The country's regulatory watchdog, Securities and Exchange Board in India (SEBI), is contemplating authorizing permanent capital vehicles (PCVs) to invest long-term patient funding to unlisted Indian start-ups. According to an Economic Times (ET) report, a working group under the statutory body is currently examining whether PCVs should be allowed to fund the Indian start-up drive.
A PCV is an investment entity created to manage permanent capital available for an unlimited time. According to a World Bank report, 'Open-ended' PCVs have emerged in emerging markets as open-ended, evergreen fund investment companies where there is no end to the fund's life.
The SEBI's decision comes when the country's start-up ecosystem has been rattled by several issues related to corporate governance failures. The latest to emerge in this long list of discrepancies is Sequoia-backed GoMechanic. The Gurgaon-based car servicing firm's founder, Amit Bhasin, had admitted to irregularities in its financial reports on the networking platform Linkedin earlier this year.
With India staking a claim at the world's third largest start-up ecosystem, including PCVs will offer an alternative capital raising route to founders, which is much required in the ongoing funding winter.
"Such vehicles are emerging in the West and are supposed to survive perpetually as they do not have tenure. The fund may or may not be listed and the fund may adopt a strategy which allows it to give a redemption option at periodic intervals to investors," an individual familiar with the development told MSN.
"This benefits the fund manager because he is not working through a finite cycle where he has to raise money and exit every few years even if the asset looks good and promising from a longer-term perspective," the person added.
ET report stated that a sub-committee under SEBI's Alternative Investment Policy Advisory Committee is exploring various aspects of allowing PCVs in India. This includes evaluating who can invest and the amount that can be invested. Additionally, it examines the rules applicable to PCVs and how they will vary from those pertaining to existing AIFs, PEs and VCs.
