Migrated Venture Capital Funds
Chapter III - D - MIGRATED VENTURE CAPITAL CAPITAL FUNDS
Section 19V. Definitions
For the purposes of this Chapter, certain terms have the meanings specifically assigned to them in this Chapter, unless the context requires otherwise.
These definitions apply only to this Chapter in order to make sure that the provisions are interpreted consistently.
Any related words, variations, or cognate expressions of those defined terms shall also carry the corresponding meaning.
19V(1).
A Migrated venture capital fund is a fund that was originally registered as a Venture Capital Fund under the SEBI (Venture Capital Funds) Regulations, 1996.
It has subsequently obtained registration under the SEBI (Alternative Investment Funds) Regulations.
After migration, it is registered as a sub-category of Venture Capital Fund under Category I Alternative Investment Fund (AIF).
The migration must be carried out in accordance with the provisions of this Chapter.
Post migration , existing Venture Capital Funds registered under the old regulatory framework to continue operating under the current AIF regime.
19V(2)
Investable funds" means the corpus (total funds available) of a scheme of a migrated venture capital fund, after deducting the expenditure for administration and management of the fund.
So , it is the actual amount available for making investments.
Administrative and management expenses are not considered part of the investable funds.
Example:
A migrated venture capital fund has a corpus of ₹100 crore.
It sets aside ₹5 crore for administration and management expenses.
The investable funds will be ₹95 crore, which is the amount available for making investments.
Section 19W. Applicability
19W(1).
The provisions of this Chapter apply only to Migrated Venture Capital Funds and the schemes launched by them.
These provisions do not apply to other categories of Alternative Investment Funds or Venture Capital Funds that have not migrated under this Chapter.
Every scheme launched by a Migrated Venture Capital Fund must also comply with the provisions contained in this Chapter.
The Chapter creates a special regulatory framework exclusively for Migrated Venture Capital Funds.
19W(2).
A Migrated Venture Capital Fund is generally governed by all the provisions of the AIF Regulations.
However, the specific provisions listed in this Chapter are exceptions and will prevail wherever they apply.
SEBI's guidelines and circulars issued under the AIF Regulations also apply to the Migrated Venture Capital Fund, unless they are inconsistent with this Chapter.
These provisions apply not only to the Migrated Venture Capital Fund, but also to its trustee, trustee company, directors, sponsor (if any), manager (if any), and investors.
If there is any conflict between this Chapter and the general AIF Regulations, the provisions of this Chapter will prevail.
The following provisions do not apply to a Migrated Venture Capital Fund:
Regulation 2(1)(p) and 2(1)(w)
Regulation 3(5)
Regulation 4
Regulation 6(2), 6(4) and 6(5)
Regulation 7(2)
Regulations 9 to 16
Regulation 20(11), 20(11A), 20(15), 20(17), 20(18) and 20(19)
Regulation 23(2), 23(3), 23(4) and 23(5)
Regulation 27(2)
Section 19X. Procedure for grant of Certificate
19X(1).
Registration as a migrated venture capital fund is not automatic
A fund seeking to become a migrated venture capital fund must submit an application to the Board (SEBI) for registration.
The application must be made in the manner specified by the Board.
The applicant must follow the procedure, format, and requirements prescribed by SEBI for migration.
19X(2).
The Board (SEBI) shall grant a Certificate of Registration as a:
Category I Alternative Investment Fund – Venture Capital Fund (Migrated Venture Capital Fund) if the applicant satisfies all the prescribed requirements.
Before granting registration, SEBI verifies whether the applicant complies with all the conditions specified in this Chapter of the AIF Regulations.
The certificate is issued only after SEBI is satisfied that all regulatory requirements have been fulfilled.
If the applicant does not meet the prescribed requirements, SEBI may refuse to grant the registration until the deficiencies are addressed.
Section 19Y. Eligibility Criteria
19Y.
Before granting a Certificate of Registration under this Chapter:
The Board (SEBI) shall examine whether the applicant satisfies the prescribed eligibility conditions.
These eligibility conditions are the criteria that an applicant must meet to qualify for registration as a migrated venture capital fund.
SEBI will review each of these conditions before deciding whether to grant the certificate of registration.
Only applicants that satisfy all the prescribed eligibility conditions are eligible to receive the registration certificate.
(a).
The applicant must already hold a valid Certificate of Registration as a Venture Capital Fund under the SEBI (Venture Capital Funds) Regulations, 1996.
This is one of the eligibility conditions for obtaining registration as a Migrated Venture Capital Fund under the AIF Regulations.
Only funds that were registered under the 1996 Venture Capital Fund Regulations are eligible to migrate under this Chapter.
A fund that was never registered under the 1996 Regulations cannot apply as a migrated venture capital fund under this provision.
(b).
The applicant must be a fit and proper person.
(c).
The applicant must furnish all the information required by the Board (SEBI).
The information must be provided in the manner and form specified by SEBI from time to time.
So , the applicant must submit complete, accurate, and up-to-date information as required during the registration process.
If the applicant fails to provide the required information, SEBI may delay or refuse the grant of registration.
(d).
The applicant must not have any pending investor complaints relating to:
The non-receipt of funds or securities for any scheme whose assets have not yet been liquidated under Regulation 24(2) of the SEBI (Venture Capital Funds) Regulations, 1996.
This condition is checked on the date the application for migration is submitted.
The idea is to make sure that the applicant has resolved investor grievances before seeking registration as a Migrated Venture Capital Fund.
If such complaints remain pending, SEBI may refuse or delay the grant of registration until they are resolved.
Example:
A Venture Capital Fund applies for migration under this Chapter.
One investor has not received the proceeds from a scheme that is awaiting liquidation, and the complaint is still pending.
Since the complaint remains unresolved on the date of application, the applicant does not satisfy this eligibility condition.
(e).
No investor in any scheme launched by the applicant can invest less than ₹5 lakh.
₹5 lakh is the minimum investment amount that each investor must contribute to a scheme.
The requirement applies to every investor in every scheme launched by the applicant.
If any investor contributes less than ₹5 lakh, the scheme will not comply with this eligibility condition.
Exception:
The minimum investment requirement of ₹5 lakh does not apply to certain persons connected with the Venture Capital Fund.
The exemption applies to employees, the principal officer, or directors of the Venture Capital Fund.
It also applies to directors of the trustee company or the trustees, where the Venture Capital Fund is established as a trust.
Further, employees of the manager or asset management company of the Migrated Venture Capital Fund are also exempt from the ₹5 lakh minimum investment requirement.
Example:
A regular investor must invest at least ₹5 lakh in the scheme.
However, an employee of the fund manager invests ₹2 lakh.
This is permitted, as the ₹5 lakh minimum investment requirement does not apply to employees of the manager.
(f).
Each scheme launched by the applicant must have firm commitments from investors of at least ₹5 crore before the scheme starts operations.
A firm commitment means the investors have formally agreed to contribute the specified amount to the scheme.
The minimum commitment of ₹5 crore must be secured before the applicant begins operating the scheme.
Example:
A Migrated Venture Capital Fund plans to launch Scheme A.
Before Scheme A starts operations, the fund obtains written commitments from investors totaling ₹7 crore.
Since the commitment exceeds the minimum requirement of ₹5 crore, the scheme satisfies this eligibility condition.
Section 19Z. Prohibition on inviting subscription from the public
A Migrated Venture Capital Fund cannot invite the general public to subscribe to or purchase its units.
It is prohibited from issuing any document or advertisement that solicits investments from the public.
A Migrated Venture Capital Fund remains a privately placed investment vehicle and does not raise capital through public offerings.
Investors can participate only through private placement in accordance with the applicable regulatory framework, not through public invitations.
Section 19AA. Private placement
A Migrated Venture Capital Fund can raise money only through the private placement of its units.
It cannot raise funds through a public issue or public invitation.
Under private placement, units are offered only to identified and eligible investors, rather than to the general public.
Section 19AB. Placement memorandum or subscription agreement
19AB(1).
The migrated venture capital fund shall:
(a).
A Migrated Venture Capital Fund must issue a Placement Memorandum before raising money from investors.
The Placement Memorandum must clearly state the terms and conditions on which funds will be raised from investors.
It provides investors with important information about the scheme, investment terms, rights, obligations, risks, and other relevant details before they invest.
Example:
Before raising funds for a scheme:
A Migrated Venture Capital Fund issues a Placement Memorandum explaining the investment objective, minimum contribution, tenure, fees, and exit terms.
Investors review these terms before deciding whether to invest.
(b).
A Migrated Venture Capital Fund must enter into a Contribution Agreement or Subscription Agreement with each investor before raising funds.
The agreement must clearly specify the terms and conditions on which the investor is contributing money to the fund.
It serves as a legally binding contract between the fund and the investor, setting out their respective rights and obligations.
Example:
Before accepting an investment of ₹50 lakh, the Migrated Venture Capital Fund signs a Subscription Agreement with the investor.
The agreement specifies the investment amount, payment terms, rights of the investor, fees, tenure, and exit conditions before the money is accepted.
19AB(2).
A Migrated Venture Capital Fund must file certain documents with the Board (SEBI) for its information after raising funds.
It must submit a copy of the Placement Memorandum or the Contribution/Subscription Agreement entered into with the investors.
The fund must also file a report showing the actual amount of money collected from the investors.
Example:
After raising ₹20 crore from investors, a Migrated Venture Capital Fund submits to SEBI:
A copy of the Placement Memorandum (or the Contribution/Subscription Agreements).
A report confirming that ₹20 crore was actually collected from the investors.
Section 19AC. Contents of Placement Memorandum
19AC.
The Placement Memorandum or the Subscription Agreement must contain the information prescribed under the AIF Regulations.
These documents must clearly disclose all the required details to investors before they invest.
The specific disclosures required are listed in the clauses that follow this provision.
(a).
The Placement Memorandum or Subscription Agreement must disclose the details of the trustees or trustee company of the Migrated Venture Capital Fund.
It must also include the details of the directors or chief executives responsible for managing the fund.
These disclosures help investors identify the persons responsible for the governance and management of the fund.
(b).
The Placement Memorandum or Subscription Agreement must disclose the corpus of the fund, i.e., the total capital that the fund proposes to raise.
It must specify the minimum amount that must be raised before the fund can commence operations.
It must also disclose the minimum amount required to be raised for each scheme before that scheme becomes operational.
The document must clearly state the refund mechanism, explaining that investors' money will be returned if the required minimum amount is not raised.
Example:
A Migrated Venture Capital Fund proposes a corpus of ₹100 crore.
It states that the fund will begin operations only after raising at least ₹20 crore, and each scheme must raise a minimum of ₹5 crore.
If a scheme raises only ₹3 crore, the fund must refund the investors' money in accordance with the terms disclosed in the Placement Memorandum.
(c).
The Placement Memorandum or Subscription Agreement must disclose the entitlements attached to the units of the Migrated Venture Capital Fund for which investors are subscribing.
Entitlements refer to the rights, benefits, and interests that an investor receives by holding the units.
These may include rights to distributions, profits, voting (if applicable), redemption or exit, and any other benefits or obligations attached to the units.
Example:
A Migrated Venture Capital Fund states in its Placement Memorandum that:
Unit holders are entitled to receive their proportionate share of investment proceeds, periodic distributions (if any), and liquidation proceeds, subject to the terms of the fund.
Investors can review these entitlements before deciding to subscribe to the units.
(d).
The Placement Memorandum or Subscription Agreement must disclose the tax implications that are likely to apply to investors.
This includes the tax consequences that investors may face on their investment, income, distributions, or gains from the fund, as applicable under the law.
(e).
The Placement Memorandum or Subscription Agreement must specify the manner in which investors can subscribe to the units of the Migrated Venture Capital Fund.
This includes the procedure for applying, making payments, completing documentation, and acquiring the units.
(f).
The Placement Memorandum or Subscription Agreement must disclose the maturity period of the fund, if any.
The maturity period is the duration for which the fund is intended to operate before it is wound up or its investments are distributed.
If the fund does not have a fixed maturity period, this should also be clearly stated.
(g).
The Placement Memorandum or Subscription Agreement must disclose the manner in which the fund will be wound up, if applicable.
This includes the procedure for closing the fund, liquidating its assets, settling liabilities, and distributing the remaining proceeds to investors.
If the fund does not have a specified winding-up procedure, that should also be clearly stated.
(h).
The Placement Memorandum or Subscription Agreement must specify how the benefits accruing to investors will be distributed.
Benefits may include profits, investment income, dividends, interest, or liquidation proceeds, as applicable.
The document must clearly explain when, how, and in what proportion these benefits will be distributed to the unit holders.
(i).
The Placement Memorandum or Subscription Agreement must disclose the details of the Fund Manager or Asset Management Company (AMC), if any.
It must also specify the fees payable to the Fund Manager or AMC for managing the fund.
This disclosure helps investors know who is responsible for managing the fund and the cost of those management services.
(j).
The Placement Memorandum or Subscription Agreement must disclose the performance details of any fund previously managed by the Fund Manager, if available.
This includes the past performance or track record of the Fund Manager in managing other investment funds.
If the Fund Manager has not managed any fund previously, this should be appropriately disclosed.
(k).
The Placement Memorandum or Subscription Agreement must clearly disclose the investment strategy of the fund.
The investment strategy explains how the fund intends to invest its corpus to achieve its investment objectives.
It may include details such as the types of investments, target sectors or industries, investment approach, and risk profile of the fund.
(l).
The Placement Memorandum or Subscription Agreement must contain any other information specified by the Board (SEBI) from time to time.
SEBI may prescribe additional disclosures or information requirements through regulations, guidelines, circulars, or directions.
The fund must comply with these additional disclosure requirements before raising money from investors.
Section 19AD. Investment by migrated venture capital fund
19AD(1).
Investments by migrated venture capital fund shall be subject to the following conditions:
(a).
A Migrated Venture Capital Fund shall not invest more than 25% of its corpus in a single Venture Capital Undertaking.
This limits the fund's maximum exposure to any one investee company to 25% of the total corpus.
The restriction promotes portfolio diversification and reduces concentration risk.
By spreading investments across multiple ventures, the fund helps protect investors from excessive losses if one investment performs poorly.
Example:
If a Migrated Venture Capital Fund has a corpus of ₹200 crore.
It cannot invest more than ₹50 crore (25%) in a single Venture Capital Undertaking.
(b).
A Migrated Venture Capital Fund may invest in the securities of companies incorporated outside India.
Such overseas investments are permitted only if they comply with the conditions or guidelines issued by the Reserve Bank of India (RBI) and SEBI from time to time.
The fund must follow all applicable foreign investment, exchange control, and regulatory requirements before making overseas investments.
(c).
A Migrated Venture Capital Fund shall not invest in its associated companies.
An associated company generally refers to a company that has a significant relationship or connection with the fund, its sponsor, manager, or related entities as defined under the regulations.
This restriction prevents conflicts of interest and self-dealing, ensuring that investment decisions are made in the best interests of investors.
Example:
If the fund manager owns or controls Company A, the Migrated Venture Capital Fund cannot invest in Company A, as it is an associated company.
(d).
A Migrated Venture Capital Fund must invest its investable funds in the manner specified under the regulations.
The regulations prescribe specific categories of permitted investments and minimum allocation requirements that the fund must follow.
Compliance with these prescribed investment norms is mandatory throughout the operation of the fund.
(i).
At least 66.67% of the investable funds must be invested in unlisted equity shares or equity-linked instruments of Venture Capital Undertakings.
The 66.67% requirement is calculated on the fund's investable funds, ensuring that most of the capital is deployed in venture capital investments.
Investments must be made in unlisted equity shares or equity-linked instruments, such as convertible securities, issued by Venture Capital Undertakings.
Example:
(ii).
Not more than 33.33% of the investable funds may be invested in this category of investments.
(a). Subscription to the Initial Public Offer (IPO) of a Venture Capital Undertaking whose shares are proposed to be listed
The fund may subscribe to the Initial Public Offer (IPO) of a Venture Capital Undertaking whose shares are proposed to be listed on a recognised stock exchange.
This allows the fund to continue supporting its portfolio company as it transitions from a private company to a publicly listed company.
The investment made under clause (a) forms part of the overall 33.33% investment limit for the permitted investments listed under this provision.
Example:
A Venture Capital Undertaking launches an IPO before listing its shares on a recognised stock exchange.
The Migrated Venture Capital Fund may subscribe to the IPO under clause (a), provided the investment remains within the overall 33.33% limit.
(b). Investment in the debt or debt instruments of a Venture Capital Undertaking in which the fund has already made an equity investment
The fund may invest in the debt or debt instruments of a Venture Capital Undertaking only if it has already invested in that undertaking through equity.
This allows the fund to provide additional financing to an existing portfolio company without investing in unrelated debt securities.
The investment made under clause (b) forms part of the overall 33.33% investment limit for the permitted investments listed under this provision.
Example:
A Migrated Venture Capital Fund has already acquired equity shares in Startup X.
It may later invest in debentures or other debt instruments of Startup X under clause (b), provided the investment remains within the overall 33.33% limit.
(c).
Preferential allotment of equity shares of a listed company, subject to a lock-in period of one year
Not more than 33.33% of the investable funds may be invested in this category of investments.
(c) The fund may acquire equity shares of a listed company through a preferential allotment, provided the shares are subject to a lock-in period of one year.
During the one-year lock-in period, the fund cannot sell or transfer the allotted shares, ensuring a long-term investment commitment.
The investment made under clause (c) forms part of the overall 33.33% investment limit for the permitted investments listed under this provision.
Example:
A listed company issues new equity shares to selected investors through a preferential allotment.
A Migrated Venture Capital Fund subscribes to these shares under clause (c).
The shares cannot be sold for one year and the investment must remain within the overall 33.33% limit.
(d).
(d) Investment in the equity shares or equity-linked instruments of a financially weak company or a sick industrial company whose shares are listed
Not more than 33.33% of the investable funds may be invested in this category of investments.
(d) The fund may invest in the equity shares or equity-linked instruments of a financially weak company or a sick industrial company whose shares are listed on a recognised stock exchange.
This allows the fund to support the revival or turnaround of financially distressed listed companies through equity investments.
The investment made under clause (d) forms part of the overall 33.33% investment limit for the permitted investments listed under this provision.
Example:
A listed company is experiencing severe financial difficulties and qualifies as a financially weak company.
A Migrated Venture Capital Fund may invest in its equity shares or convertible instruments under clause (d), provided the investment remains within the overall 33.33% limit.
Explanation:
For the purposes of these regulations, a "financially weak company" is a company that has suffered significant financial losses.
A company is considered financially weak if, at the end of the previous financial year, its accumulated losses have eroded more than 50% but less than 100% of its net worth at the beginning of that financial year.
If the erosion is 100% or more, the company does not fall within this definition of a financially weak company under these regulations.
This definition helps identify companies that are financially distressed but still have some remaining net worth, making them eligible for investment under the specified provision.
Example:
A company begins the financial year with a net worth of ₹100 crore.
By the end of the year, it has accumulated losses of ₹70 crore, reducing its net worth by 70%.
Since the erosion is more than 50% but less than 100%, the company qualifies as a financially weak company under these regulations.
(e).
Investment in Special Purpose Vehicles (SPVs) created by a Venture Capital Fund
Not more than 33.33% of the investable funds may be invested in this category of investments.
(e) The fund may invest in Special Purpose Vehicles (SPVs) that are created by a Venture Capital Fund to facilitate or promote investments in accordance with these regulations.
An SPV is a separate legal entity established for a specific investment purpose, allowing the fund to structure or hold investments efficiently.
The investment made under clause (e) forms part of the overall 33.33% investment limit for the permitted investments listed under this provision.
Example:
A Venture Capital Fund establishes an SPV to acquire and hold investments in multiple startup companies.
A Migrated Venture Capital Fund may invest in the SPV under clause (e), provided the investment remains within the overall 33.33% limit.
Section 19AE. Schemes
A Migrated Venture Capital Fund is prohibited from launching any new scheme.
It can continue to manage only the schemes that already exist, but cannot introduce additional schemes after migrating under this Chapter.
Example:
A Venture Capital Fund migrates to the AIF framework with three existing schemes.
It may continue to manage those three schemes, but cannot launch a fourth scheme as a Migrated Venture Capital Fund.
If the fund wishes to launch new schemes, it must comply with the applicable provisions of the AIF Regulations, rather than relying on the migrated fund framework.
Section 19AF. Tenure
19AF(1).
The tenure of a Migrated Venture Capital Fund shall be calculated in the manner specified by the Board (SEBI).
The method of calculating the fund's tenure is determined by SEBI, rather than being left to the fund's discretion.
A Migrated Venture Capital Fund must follow the methodology prescribed by SEBI when determining its tenure.
19AF(2).
The tenure of a Migrated Venture Capital Fund may be extended by up to two years.
Such an extension requires the approval of unit holders representing at least two-thirds of the value of investments in the Migrated Venture Capital Fund.
The approval is based on the value of the investments held, not merely the number of unit holders.
If the required two-thirds approval is not obtained, the fund's tenure cannot be extended.
Example:
A Migrated Venture Capital Fund is scheduled to end after 10 years.
The fund proposes a 2-year extension.
If investors holding more than two-thirds of the total investment value approve the proposal, the tenure may be extended to 12 years.
If this approval threshold is not met, the fund must be wound up as originally scheduled.
19AF(3).
If the required approval for extending the tenure is not obtained, the Migrated Venture Capital Fund or its scheme must be wound up.
Even if the tenure is extended, the fund or scheme must be wound up upon the expiry of the extended tenure.
The winding up must be carried out in accordance with Regulation 29 of the AIF Regulations.
Example:
A Migrated Venture Capital Fund completes its original 10-year tenure but fails to obtain the approval of two-thirds of the unit holders by value for a 2-year extension.
The fund must commence winding up under Regulation 29.
Similarly, if the tenure is extended to 12 years, the fund must be wound up at the end of the 12th year.
Regulation 29(9A) does not apply
Sub-regulation (9A) of Regulation 29 does not apply to a Migrated Venture Capital Fund or any of its schemes.
While the general winding-up provisions under Regulation 29 apply, the specific requirements contained in Regulation 29(9A) are exempted for Migrated Venture Capital Funds.
This creates a special exception for Migrated Venture Capital Funds under the AIF Regulations.
Accordingly, during the winding-up process, a Migrated Venture Capital Fund is not required to comply with the obligations prescribed under Regulation 29(9A).
19AF(4).
A scheme of a Venture Capital Fund that was registered under the SEBI (Venture Capital Funds) Regulations, 1996 may:
Receive an additional liquidation period after migrating to the AIF framework.
This applies where the scheme's assets were not fully liquidated after the expiry of its tenure under the 1996 Regulations before applying for registration as a Migrated Venture Capital Fund.
The additional liquidation period is available only if the Venture Capital Fund has been granted registration as a Migrated Venture Capital Fund under the AIF Regulations.
The additional liquidation period is subject to the conditions and procedure specified by SEBI from time to time.
SEBI's Continuing Regulatory Powers
Grant of registration as a Migrated Venture Capital Fund or an additional liquidation period does not prevent SEBI from exercising its regulatory powers.
Even after granting these approvals, SEBI may issue directions or take regulatory measures under the SEBI Act and the regulations framed thereunder, if necessary.
The registration and additional liquidation period do not provide immunity from regulatory action or compliance obligations.
Example:
A Venture Capital Fund registered under the 1996 Regulations completes its tenure, but some portfolio investments remain unsold.
Before liquidating all its assets, it registers as a Migrated Venture Capital Fund.
SEBI may grant the scheme additional time to liquidate the remaining assets, subject to the conditions prescribed by the Board.
Section 19AG. Listing
A Migrated Venture Capital Fund cannot list its units on any recognised stock exchange for three years from the date the units are issued.
The minimum lock-in period before listing is three years from the date of issuance of the units.
During this three-year period, the units cannot be traded on a recognised stock exchange.
After the expiry of the three-year period, the fund may become eligible for listing, subject to compliance with the applicable regulatory requirements.
Example:
A Migrated Venture Capital Fund issues units on 1 July 2026.
The units cannot be listed on a recognised stock exchange before 1 July 2029.
Any attempt to list them earlier would violate this provision.
Section 19AH. Maintenance of Records
A Migrated Venture Capital Fund must maintain the records required under Regulation 27(1) of the AIF Regulations.
These records must be preserved for eight years after the fund has been wound up.
The record retention requirement continues even after the fund ceases to exist, ensuring that important documents remain available for regulatory, legal, or audit purposes.
Failure to maintain these records for the prescribed period may result in non-compliance with the AIF Regulations.
Example:
A Migrated Venture Capital Fund is wound up in 2030.
It must retain all records required under Regulation 27(1) until 2038, even though the fund is no longer operational.
