Traditionally, the role of venture capital was an extension of the developmental financial institutions like IDBI, ICICI, SIDBI, State Finance Corporations, etc. TDICI (now ICICI ventures) and Gujarat Venture were one of the first venture capital organizations in India. Both these organizations were promoted by the financial institutions.

However, it was realized that the concept of venture capital funding needed to be institutionalized and regulated. Besides this funding requires different skills in assessing the proposal. Thus dedicated funds providing only venture capital funds have been formed. The sources of these funds are normally the financial institutions or foreign institutional investors or pension funds and high net-worth individuals etc. Though an attempt was also made to raise funds from the public and fund new ventures. Certain venture capital funds are industry specific (i.e. they fund enterprises only in certain industries such as pharmaceuticals, infotech or food processing, etc) whereas others may have a much wider spectrum. Securities and Exchange Board of India (SEBI) has come out with guidelines to which a venture capital fund has to adhere in order to carry out its activities in India. In addition, if the venture capital fund wants exemption from Income tax in India, it has to follow the guidelines laid down by the Central Board of Direct Taxes (CBDT) in India.

There are a number of funds which are currently operational in India and involved in funding start-up ventures. Most of them are not true venture funds as they do not fund start ups. What they do is provide mezzanine or bridge funding and are better known as private equity players.

This article aims to give a bird-eye’s view of the various guidelines a venture fund has to adhere to in India.