Submit your article via our online form Click here Note* we only accept original articles, we do not accept articles that have already been published on other websites. For more information, please contact: editor@legalserviceindia.com While it is common for most venture capital transactions to involve an exit via an IPO, a successful exit from the public market depends largely on external factors such as market conditions and the regulatory and political climate that are beyond the control of outgoing investors. This gives a very tight deadline within which the output can be carried out. Exits from the public market are highly regulated, and managing and implementing an IPO is a lengthy process that typically takes a year. It is also a pro-motorized process, with the Issue of Capital and Disclosure Requirements (SEBI) Regulation 2018 (ICDR Regulation) imposing several conditions for admission to the issuer, such as net fixed assets of INR 30 million, operating profits of INR 150 million and a net asset test of at least INR 10 million for each of the three years prior to the IPO. Other major challenges include: (a) in the case of an offer for sale to the public, the ICDR rules require a commitment to participate sellers for a period of one year before the draft offer document is submitted to SEBI; and (b) the post-issue capital should represent a minimum contribution from promoters of 20 per cent and should be committed for a period of three years. The conditions of an investment are often linked to the success of due diligence on financial, commercial and technical aspects. Article 3(4) of the FIA Regulation classified the types of AIFs under which an entity may register and obtain a registration certificate. A Category I AIF is intended for investments in start-ups, start-ups, social enterprises, small and medium-sized enterprises (SMEs) and other infrastructure. It states: Unlike private equity, venture capital firms generally do not invest in the listed area.
An acquisition of control or 25% or more of the voting rights of a listed company would trigger an obligation to make a mandatory bid. Financial investors are also generally wary of not being classified as “promoters” of a publicly traded company, as this has legal and regulatory implications. With its reforms, the government has recognized the benefits of private equity and venture capital investments in India. As part of its objective to facilitate the investment process, it has introduced reforms essential to the growth of the AIF as one of the preferred forms of investment. These reforms include: (1) exempting the AIF from the requirement to peg shares in an IPO; (2) further clarify the classification of AIFs in the tax field; and (3) where the AIF fund manager is controlled and owned domestically, so that foreign capital received for the AIF can be classified as domestic capital, meaning that when investing in Indian companies, the AIF is not required to comply with pricing guidelines and sector caps in accordance with FDI standards. In the past, the advisor of a venture capital fund and the lawyer of a start-up company may have negotiated terms. Groups associated with the venture capital industry have attempted to create standardized documents. This is the issue of shares of share capital or debt securities at a reference amount determined on the basis of the valuation of the start-up, the condition precedent to the completion of the operation or the conditions to be realized within the agreed period after the date of completion, as well as the representation rates, warranties and indemnities obtained by due diligence or otherwise. etc. An LLP protects members` assets from imminent liability because it is a separate legal entity, which is not the case with a trust. The main disadvantage of the LLP is that disclosure must be made, which is not the case with trusts.
The liquidation of an LLP must comply with the LLP Act 2008. These factors suggest that the compliance costs of LLPs are higher than those of trusts. Currently, India has one of the fastest growing economies in the world. The strong demographic shift is driven by the country`s rapidly growing young workforce. Continuous progress in Indian government policy has led to increased competitiveness and made the country more attractive to foreign investors. In addition, effective structural reforms such as the introduction of the Insolvency and Bankruptcy Code and the Goods and Services Tax have also had a profound impact on economic growth. As a result, permanent capital is coming to India in the form of foreign direct investment (FDI) from around the world, making it an attractive investment destination. There is also the Advisory Board, whose task is to provide sound advice to the fund manager and the fund IC on the basis of information and reports provided to it by the fund manager.
The Advisory Board generally makes recommendations to the Investment Manager and the IC on conflicts of interest, advice on thresholds in accordance with fund documents, investment risk management, corporate governance and compliance aspects. In this type of financing, start-ups are usually funded by angel investors and/or venture capitalists or private equity investors. External commercial bonds (ECBs) provided by non-resident lenders in the form of buyer credits, supplier loans or securitised instruments also serve as a source of funding for a start-up. The ECB is prevented from obtaining loans or investments on the capital market in addition to acquiring a company in India. Key sectors attracting venture capital investment to India include information technology, e-commerce, healthcare, consumers, financial services (including mobile wallets and digital payment solutions), education and hospitality. The internet sector – or technology sector – has dominated India`s venture capital market over the past 10 years, reflecting India`s strong inclination towards industry. Despite the Covid-19 pandemic, India`s startup ecosystem remains among the top five in the world, with 12 additional companies achieving unicorn status in 2020, making a total of 37 (behind the US and China). The continued growth of the start-up ecosystem in India has led to the creation of over 3 million direct and indirect jobs over the past eight years.