SEBI (Alternative Investment Fund) (Third Amendement) Regulation, 2012 On July 20, 2024

SEBI's New Chapter III-D: Migrated Venture Capital Funds Explained
Introduction
SEBI, vide Notification dated July 11, 2024, has amended the SEBI (Alternative Investment Funds)
Regulations, 2012, whereby a new Chapter III-D regarding ‘Migrated Venture Capital Funds’ has been
introduced.
A 'Migrated Venture Capital Fund' refers to a fund previously registered under the SEBI (Venture
Capital Funds) Regulations, 1996, which has subsequently re-registered under the current regulations
as a sub-category of Venture Capital Fund within Category I - Alternative Investment Fund. The
introduction of these regulations aims to facilitate and encourage Venture Capital Funds, previously
registered under the SEBI (Venture Capital Funds) Regulations, 1996, to transition and be governed
by the new regulations, thereby being classified as a sub-category of Venture Capital Fund under
Category I - Alternative Investment Fund.
The key provisions in this new Chapter III-D include (a) defining the term ‘migrated venture capital
fund’, (b) outlining its eligibility criteria, (c) establishing the procedure for granting a certificate of
registration, (d) specifying investment conditions and criteria, (e) tenure, (f) listing requirements
and (g) record maintenance obligations.
Eligibility criteria for granting a certificate as a Migrated Venture Capital Fund

The Board must consider the following eligibility conditions for the grant of certificate as ‘Migrated
Venture Capital Fund’:
1. The applicant has a certificate of registration as a Venture Capital Fund under SEBI (VCF)
Regulations;
2. The applicant is a fit and proper person;
3. The applicant has furnished the required information as specified by the Board;
4. The applicant has no pending investor complaints about non-receipt of funds or securities for
any of its schemes whose assets are not liquidated on the date of application;
5. No scheme launched by the applicant has an investment from an investor of less than Rs 5 lakh.
6. Each scheme launched by the applicant has a firm commitment from the investors for a
contribution of an amount not below Rs 5 crores before the start of operations by the applicant.
Restrictions on public offers and private placement requirements for

Migrated Venture Capital Fund
A migrated venture capital fund is prohibited from issuing any document or making an advertisement
that invites offers from the public for the subscription or purchase of any of its units. It can receive
monies for investment only through the private placement of its units. Further, the migrated venture
capital fund must:
1. issue a placement memorandum containing details of the terms and conditions under which
funds are proposed to be raised from investors or
2. enter into a contribution or subscription agreement with investors specifying the terms and
conditions for raising funds.
Also, the migrated venture capital fund must file a copy of the placement memorandum, or a
copy of the contribution or subscription agreement entered into with investors with the Board,
along with a report of money collected from the investors, for informational purposes.
Investment conditions for Migrated Venture Capital Fund

The investments by the migrated venture capital fund must be subject to the following conditions –
1. the migrated venture capital fund must not invest more than 25% corpus of the fund in a single
venture capital undertaking.
2. the migrated venture capital fund may invest in securities of companies incorporated outside
India subject to such conditions or guidelines that may be issued by RBI and the Board from
time to time.
3. The migrated venture capital fund must not invest in the associated companies and must invest
according to the prescribed criteria.
Investment criteria for Migrated Venture Capital Fund

The migrated venture capital fund must invest as below –
1. at least 2/3rdof the investable funds must be invested in unlisted equity shares or equity-linked
instruments of venture capital undertaking
2. not more than 1/3rdof the investable funds may be invested by way of
 subscription to the IPO of a venture capital undertaking whose shares are proposed to be
listed
 investment in debt or debt instrument of a venture capital undertaking in which venture

capital fund has already invested by way of equity
 preferential allotment of equity shares of a listed company subject to a lock-in-period of one

year,
 investment in equity shares or equity-linked instruments of a financially weak company or a

sick industrial company whose shares are listed
 Investment in special purpose vehicles (SPV) created by a venture capital fund for the purpose
of facilitating or promoting investment.
Tenure of a migrated venture capital fund

The tenure of a migrated venture capital fund must be calculated according to the Board’s
specifications. An extension of up to 2 years may be allowed with the approval of 2/3rds of the unit-
holders by investment value. If unit-holder consent is not obtained or the extended tenure expires,
the migrated venture capital fund or scheme must be wound up.
Listing Requirements and Record Maintenance for migrated venture capital
fund
No migrated venture capital fund must be entitled to get its units listed on any recognised stock
exchange till the expiry of 3 years from the date of issuance of units by the migrated venture capital
fund. Further, the migrated venture capital fund must maintain its records for a period of 8 years
after the winding up of the fund.
Conclusion
These amendments mark a significant step towards providing flexibility and regulatory clarity for
migrated venture capital funds. They facilitate a smooth and cost-effective migration from VCF to AIF
Regulations, ensuring that certain flexibilities under VCF regulations continue to apply to migrated
VCFs to avoid any adverse impact on investment activities. In case, existing venture capital funds do
not get re-registered under these new Regulations, they shall face increased scrutiny and reporting
requirements. Further, no regulatory costs in the form of re-registration or migration fees will be
levied on the VCFs for this migration. However, the application fee may still be leviable.
*****

SEBI (Alternative Investment Fund) (Third Amendement) Regulation, 2012 On July 20, 2024

Uploaded by

Copyright:

Available Formats

SEBI (Alternative Investment Fund) (Third Amendement) Regulation, 2012 On July 20, 2024

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

SEBI (Alternative Investment Fund) (Third Amendement) Regulation, 2012 On July 20, 2024

Uploaded by

Copyright:

Available Formats

SEBI's New Chapter III-D: Migrated Venture Capital Funds Explained

Eligibility criteria for granting a certificate as a Migrated Venture Capital Fund

2. The applicant is a fit and proper person;

Restrictions on public offers and private placement requirements for

Investment conditions for Migrated Venture Capital Fund

Investment criteria for Migrated Venture Capital Fund

 investment in debt or debt instrument of a venture capital undertaking in which venture

 preferential allotment of equity shares of a listed company subject to a lock-in-period of one

 investment in equity shares or equity-linked instruments of a financially weak company or a

Tenure of a migrated venture capital fund

You might also like