Foreign venture capital entities can now invest in unlisted Indian companies without Reserve Bank of India approval.
The venture capital firm will, however, have to be registered with market regulator SEBI. The investment can be made in an Indian company in 10 specific sectors or in any start-up.
The central bank on Thursday amended the regulations governing foreign venture capital investors (FVCI) in order to further liberalise and rationalise the investment regime and to give a fillip to foreign investment in start-ups.
According to the RBI, the 10 sectors in which SEBI-registered FVCIs can invest without its nod are: biotechnology, IT, nanotechnology, seed research and development, discovery of new chemical entities in pharmaceutical sector, dairy industry, poultry industry, production of bio-fuels, hotel-cum-convention centres with over 3,000 seating capacity, and infrastructure sector. FVCIs can also invest in equity, equity-linked instruments or debt instruments issued by an Indian ‘start-up’ irrespective of the sector in which it is engaged. The RBI said a start-up will mean an entity (private limited company, registered partnership firm or a limited liability partnership) incorporated or registered in India not prior to five years, with an annual turnover not exceeding Rs. 25 crore in any preceding financial year.
These start-ups should be working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property and satisfying certain conditions as given in the Foreign Exchange Management Regulations, 2016.
The RBI also said FVCIs can invest in units of a venture capital fund (VCF) or a Category-I alternative investment fund (AIF) or units of a scheme/fund set up by a VCF or by a Category-I AIF.
In a circular issued to banks authorised to deal in foreign exchange, the RBI said: “In order to further liberalise and rationalise the investment regime for FVCIs and to give a fillip to foreign investment in the start-ups, the extant regulatory provisions have been reviewed, in consultation with the Government of India.”
The consideration for all investments by an FVCI can be paid out of inward remittance from abroad through normal banking channels or out of sale/maturity proceeds of or income generated from investment already made. There will be no restriction on transfer of any security/instrument held by the FVCI to any person resident in or outside India.
