Securities Exchange Board of India (“SEBI”), vide its notification dated July 11, 2024, has notified the SEBI (Alternative Investment Funds) (Third Amendment) Regulations, 2024 (“Migrated VC Fund Amendment Regulations”) and thereby amended the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”).

The Migrated VC Fund Amendment Regulations introduced Chapter III-D specifically to govern “migrated venture capital fund” and provide for process and eligibility criteria for registration of the fund, tenure, investment by the fund, etc. Chapter III-D applies only to migrated venture capital fund (“VC Fund”) and schemes launched by such funds. Provisions, other than the provisions mentioned in Regulation 19W of Chapter III-D of the AIF Regulations, shall not be applicable to the migrated VC Fund.

The key amendments introduced by the Migrated VC Fund Amendment Regulations are as follows:

(a) The term “migrated VC Fund” has been defined under Chapter III-D as a fund that was previously registered as a VC Fund under the SEBI (VC Funds) Regulations, 1996 (“VC Fund Regulations”) and subsequently registered as a sub-category of VC Fund under Category – I Alternative Investment Fund in accordance with the provisions of the AIF Regulations.

(b) The AIF Regulations deals with registration of alternative investment funds which now provides that VC Funds may seek registration as migrated VC Funds within 12 months from the date of notification of the Migrated VC Fund Amendment Regulations. Further, SEBI may specify enhanced regulatory reporting and other measures for VC Funds who do not opt to seek registration as a migrated VC Fund.

(c) Migrated VC Fund Amendment Regulations, inter alia, provides for the following:

• An application for registration as a migrated VC Fund shall be made to SEBI and a certificate of registration may be granted if the applicant fulfils the requirements as specified in Chapter III-D. Amongst others, certain eligibility conditions require that the applicant: (I) is registered as a VC Fund; (II) is a fit and proper person; (III) has furnished the required information as specified by SEBI from time to time; (IV) has no pending investor complaint regarding non-receipt of funds or securities for any of its schemes whose assets are not liquidated as per the VC Fund Regulations, etc.
• The migrated VC Fund shall not invite offers from the public for the subscription or purchase of any of its units and the fund may receive investment only through private placement of its units.
• Conditions for investment by the migrated VC Fund includes that the fund: (I) shall not invest more than 25% corpus of the fund in a single venture capital undertaking; (II) may invest in companies incorporated outside India subject to conditions or guidelines issued by Reserve Bank of India, (“RBI”) or SEBI, (III) shall not invest in associated companies, etc. Other specific investment conditions are also provided and SEBI may specify additional requirements or criteria for investments by the migrated VC Funds.
• The migrated VC Fund is not allowed to launch any new scheme.
• The tenure of the migrated VC Fund shall be calculated in the manner as may be specified by SEBI. Extension of the tenure may be permitted subject to approval of 2/3^rd of the unit holders by value of their investment in the fund. Upon expiry of the fund or in case of absence of consent of the unit holders to extend the tenure, the fund shall be wound up in accordance with the AIF Regulations.
• A migrated VC Fund shall be entitled to get its units listed on any recognised stock exchange after 3 years from date of issuance of units by the fund.
• A migrated VC Fund shall maintain its records under the AIF Regulations for a period of 8 years after winding up of the fund.

To read the notification click here

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