SEBI considers allowing India VC funds to boost overseas exposure
The Securities and Exchange Board of India (SEBI) is to revise rules governing locally-registered VC funds, allowing them to invest up to a quarter of the their capital overseas - provided the companies hold some operations in India.
Funds registered under the 1996 venture capital funds (VCF) regulations can only invest up to 10% of their corpus into overseas companies with a link to India. Since 2012, venture capital vehicles have been registered under the new alternative investment fund system, but they do not yet have specific provisions covering overseas investments.
In a consultation paper the regulator said it had decided to increase the threshold in response to "a major shift of Indian entrepreneurs outside India." SEBI noted that many Indian promoters have been maintaining back office operations in India while moving their headquarters abroad. Examples include e-commerce business Flipkart, classifieds portal Quikr, and ticketing platform freshdesk.
SEBI said it believed more that cross-border investments in India-linked start-ups will generate indirect benefits to the country by bringing in non-debt creating foreign capital resources, technology, skills, and new employments.
The proposal to allow registered funds to commit up to 25% of their capital overseas comes with the caveat that the cumulative size of investments made by all funds does not exceed $500 million. The allocation of investment limits will operate on a "first-come, first-serve" basis. Once a the fund has secured approval for an overseas investment, it must do so within six months or the unused limit will be reallocated.
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