Only professionals may get VC fund licence

MUMBAI: Only professionals are likely to be allowed to float venture capital funds (VCFs) in the future . In what could be a big change in India���s venture capital regulations, no business house, financial services group or big corporate would be allowed to set up a VCF. The capital market regulator has veered around to this view, possibly driven by instances where large groups have used the funds they have sponsored to invest in companies where groups have strategic or business interests.

���Since VC funds operate under a special regime in relation to taxation, foreign capital and investment lock-in , and are meant to encourage new entrepreneurs, the vehicle should not be misused by established players,��� said a source. While no formal guidelines have been issued, the change in regulatory stance on VCFs follows views expressed by an informal panel to look into VC regulations.

Some of the top names in the financial services industry figure in the panel. No final decision has been taken. Existing VCFs set by business houses and banking groups will not be affected. The perceived conflict of interest, though not applicable to all VCFs sponsored by big groups, is more apparent in sectors like real estate where institutional finance is difficult.

However , industry circles do not rule out the possibility that a VC arm of a banking group or a large corporate may find it tough to distance itself from investments that further group interests. Globally, there is no such classification, primarily because VCFs are not regulated entities in most countries.

It would be interesting to find out how in India the regulations are tweaked to ensure that only professionals can come together to sponsor a fund. In this case, it would be important how a professional is defined.