Download SEBI (Venture Capital Funds) Regulations, 1996

Workshop on Investment Banking and Project
Finance
Private Equity
Strictly Private & Confidential
The Private Equity Ecosystem
The first Venture Capital investment in financial history
ARDC credited with the first
major venture capital success
story when its 1957 investment
of $70,000 in Digital Equipment
Corporation (DEC) would be
valued at over $355 million after
the company's IPO in 1968
ARDC made an annualized
return of 101% on the
transaction
Arguably the first noted Private Equity Buyout in financial history
J. Pierpon Morgan’s 1901 acquisition of Carnegie Steel
Company from Andrew Carnegie and Henry Phipps for $480
Mn represents the first true major Private Equity buyout
The real PE boom came in 1980s in USA ….
• For the first time, the public became
aware of the ability of private equity to
affect mainstream companies and
"corporate raiders" and "hostile
takeovers" entered the public
consciousness
• The decade would see one of the largest
booms in private equity culminating in the
1989 leveraged buyout of RJR Nabisco
• In 1980s PE industry raised $2.4 bn of
annual investor commitment and by end
of 1989 the figure stood at $21bn
Private Equity industry is a $1.2 Tn industry today
Exits
Global Buyout Exit value
$500Bn
Source: Dealogic
Fund Raising
Buyout Capital Raised
$300Bn
Investments
Buyout Deal Value
$300Bn
Some of the largest PE funds globally include ….
Goldman Sachs
$20.3 Bn
TPG Buyout
$ 18.9 Bn
Apollo Global Mgmt
$ 18.4 Bn
CVC Partners
$ 18.2 Bn
KKR
$17.6 Bn
Blackstone
$ 16.3 Bn
TPG Growth
$ 15.4 Bn
Apax Partners
$ 11.2 Bn
Source: Forbes
PE Fund raise bouncing back after 4 years of sharp degrowth
Global PE capital raised
$Bn
Source: Preqin, Bain & Co.
PE constitute 54% of total FDI in India
% of total FDI flow in India
160 funds out of
325 registered &
active funds made
investments in
2013
Source: Bloomberg, CEIC
Top sectors attracting PE investments …
Source: Dealogic, ET
Early & Growth Stage deals comprise more than 70%
Source: Bain & Co.
Opinion – which sectors are likely to attract most PE/VC investments
in next 2 years
Source: Bain & Co.
Issues faced by PE investors … survey of major LP concerns
Source: IVCA Limited Partners Survey, 2014
Structure of PE funds
• Domestic Fund
 Trust, Company or LLP
 Trust structure mostly prevalent
 Provisions of Companies Act restricts fund raising
• Difficulty in redemption of securities, buyback restriction to
25% of paid up capital
• Difficulty in distributing profit/dividend (e.g. compulsory
transfer to general reserve for dividends in excess of 10% of
PV of shares)
• Lengthy wind up procedures
• Offshore Fund
 LLC or LLP outside India
• Unified Fund
 LLC or LLP outside India with a Trust registered in India for
domestic investors
Unified vs. Co-Investment Structures
Regulatory framework
• Both Domestic & Offshore funds regulated by SEBI
 SEBI (Venture Capital Funds) Regulations, 1996
 SEBI (Foreign Venture Capital Investors) Regulations, 2000 (FVCI
Regulations)
 SEBI (Alternate Investment Funds) Regulations, 2012
• SEBI (Venture Capital Funds) Regulations, 1996
 VCFs not permitted to invest in securities of foreign countries
 Negative list for VCFs: real esate, gold trading, NBFC etc.
 MOA/Trust Deed prohibited to make an invitation for IPO
• The SEBI (Foreign Venture Capital Investor) Regulations, 2000
 Covering Investors incorporated outside India
 No min capital or corpus or individual contribution
 Mandatory to appoint domestic custodian
Regulatory framework (cont’d)
• SEBI (Alternate Investment Funds) Regulations, 2012
 All VCFs/FVCFs registered as AIF
 AIF shall have a minimum corpus of Rs 20 crore
 The fund or any of its scheme shall not have more than 1,000
investors
 AIF shall not accept investment of value less than Rs. 1 cr from an
investor
 Not to invest more than 25% of funds in one investee company
 AIFs shall not invest in associate companies
 Funds to give investors financial information of portfolio
companies
 Units of AIF may be listed on stock exchanges subject to a
minimum tradable lot of Rs. 1 cr
 Funds enjoying certain incentives from SEBI or the Central Govt.
will fall under Category I AIF (venture capital funds, SME funds,
social venture funds and infrastructure funds)
Note: AIFs categorized under PE funds, RE funds and MFs