SEBI clarifies on definition of startup, eases norms for AIFs

Market regulator Securities and Exchange Board of India (SEBI) in its board meeting on March 25 approved proposals that will give more flexibility to venture capital funds to invest in, and remove friction arising out of multiple definitions of startups.

SEBI said it has approved proposals to provide a definition of ‘startup’ as specified by the government, removed the list of restricted activities or sectors from the definition of Venture Capital Undertaking to provide flexibility to Venture Capital Funds registered under Category I Alternative Investment Funds (AIFs) in making investments.

It has also allowed AIFs, including funds of AIFs, to simultaneously invest in units of other AIFs and directly in the securities of investee companies subject to certain conditions.

"Rationalising the definition of a startup with the government's definition will remove the friction caused by multiple definitions. Removing the negative list will help make Category 1 AIFs more attractive and stop fund managers in startups from becoming Category II AIFs instead. .Allowing funds the flexibility to invest into other units of AIFS & companies will enable Co -investing for Fund of funds & allow larger funds to support smaller funds directly," Siddarth Pai of 3one4 Capital said.