VENTURE CAPITAL - ECONOMY
News: A
decrease in VC investments in Indian startups in 2022
What's in the news?
● The
venture capital (VC) investments in Indian startups in 2022 saw a 38 percent
decrease due to economic uncertainty and market volatility affecting
fundraising and investment activities, according to Global Data.
● A
total of 1,726 VC funding deals worth $20.9 billion were announced in India in
2022 compared to 1,715 deals worth $33.8 billion in 2021.
Venture Capital Funds:
● Venture
capital funds are investment funds
that manage the money of investors who seek private equity stakes in startups and small-to-medium-sized
enterprises with strong growth potential.
● These
investments are generally characterized as high-risk/high-return
opportunities.
● Unlike
hedge fund advisors, general partners of venture capital funds often play an active role in the companies in which
the funds invest.
Regulation:
● Venture
Capital in India is governed by the SEBI
Act, 1992 and SEBI (Venture Capital Fund) Regulations, 1996, according to
which, any company or trust proposing to carry on the activity of a Venture
Capital Fund shall get a grant of a certificate from SEBI.
● However,
registration of Foreign Venture Capital Investors (FVCI) is not obligatory
under the FVCI regulations.
● Venture
Capital funds and Foreign Venture Capital Investors are also covered by
Securities Contract (Regulation) Act, 1956, SEBI (Substantial Acquisition of
Shares & Takeover) Regulations, 1997, SEBI (Disclosure of Investor
Protection) Guidelines, 2000.
Go back to basics:
Alternative Investment Funds (AIFs):
● An
alternative investment is a financial asset that does not fall into one of the conventional investment categories.
○ Conventional
categories include stocks, bonds, and cash.
● Most
alternative investment assets are held by institutional
investors or accredited, high-net-worth individuals because of their
complex nature, lack of regulation, and degree of risk.
● Alternative
investments include private equity or
venture capital, hedge funds, managed futures, art and antiques, commodities,
and derivatives contracts.
○ Real
estate is also often classified as an alternative investment.