14 May 2019

By Yash Choudhary (ASC Solicitors and Advocate’s)

Investment by Foreign Venture Capital Investors (FVCI), scheduled with SEBI under the provisions of Schedule 6 of the Principal Regulations. In order to promote liberalize and rationalize the investment system for FVCIs and to provide an incentive to foreign investor in the startups. The regulatory provisions has been assessed by the Government of India in amendments to Schedule 6 of Foreign Exchange Management (Transfer or Issue of security by a person resident outside India) Regulations, 2000, through Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Third Amendment) Regulations, 2016.

Foreign venture capital investors (FVCI) will be permitted to invest in 10 sectors. These investors will be allowed to invest in equity or equity linked instrument or debt instrument issued by an Indian company whose shares are not listed on a recognized stock exchange.

The sectors include:

  • biotechnology
  • IT related to hardware and software development
  • nanotechnology
  • seed research and development
  • research and development of new chemical entities in pharma
  • dairy industry
  • poultry industry
  • production of biofuels
  • hotel and convention centres with a capacity of more than 3,000
  • infrastructure segment

There will be no constraint on transmit of any security/instrument held by the FVCI to any person resident in or outside India. A startup receiving investment directly from a registered FVCI will be required to report the investment in form FC-GPR. The RBI mentions that changes are being made to the e-biz portal and separate instructions will be provided on completion, enabling reporting online.

The notification defines a startup as an entity that has been incorporated or registered in India for less than 5 years, with an annual turnover under Rs 25 crore in any preceding financial year and working towards “innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.”

Bibliography

For educational use only.