Private Equity

Fund News

Sebi quizzes old VC funds over term extensions

Economic Times  

Old venture capital funds (VCFs), floated during the boom days before the 2008 meltdown and in the next few years after the crash amid a sea of easy money, have drawn the attention of the capital markets regulator the Securities & Exchange Board of India (Sebi) for stretching their lifespans well over a decade now. Sebi has asked these funds to share the number of extensions that have been taken for the various schemes, the tenures of the schemes as stated in the private placement memorandum, and the ‘end date' which is the deadline for exiting all investments. The lifespan of a VCF is typically 10 years. There are about 185 such old VCFs and schemes which are registered under the erstwhile Sebi VCF Regulations of 1996. These entities have to share the information with Sebi's supervision, enforcement and compliance division for AIFs and foreign portfolio investors. Sebi has also asked funds to state their date of ‘first close' (typically within a year of registration), date of ‘final close' (about two years after the first close), and the date from which tenure of a scheme is calculated. While AIFs may extend life by two years with investors' consent, there are no binding deadlines for old VCFs (under 1996 regulations). As a result, many have delayed closing to attract more investments and subsequently stretched their tenures while waiting for profitable exits — a practice justified as as their fiduciary obligation to investors.