SEBI asks for details on investors and investments from small VCs and PE funds
The Securities Exchange Board of India (SEBI) has asked for certain details from venture capital and private equity funds that have five or fewer investors. While it is unclear what SEBI requires this information for, the request comes a week after an earlier communication questioning VC and PE funds' startup valuation practices.
As reported by The Economic Times, SEBI has requested for details on the investors in a scheme, the name of the investors, whether they are individuals, companies, limited liability partnerships or trusts, the amount of money committed, and the quantum of the fund raised. Every scheme of the alternate investment funds (AIFs) that have been contacted need to be disclosed, along with the details of a contact person.
VCs and PEs also have to provide details on investments they have made, including the name of investee companies, their countries of origin, the nature of their business, and the type of instrument issued, such as debt, equity, and convertible notes.
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While the communication did not specify a reason for these requests, a fund trustee speaking to The Economic Times said, "Usually, funds with less than five contributors (excluding the sponsor and the manager) are captive in nature. We have seen many family offices, large investors, and corporates using AIFs to hold stakes in companies ... Maybe, it (SEBI) wants to know more about such captive funds," the fund trustee said.
Currently, AIFs have more lenient rules around investor regulations compared to retail-focussed entities such as mutual funds. It is possible for an AIF to have even a single investor, although it cannot invest more than a quarter of its corpus in a single entity.