The Reserve Bank of India (RBI) on 20 October 2016 notified the amended norms for foreign investment in startups. For this, the bank amended the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000.
Investment in India by Foreign Venture Capital Investors (FVCI), registered with SEBI, is governed by the provisions of Schedule 6 of the aforesaid Regulations.
Highlights of the Notifications
• Any FVCI, registered with market regulator SEBI, will not require any approval from Reserve Bank of India and can invest in unlisted Indian companies.
• FVCI can invest in following sectors- Biotechnology, IT, Nanotechnology, Seed research and development, pharmaceutical sector, Dairy industry, Poultry industry, Production of bio-fuels, Hotel-cum-convention centres and Infrastructure sector.
• FVCIs can also invest in Equity or equity linked instrument or debt instrument issued by an Indian startup irrespective of the sector in which the startup is engaged.
• FVCIs can invest in units of a Venture Capital Fund (VCF) registered under the SEBI or units of a Scheme or of a fund set up by a VCF or by a Category I Alternative Investment Fund (Cat-I AIF).
• The downstream investments by a VCF or a Cat-I AIF, which has received investment from FVCI, shall have to comply with the provisions for downstream investment as laid down in Schedule 11 of the Principal Regulations.
• FVCI may open a foreign currency account or a rupee account with a designated branch of an Authorised Dealer for the purpose of making transactions only and exclusively under this Schedule.
• There will be no restriction on transfer of any security/instrument held by the FVCI to any person resident in or outside India.
• An entity receiving investment directly from a registered FVCI will be required to report the investment in form FCGPR.
Definition of Startup as per Regulation
A startup means an entity (private limited company or a registered partnership firm or a limited liability partnership) incorporated or registered in India not prior to five years, with an annual turnover not exceeding 25 Crores rupees in any preceding financial year.
Startup should be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.