New Delhi: “The Venture Capital industry is like a crowded Mumbai local train. Everybody wants to get on it,” says T.C. Nair, whole-time member of the Securities and Exchange Board of India.
At the launch of the Venture Capital Association of India in New Delhi, Nair said there is a greater need of regulating the VC firms as many of them were not adhering to its spirit by investing in risky business. “It’s not a venture business at all. There are a lot of people who get into the business in the last stage and then get out of the company as soon as possible,” said Nair.
There are 97 foreign venture capitalists and 111 domestic ones that are registered with Sebi and are eligible for relaxed norms in the takeover code and reduced lock-in period.
“Nothing in the law today mandates a venture capitalist firm to be regulated and registered. I think it’s a regime we need to revisit,” said K.P. Krishnan, joint secretary in the Ministry of Finance.
Krishnan said a mechanism should be reached through which it should be made mandatory for VC firms to register though they should have the option of choosing if they don’t want to be regulated.
Sources in the finance ministry said they are in dialogue with Sebi to regulate VC firms to provide a level playing field for foreign and domestic players and are pushing for an exchange for small and medium players so that exit routes may be provided for VC firms to invest in small enterprises.
The ministry official said there is a need to bring down the limit of investment by VC firms in public companies from the current 33%.
Venture capitalists invested $928 million in 80 deals for entrepreneurial companies in India during 2007, according to the Quarterly India Venture Capital Report published by Dow Jones VentureSource. This was a whopping 166% increase over the $349 million invested in 36 deals in 2006, and easily the highest total on record for the region.