Sebi amends AIF norms, provides start-up definition

NEW DELHI: Markets regulator Sebi has rationalised the definition of venture capital undertaking in order to give flexibility to venture capital funds registered under alternative investment funds (AIFs) in making investments.

The regulator has amended alternative investment funds (AIF) norms to provide a definition of 'start-up' as specified by the central government for the purpose of investment by Angel Funds, according to a notification issued on May 5.

"Start-up means a private limited company or a limited liability partnership which fulfils the criteria for startup as specified by the Department of Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, Government of India.... or such other policy of the central government issued in this regard from time to time," Sebi said.

As per the notification, Sebi has removed the list of restricted activities or sectors from the definition of venture capital undertaking. Now, venture capital undertaking means a domestic company which is not listed on a recognised stock exchange at the time of making investments.

Earlier, venture capital undertaking means a domestic company, which is engaged in the business for providing services, production or manufacture of things and does not include activities or sectors -- non-banking financial companies; gold financing; activities not permitted under industrial policy of Government of India.

Further, the regulator has prescribed a limit for investment by different categories of AIFs in an investee company.

The regulator said, "Category I and II of alternative investment funds shall invest not more than 25 per cent of the investable funds in an investee company directly or through investment in the units of other alternative investment funds."

For Category III AIFs, the limit has been capped at 10 per cent.

Earlier, an AIF could invest more than 25 per cent directly or indirectly, in an investee company.

The regulator has also provided clarity on scope of responsibilities of managers and members of investment committees; and prescribed a code of conduct for AIF, trustee and directors of the trustee/designated partners/directors of the AIF, manager, members of investment committee and key management personnel of AIF and manager.

This comes after the board of Sebi-approved amendment in this regard in March.