In a major reform to allow Indian companies headquartered in foreign nations to receive funds through Indian VC firms, SEBI is now looking to relax regulations (via VCCircle) ,thus allowing venture capitalists and private equity firms registered in India to invest up to 25% of their overall fund in the overseas incorporated companies, given that the company’s back-end operation is in India.
Many of the biggest Indian new-age companies have their main company incorporated outside of India, to do away with the country’ complex regulations. Biggest examples of such companies include Flipkart, Quickr, FreshDesk etc.
As per Venture Capital Fund’s Regulations 1996., VC firms can only invest up to 10% of their money bank in companies incorporated overseas. RBI had allowed such investments last December but SEBI is yet to come with a detailed provision enabling such investments.
Now, in a bid to make investment related regulations for VC firms clearer, SEBI is ploying to allow registered VC firms to invest as much as 25% of their money pool into overseas incorporated companies. There’s however just one additional condition, that those investments should be within the overall aggregate limit of $500 million.
SEBI’s consultation paper stated:
Sebi has received representations from the industry that there has been a major shift of Indian entrepreneurs outside India. Many Indian entrepreneurs have been setting up their headquarters outside India with back end operations and/ or research and developments being undertaken in India. There is a need to allow higher overseas investment by VCFs
As per SEBI’s observations, such investments would provide opportunities to the funds for better returns globally and shall generate indirect benefits to India through bringing in of non-debt creating foreign capital resources, technology upgrade, skill enhancement, new employment, and many more such opportunities.
Moreover, if these regulations go through, these would go a long way in bringing India-born companies back within Indian regulations, thus further helping boost India’s foreign capital resources.This would also encourage young Indian startups to go for company incorporation within the country itself, instead of an off-shore incorporation.