Foreign Venture Capital Investor or FVCI is a term that is often used in the context of investments made by foreign entities in Indian companies. In this article, we will explain FVCI full form, meaning of FVCI, the regulations governing FVCI investments in India, and the benefits and drawbacks of FVCI investments.
What is FVCI?
FVCI stands for Foreign Venture Capital Investor. It refers to a foreign entity that invests in Indian companies that are engaged in specified sectors such as technology, biotechnology, and infrastructure. FVCIs are typically venture capital funds or private equity funds that are registered with the Securities and Exchange Board of India (SEBI).
Regulations governing FVCI investments in India
FVCI investments in India are governed by the SEBI (Foreign Venture Capital Investors) Regulations, 2000. These regulations stipulate the eligibility criteria for FVCIs, the sectors in which they can invest, the amount of investment that can be made, and the conditions under which the investments can be made.
Eligibility criteria for FVCIs
To be eligible for registration as an FVCI with SEBI, a foreign entity must meet the following criteria:
- The entity must be a resident of a country that is a member of the Financial Action Task Force (FATF) or a signatory to the International Organization of Securities Commissions (IOSCO) Multilateral Memorandum of Understanding (MMoU).
- The entity must be engaged in the activity of making investments as a registered venture capital fund, a trust, a partnership, a company, or any other form of investment vehicle.
- The entity must have a minimum corpus of $5 million, which must be maintained at all times.
- The entity must have a track record of at least five years in the activity of making investments.
Sectors in which FVCIs can invest
FVCIs can invest in the following sectors:
- Information technology
- Seed research and development
- Research and development of new chemical entities in the pharmaceutical sector
- Dairy industry
- Poultry industry
- Production of bio-fuels
- Hotel-cum-convention centres with a seating capacity of more than 3,000
- Infrastructure sector, including development of townships, housing, and built-up infrastructure.
Amount of investment that can be made by FVCIs
The SEBI regulations stipulate that FVCIs can invest up to 25% of their corpus in Indian companies. The total investment by an FVCI in a single Indian company cannot exceed 10% of the paid-up equity capital of the company.
Conditions for FVCI investments in India
FVCI investments in India are subject to the following conditions:
- FVCIs must comply with the provisions of the Foreign Exchange Management Act (FEMA) and the regulations issued by the Reserve Bank of India (RBI) from time to time.
- The investment made by FVCIs must be in compliance with the Foreign Direct Investment (FDI) policy of the Indian government.
- The investment made by FVCIs must be made in convertible securities such as equity shares, compulsorily convertible debentures, and compulsorily convertible preference shares.
- The investment made by FVCIs must be held for a period of at least three years.
Benefits of FVCI investments in India
FVCI investments in India offer the following benefits:
- FVCIs provide risk capital to Indian companies that are engaged in high-growth sectors such as technology and biotechnology.
- FVCIs bring in foreign capital that can help Indian companies expand and grow.
- FVCIs can provide technical expertise and management skills to Indian companies.
- FVCIs can help Indian companies access global markets and networks.
Drawbacks of FVCI investments in India
FVCI investments in India also have some drawbacks, which include:
- FVCI investments are subject to the fluctuations in the global financial markets, which can impact the value of the investments.
- FVCI investments can result in the dilution of the ownership of Indian companies.
- FVCIs may have different investment objectives and exit strategies than Indian promoters, which can lead to conflicts.
- FVCIs may not be able to provide long-term funding to Indian companies, which may need to raise additional capital from other sources.
FVCI investments in India can provide much-needed capital and expertise to Indian companies that are engaged in high-growth sectors.
However, FVCIs must comply with the regulations governing their investments and must be aware of the risks and drawbacks associated with their investments.
Indian companies must also carefully evaluate the benefits and drawbacks of accepting FVCI investments before accepting them.
What is the minimum corpus required to register as an FVCI with SEBI?
Ans: The minimum corpus required to register as an FVCI with SEBI is $5 million.
In which sectors can FVCIs invest in India?
Ans: FVCIs can invest in sectors such as biotechnology, information technology, nanotechnology, and infrastructure, among others.
What is the maximum amount that an FVCI can invest in a single Indian company?
Ans: The maximum amount that an FVCI can invest in a single Indian company is 10% of the paid-up equity capital of the company.
What are the conditions for FVCI investments in India?
Ans: FVCI investments in India are subject to conditions such as compliance with FEMA and RBI regulations, compliance with the FDI policy of the Indian government, and holding of the investment for a period of at least three years.
What are the benefits of FVCI investments in India?
Ans: FVCI investments in India can provide risk capital, foreign capital, technical expertise, management skills, and access to global markets and networks to Indian companies.