viii. The application must be accompanied by an application fee as specified the SecondSchedule to these regulations.

1. Name, address of the registered office, address for correspondence, telephonenumber(s), fax number(s), telex number(s) of the applicant and the name of thecontact person.

2. Please indicate to which of the following categories the applicant belongs.

(i) a company established under the Companies Act, 1956 (1 of 1956)

(ii) a trust set up under the Indian Trusts Act, 1882 (2 of 1882)

3. Date and place of incorporation or establishment and date of commencement ofbusiness (enclose certificate of incorporation, memorandum and articles ofassociation or trust deed in terms of which incorporated or established).

4. (a) Details of members of the Board of Trustees or directors of the trustee company,as the case may be, in case the applicant has been set up as a trust.

(b) Details of members of the Board of Directors of the venture capital fund in casethe applicant has been set up as a company.

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5. Please state whether the applicant, his partner, director or principal officer isinvolved in any litigation connected with the securities market which has an adversebearing on the business of the applicant; or has at any time been convicted for anymoral turpitude or at any time has been found guilty of any economic offence. Incase the applicant is a trust, the above information should be provided for themembers of the Board of Trustees or of the above mentioned persons connectedwith the Trustee Company.

If yes, the details thereof.

6. 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, forwhich the applicant, or its parent or holding company or affiliate may have beensubject to economic, or criminal, liability, or suspended from carrying out itsoperations, or the registration revoked temporarily.

7. Details of asset management company, if any. (enclose copy of agreement with theasset management company).

8. Declaration statement (to be given as below). 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 shall notify the Securities and Exchange Board ofIndia immediately any change in the information provided in the application.

We further agree that we shall comply with, and be bound by the Securities andExchange Board of India Act, 1992, and the Securities and Exchange Board of India(Venture Capital Fund) Regulations, 1996, and Government of India guidelines /instructions as may be announced by the Securities and Exchange Board of Indiafrom time to time.

We further agree that as a condition of registration, we shall abide by suchoperational instructions/directives as may be issued by the Securities and ExchangeBoard of India from time to time.

For and on behalf of................................... (Name of the applicant)

Authorised signatory .................. ................ (Name) (Signature)

Date: Place:

Disclaimer | Acknowledgement All text and media on these pages are © Copyright, Securities and Exchange Board of India. All rights reserved

Page 6: How to register a venture capital fund in india

PANKAJ SAHAI

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

VENTURE CAPITAL

How to Get VC Funding for Your Business

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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Page 7: How to register a venture capital fund in india

PANKAJ SAHAI

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

VENTURE CAPITAL

How to Get VC Funding for Your Business

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).

SMO

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Page 8: How to register a venture capital fund in india

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.

Page 9: How to register a venture capital fund in india
Page 10: How to register a venture capital fund in india

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.

Page 11: How to register a venture capital fund in india

How to Get VC Funding for Your Business

PPPPANKAJ ANKAJ ANKAJ ANKAJ SSSSAHAIAHAIAHAIAHAI

Page 12: How to register a venture capital fund in india

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.

Page 13: How to register a venture capital fund in india

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

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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