Raising of Funds: Private Funding

Answer: (B) Equity, Experience, Idea

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2023, Q. 11 (Financial and Strategic Management paper, Syllabus 2017).

Stages of Venture Capital Financing

Venture capital firms finance both early and later stage investments to maintain a balance between risk and profitability Venture capital firms usually recognise the following two main stages when the investment could be made in a venture namely:

A.Early Stage Financing

(i)Seed Capital & Research and Development Projects.

(ii)Start Ups

(iii)Second Round Finance

B.Later Stage Financing

(i)Development Capital

(ii)Expansion Finance

(iii)Buy Outs

(iv)Replacement Capital

(v)Turn Around

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 4(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Seed Funding

Seed funding, taken from the word "seed" is the capital needed to start / expand your business. It often comes from the company founders' personal assets, from friends and family or other investors. The amount of money is usually relatively small because the business is still in the idea or conceptual stage. This type of funding is often obtained in exchange for an equity stake in the enterprise, although with less formal contractual overhead than standard equity financing.

Lenders often view seed capital as a risky investment by the promoters of a new venture, which represents a meaningful and tangible commitment on their part to making the business a success.This would be a type of Venture Capital Funding and hence covered under the provisions of Angel Funding in the SEBI (Alternative Investment Fund) Regulations, 2012.

Start up Financing

The riskiest aspect of venture capital is the launch of a new business after the Research and Development activities are over. At this stage, the entrepreneur and his products or services are still not tried and rested in the market forces. The finance required usually falls short of his own resources. Start-ups may include new industries / businesses set up by the experienced persons in the area in which they have knowledge, specialization and proficiency. Others may result from the research bodies or large corporations, where a venture capitalist joins with an industry experienced or corporate partner.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 2A(i) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Early Stages Financing

•Seed Capital and R & D Projects : Venture capitalists are more often interested in providing seed finance i.e., making provision of very small amounts for finance needed to commence a business. Research and Development activities are required to be undertaken before a product is to be launched. External finance is often required by the entrepreneur during the development of the product. The financial risk increases progressively as the research phase moves into the development phase, where a sample of the product is tested before it is finally commercialized. Venture capitalists/ firms/ funds are always ready to undertake risks and make investments in such R & D projects promising higher returns in future.

•Start Ups : The riskiest aspect of venture capital is the launch of a new business after the Research and Development activities are over. At this stage, the entrepreneur and his products or services are still not tried and tested keeping in view the various market forces. The finance required usually falls short of his own resources.

Start-ups may include new industries / businesses set up by the experienced persons in the area in which they have knowledge, specialization and proficiency. Others may result from the research bodies or large corporations, where a venture capitalist joins with an industrially experienced or corporate partner.

•Second Round Financing : It refers to the stage when product has already been launched in the market but has not earned enough profits to attract new investors. Additional funds are needed at this stage to meet the growing needs of business. Venture Capital Institutions provide larger funds at this stage than at other early stage financing in the form of debt. The time scale of investment is usually three to seven years.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2A(ii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (C) financing for new firms which generally entails high levels of risk

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2021, Q. 35 (Financial and Strategic Management paper, Syllabus 2017).

SEBI vide circular dated September 09, 2026 introduced a new framework enabling Category I and II Alternative Investment Funds (AIFs) to offer co-investment opportunities to accredited investors within the AIF structure itself, through the launch of separate Co- Investment Schemes (CIV schemes). Key Highlights of the circular are as under:

i.SEBI has permitted Category I and II AIFs to offer Co-Investment facilities within the AIF structure by launching CIV schemes, in addition to the existing Portfolio Management Services (PMS) route.

ii.A Shelf Placement Memorandum must be filed as per the prescribed template by SEBI, that inter-alia includes governance structure, regulatory framework, and principal terms of co-investment.

iii.Each CIV scheme must maintain separate bank and demat accounts, assets must be ring-fenced from other schemes.

iv.Investor’s co -investment via CIV schemes in a company must not exceed 3 times their investment in the main AIF scheme, except for:

•Multilateral/ Bilateral Development finance institutions (DFIs)

•Government-owned entities

•Sovereign Wealth Funds and Central Banks

v.Investors excused, excluded, or defaulting in main AIF scheme investment cannot coinvest via CIV in that company. CIVs must not invest in a manner that:

•creates indirect exposure the investor cannot hold directly;

•requires additional disclosure if done directly;

•breaches eligibility norms for direct investment in the investee. Additionally, no leverage or borrowing is allowed by CIV schemes.

vi.Proceeds and rights from CIV investments are pro-rata, subject to carried interest or equivalent, if applicable. Co-investment expenses to be shared proportionally between AIF scheme and CIV scheme based on investment ratio.

vii.CIV schemes must comply with standards (if any) developed by the Standard Setting Forum of AIFs (SFA) in consultation with SEBI. These standards shall be published by industry associations like Indian Venture and Alternate Capital Association (IVCA), Private Equity Venture Capital Chief Financial Officer Association (PEVCCFO), and Trustee Association of India.

viii.AIF trustees/ sponsors must ensure that the Compliance Test Report (CTR) includes adherence to this framework, as per Chapter 15 of the SEBI Master Circular for AIFs.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 6(b) (Syllabus 2022).

SEBI vide circular dated (July 09, 2024) specified the Information to be filed by schemes of Alternative Investment Funds (AIFs) availing dissolution period/additional liquidation period and conditions for in-specie distribution of assets of AIFs.

A.Information Memorandum for schemes of AIFs entering into Dissolution Period– The information

memorandum for a scheme of an AIF entering into dissolution period shall be submitted to SEBI in terms of Regulation 29B (2) of SEBI (Alternative Investment Funds ) Regulations, 2012 before expiry of the liquidation period or additional liquidation period of the scheme, as the case may be. SEBI has also specified the format for information memoranda and due diligence certificate.

B.Information to be submitted by schemes of AIFs availing additional liquidation period – In

terms of regulation 29(9A) of AIF Regulations, if the liquidation period for a scheme of an AIF has expired or is expiring within three months from the date of notification of the SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2024 (i.e., on or before July 24,2024), such schemes may be granted an additional liquidation period, subject to conditions and in the manner as may be specified by SEBI. In this regard, Schemes of AIFs which are intending to avail the additional/fresh liquidation period in terms of aforesaid provisions, shall submit information to SEBI regarding the same as per the prescribed format given in the circular for grant of the additional liquidation period.

C.In specie distribution of investments of AIFs – With respect to carry out in specie distribution of investments of a scheme of an AIF in terms of Regulation 29(8) of AIF Regulations, it is clarified that such in specie distribution (other than the aforesaid mandatory in specie distribution), shall be carried out after obtaining approval of at least 75% of the investors by value of their investment in the scheme of the AIF.

The manager, trustee and key management personnel of AIF and manager shall be responsible for compliance with the provisions prescribed above.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 5(c) (Syllabus 2022).

To ascertain whether investors from countries sharing land border with India are investing in Indian companies through AIFs, the following is specified –

Applicability: For every scheme of AIFs where 50 % or more of the corpus of the scheme is contributed by investors –

i)who are citizens of/are from/are situated in a country which shares land border with India, or,

ii)whose beneficial owners, as determined in terms of sub-rule (3) of Rule 9 of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, are citizens of/are from/are situated in a country which shares land border with India.

Compliance:

(i)Necessary due diligence as per the implementation standards formulated by Standard Setting Forum for AIFs (SFA), shall be carried out prior to making any investment.

(ii)Upon carrying out the necessary due diligence, such scheme shall report details of its investment, which would result in the scheme holding 10 percent or more of equity/equitylinked securities issued by an investee company (on a fully-diluted basis), to its custodian within 30 days of investment, in the format as may be specified by SFA. Custodians shall compile such information received from AIFs on a monthly basis and report to SEBI within 10 working days from the end of the month.

For schemes of AIFs covered above, shall also report to their custodians on or before April 07, 2025 in the format specified by SFA, details of their existing investments where the scheme holds 10% or more of equity/equity-linked securities issued by an investee company (on a fully-diluted basis). The custodians shall compile and share the information with SEBI on or before May 07, 2025.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 2(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

(a)“Hedge fund” means an Alternative Investment Fund which employs diverse or complex trading strategies and invests and trades in securities having diverse risks or complex products including listed and unlisted derivatives.

(b)“SME fund” means an Alternative Investment Fund which invests primarily in unlisted securities of investee companies which are SMEs or securities of those SMEs which are listed or proposed to be listed on a SME exchange or SME segment of an exchange.

(c)“Corpus” means the total amount of funds committed by investors to the Alternative Investment Fund by way of a written contract or any such document as on a particular date.

(d)“Start-up” means a private limited company or a limited liability partnership which fulfils the criteria for start-up as specified by the Department of Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, Government of India or such other policy of the Central Government issued in this regard from time to time.

(e)“Venture Capital Undertaking” means a domestic company which is not listed on a recognised stock exchange at the time of making investments.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 6A(i) (Syllabus 2022).

Placement Memorandum

As per the (Alternative Investment Funds) Regulations, 2012, Alternative Investment Fund (AIF) may raise funds by issue of information memorandum or placement memorandum, by whatever name called.

Contents of the Placement Memorandum

This document shall contain all material information about the AIF and the Manager, background of key investment team of the Manager, targeted investors, fees and all other expenses proposed to be charged, tenure of the Alternative Investment Fund or scheme, conditions or limits on redemption, investment strategy, risk management tools and parameters employed, key service providers, terms of reference of the committee constituted for approving the decisions of the Alternative Investment Fund, conflict of interest and procedures to identify and address them, disciplinary history, the terms and conditions on which the Manager offers investment services, its affiliations with other intermediaries, manner of winding up of the AIF or the scheme and such other information as may be necessary for the investor to take an informed decision on whether to invest in the Alternative Investment Fund.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 6A(ii) (Syllabus 2022).

(i)SEBI vide its SEBI (Alternative Investment Funds) (Third Amendment) Regulations, 2022 introduced the definition “social impact fund“ and “social units”. ‘Social Impact Fund’ means an Alternative Investment Fund which invest primarily in securities, units or partnership interest of social venture or securities of social enterprise and which satisfies the social performance norms laid down by the fund.

‘Social units’ mean unit issued by the social impact fund or scheme of social impact fund who have agreed to receive only social return and no financial returns against their contribution.

(ii)Regulation 10 of SEBI (Alternative Investment Funds) Regulations, 2012, deals with Investment in Alternative Investment Fund which provides that the Alternative Investment Fund may raise funds from any investor whether Indian, foreign or non-resident Indians by way of issue of units. However, a social impact fund or schemes of a social impact fund may also issue social units. Each scheme of the Alternative Investment Fund shall have corpus of at least ₹ 20 crore. Provided that each scheme of the social impact fund shall have a corpus of at least ₹ 5 crore. The Alternative Investment Fund shall not accept from an investor, an investment of value less than one crore rupees. Minimum value of Investment for employee or directors of the Alternative Investment Fund or employees or directors of the Manager shall be five lakh rupees. This condition is not applicable to accredited investor Provided further that in case of a social impact fund which invests only in securities of not for profit organizations registered or listed on a social stock exchange, the minimum value of investment by an individual investor shall be two lakh rupees. [Proviso to 10(a) and 10(b), 10(c) was inserted vide SEBI (Alternative Investment Funds) (Third Amendment) Regulations, 2022].

Regulation 16 of SEBI (Alternative Investment Funds) Regulations, 2012 deals with the conditions for Category I Alternative Investment Funds. Regulation 16 (4) (a) has been substituted vide SEBI (Alternative Investment Funds) (Third Amendment) Regulations, 2022 with the following, viz. (a) at least seventy-five percent of the investable funds shall be invested in unlisted securities or partnership interest of social ventures or in units of social ventures or in securities of social enterprises. Provided that an existing social impact fund may invest the remaining investable funds in securities of not- for- profit organizations registered or listed on a social stock exchange with the prior consent of at least 75% of the investors by value of their investment.

The amount of grant that may be accepted by the fund from any person shall not be less than ₹ 10 Lakh. Further, it was inserted that a social impact fund or schemes of a social impact fund launched exclusively for a not for profit organization registered or listed on a social stock exchange, shall be permitted to deploy or invest 100% of the investable funds in the securities of not for profit organizations registered or listed on a social stock exchange.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

SEBI introduced Corporate Debt Market Development Fund (CDMDF) vide SEBI (AIF) (Second Amendment) Regulations, 2023, is a new category of AIF in which investments shall be made in accordance with Chapter II C of these Regulations. It acts as a Backstop Facility for purchase of investment grade corporate debt securities to instill confidence amongst the participants in the Corporate Debt Market during times of stress and to generally enhance secondary market liquidity by creating a permanent institutional framework for activation in times of market stress.

The fund shall deal only in following securities during normal times:

•Low duration Government Securities

•Treasury bills

•Tri-party Repo on G-sec

•Guaranteed corporate bond repo with maturity not exceeding 7 days.

Registration of CDMDF

CDMDF shall be structured as a trust and its establishment requires the execution of a registered deed in accordance with the provisions of Indian Registration Act of 1908. The CDMDF shall operate as a close ended fund, meaning that it has a pre-determined duration of 15 years, from the date of initial closing. COMDF are made available for investment to asset Management Companies (AMCs) and specified debt-oriented schemes of mutual funds.

The SEBI vide circular dated July 27, 2023 prescribed the framework for Corporate Debt Market Development Fund (CDMDF) which states that CDMDF shall comply with the Guarantee Scheme for Corporate Debt (GSCD) as notified by Ministry of Finance vide notification no. G.S.R. 559(E) dated July 26, 2023, which includes the Framework for Corporate Debt Market Development Fund. In addition to the scheme, CDMDF shall comply with the conditions as mentioned in the circular.

•Investment Conditions: During periods of market dislocation, the Corporate Debt Market Development Funds shall purchase corporate debt securities from the specified debtoriented schemes of mutual funds which meet the following eligibility criteria:

a)corporate debt securities shall be listed and have an investment grade rating;

b)the residual maturity of such securities shall not exceed five years on the date of purchase;

c)securities where there is no material possibility of default or adverse credit news or views.

•Disclosure Norms: The portfolio of the CDMDF will be made available to the unitholders on a fortnightly basis. Additionally, the net asset value (NAV) of the CDMDF will be disclosed to the unitholders on a daily basis. These regular disclosures ensure transparency and provide timely information to the unitholders regarding the fund’s holdings and NAV.

•Compliance with governance mechanism: The CDMDF will select and appoint a trustee company. The appointment of both the board of directors of the trustee company and the manager of the CDMDF necessitates prior approval from SEBI.

The trustee company is authorized to engage solely in activities where it acts as the trustee of the CDMDF, unless prior written consent is obtained from SEBI. In terms of composition, two-thirds of the members on the board of the trustee company must be independent directors who do not have any affiliation with the sponsor or manager.

The appointment of any individual as a director of the trustee company is subject to the prior approval of SEBI. Furthermore, an audit committee must be established within the trustee company to oversee and assess compliance with the provisions outlined in the placement memorandum.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 3(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

SEBI vide its SEBI (Alternative Investment Fund) (Amendment) Regulations, 2024 inserted Regulation 20 (11A) which provides that a Custodian which is an associate of the Sponsor or Manager of an Alternative Investment Fund may act as a custodian for that Alternative Investment Fund only when all the following conditions are met:

(i)The Sponsor or Manager has a net worth of at least twenty thousand crore rupees at all points of time;

(ii)50% or more of the directors of the Custodian do not represent the interest of the Sponsor or Manager or their associates;

(iii)The Custodian and the Sponsor or Manager of the Alternative Investment Fund are not subsidiaries of each other,

(iv)The Custodian and the Sponsor or Manager of the Alternative Investment Fund do not have common directors; and

(v)The Custodian and the Manager of the Alternative Investment Fund sign an undertaking that they shall act independently of each other in their dealings of the schemes of the Alternative Investment Fund.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6(c) (Syllabus 2022).

As per SEBI (Alternative Investment Funds) (Third Amendment) Regulations, Accredited Investor means any person who is granted a certificate of accreditation by an accreditation agency who,

i.In case of an individual, HUF, family trust or sole proprietorship has:

a)An annual income of at least ₹ 2 crore; or

b)Net worth of at least ₹ 7.50 crore, out of which not less than ₹ 3.75 crore is in the form of financial assets or

c)Annual income of at least ₹ 1 crore and minimum net worth of ₹ 5 crore, out of which not less than ₹ 2.50 crore is in the form of financial assets

ii.In case of a body corporate, has net worth of at least ₹ 50 crore;

iii.In case of a trust other than family trust has net worth of at least ₹ 50 crore;

iv.In case of a partnership firm set up under the Indian Partnership Act 1932, each partner independently meets the eligibility criteria for accreditation.

However, the Central Government (CG) and State Governments (SG), developmental agencies set up under the aegis of the CG/SG, funds set up by the CG/SG, qualified institutional buyers as defined under the SEBI (ICDR) Regulations 2018, category I portfolio investors, sovereign wealth funds and multilateral agencies and any other entities as may be specified by SEBI from time to time, shall be deemed to be an accredited investor and may not be required to obtain a certificate of accreditation.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Chapter III-B on Special Situation Fund was inserted vide SEBI (Alternative Investment Funds) (Amendment) Regulations, 2022. Special Situation Fund means a Category 1 Alternative Investment Fund that invests in special situation assets in accordance with its investment objectives and may act as a resolution applicant under the Insolvency and Bankruptcy Code, 2016. The provisions of this Chapter shall apply to special situation funds and schemes launched by such special situation funds.

Investment in special situation funds

1)Each scheme of a special situation fund shall have a corpus as may be specified by the SEBI.

2)The special situation fund shall accept from an investor, an investment of such value as may be specified by the SEBI.

3)The special situation fund shall not accept investments from any other Alternative Investment Fund other than a special situation fund.

Investment by special situation funds

1)Special situation funds shall invest only in special situation assets and may act as a resolution applicant under the Insolvency and Bankruptcy Code, 2016. However, the special situation fund shall not invest in,

i.its associates; or

ii.the units of any other Alternative Investment Fund other than the units of a special situation fund; or

iii.units of special situation funds managed or sponsored by its manager, sponsor or associates of its manager or sponsor.

2)Any investment by a special situation fund in the stressed loan acquired under clause 58 of the Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 as amended from time to time shall be subject to lock-in period as may be specified by the SEBI.

In this context, SEBI vide its Circular No. SEBI/HO/IMD I/DF6/P/CIR/2022/009 dated January 27, 2022 has specified the following:

a)Each scheme of SSF shall have a corpus of at least ₹ 100 crore.

b)SSF shall accept an investment of value not less than ₹ 10 crore from an investor. In case of an accredited investor, the SSF shall accept an investment of value not less than ₹ 5 crore. Further, in case of investors who are employees or directors of the SSF or employees or directors of the manager of the SSF, the minimum value of investment shall be 25 lakh rupees.

c)SSF intending to act as a resolution applicant under the Insolvency and Bankruptcy Code, 2016 shall ensure compliance with the eligibility requirement provided thereunder.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6(a) (Syllabus 2022).

As per the asked circular, AIFs/VCFs shall not invest in an overseas investee company, which is incorporated in a country identified in the public statement of Financial Action Task Force (FATF) as:

(a)a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or

(b)a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with FATF to address the deficiencies.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 3(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Special situation fund means a Category 1 Alternative Investment Fund that invests in special situation assets in accordance with its investment objectives and may act as a resolution applicant under the Insolvency and Bankruptcy Code, 2016. Each scheme of Special Situation Fund (SSF) shall have a corpus of at least 100 crore. SSF shall accept an investment of value not less than 10 crore from an investor. In case of an accredited investor, the SSF shall accept an investment of value not less than 5 crore. Further, in case of investors who are employees or directors of the SSF or employees or directors of the manager of the SSF, the minimum value of investment shall be 25 lakhs.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 2(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Different types of Alternative Investment Funds

There are three categories of Alternative Investments Funds available for investors to make investment and the same are elaborated hereunder:

1.Category I Alternative Investment Fund are those which invest in start-up or early stage ventures or social ventures or SMEs or infrastructure or other sectors or areas which the government or regulators consider as socially or economically desirable and shall include venture capital funds, SME Funds, social venture funds, infrastructure funds, special situation funds and such other Alternative Investment Funds as may be specified.

Alternative Investment Funds which are generally perceived to have a positive spillover effect on the economy and for which SEBI or Government of India or other regulators in India might consider providing incentives or concessions shall be included and such funds which are formed as trusts or companies shall be construed as ‘venture capital company’ or ‘venture capital fund’ as specified under sub-section (23FB) of Section 10 of the Income Tax Act, 1961.

2.Category II Alternative Investment Fund are those which does not fall in Category I and III and which does not undertake leverage or borrowing other than to meet day-to-day operational requirements and as permitted in the SEBI AIF Regulations. Alternative Investment Funds such as private equity funds or debt funds for which no specific incentives or concessions are given by the government or any other Regulator shall be included under this category.

3.Category III Alternative Investment Fund which employs diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives. Alternative Investment Funds such as hedge funds or funds which trade with a view to make short term returns or such other funds which are open ended and for which no specific incentives or concessions are given by the government or any other Regulator shall be included in this category.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 2A(ii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

1.Alternative investment fund : means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which:

(i)is a privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors; and

(ii)is not covered under the SEBI (mutual funds) regulations, 1996, SEBI (Collective Investment Schemes) regulations, 1999 or any other regulations of the SEBI to regulate fund management activities. [ok]

2.Infrastructure Fund : means an Alternative Investment Fund which invests primarily in enlisted securities or partnership interest or listed debt or securitized debt instruments of investee companies or special purpose vehicles engaged in or formed for the purpose of operating, developing, or holding infrastructure projects. Infrastructure shall be as defined by GOI from time to time.

3.Social Venture Fund : means an alternative investment fund which invests primarily in securities or units of social ventures and which satisfies social performance norms laid down by the fund and whose investors may agree to receive restricted or muted returns.

4.Sponsor : means any person or persons who set up the Alternative Investment Fund and includes promoter in case of a company and designated partner in case of a limited liability partnership

5.“Venture Capital Fund” : means an Alternative Investment Fund which invests primarily in unlisted securities of start-ups, emerging or early-stage venture capital undertakings mainly involved in new products, new services, technology or intellectual property right based activities or a new business model and shall include an angel fund as defined under Chapter III-A of the SEBI (AIF) Regulations,2012.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

(i)Angel Fund Investment

(ii)Shares issued to Angel

Let total shares after Angel investment = X

Promoters holding = 80%

Angel Holding = 20%

Shares issued to Angel = (1,00,000/80) x 20 = 25000 shares

Price per share for Angel Fund

Total shares after VCF investment

Shareholding by Promoters and Angel investors i.e 60% = 1,25,000 shares

Existing shareholders = (1,25,000/60) x 100 = 2,08,333 shares (approx.)

VCF shares = 2,08,333 – 1,25,000 = 83,333 shares

Price per share for VCF

4,00,00,000/83,333 = ₹ 480 per sh are

Final Shareholding Pattern

(iii)Control Implications

•Promoters’ holding reduced from 100% to 48%

•They lose majority control (<50%)

•VCF becomes a significant shareholder (40%), may demand board seats

•Angel investors have minor but strategic influence

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 4(a) (Syllabus 2022).

As per Regulation 19A (1) of SEBI (Alternate Investment Fund) Regulations 2012, Angel Fund means a sub-category of Venture Capital Fund under Category I of Alternative Investment Fund that raises funds from angel investors and invests in accordance with the provisions of Chapter III-A of the AIF Regulations.

Angel fund invest in startups which are not promoted or supported by or related to Industrial Group whose group turnover exceeds ₹ 300 crores. Angel funds can accept investment from maximum 200 investors. The investment by an angel fund is in the range of ₹ 25 lakh to ₹ 10 crores. They are regulated by SEBI (Alternative Investment Fund) Regulations, 2012.

As per Regulation 19A (2) of SEBI (Alternate Investment Fund) Regulations 2012 ‘Angel Investor’ means any person who proposes to invest in an angel fund and satisfies one of the following conditions, namely,

(i)an individual investor who has net tangible assets of at least ₹ 2 crore excluding value of his principal residence, and who:

•has early stage investment experience, or

•has experience as a serial entrepreneur, or

•is a senior management professional with at least ten years of experience.

Early-stage investment experience shall mean prior experience in investing in start-up or emerging or early-stage ventures and ‘serial entrepreneur’ shall mean a person who has promoted or co-promoted more than one start-up venture.

(ii)a body corporate with a net worth of at least ₹ 10 crore; or

(iii)an Alternative Investment Fund registered under SEBI AIF Regulations or a Venture Capital Fund registered under the SEBI (Venture Capital Funds) Regulations, 1996.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 3(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Regulation 19A(2) of the SEBI (Alternative Investment Funds) Regulation, 2012 defines the ‘Angel Investor’ which means any person who proposes to invest in an angel fund and satisfies one of the following conditions, namely,

i.an individual investor who has net tangible assets of at least two crore rupees excluding value of his principal residence, and who:

a)has early stage investment experience, or

b)has experience as a serial entrepreneur, or

c)is a senior management professional with at least ten years of experience.

ii.a body corporate with a net worth of at least ten crore rupees; or

iii.an Alternative Investment Fund registered under SEBI (AIF) Regulations or a Venture Capital Fund registered under the SEBI (Venture Capital Funds) Regulations, 1996.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6A(b) (Syllabus 2022).

As per SEBI (Alternative Investment Fund) Regulations, 2012 (AIF Regulations), Angel Fund means a sub-category of Venture Capital Fund under Category I Alternative Investment Fund that raises funds from angel investors and invests in accordance with the provisions of Chapter III A of the AIF Regulations.

'Angel Investor' means any person who proposes to invest in an angel fund and satisfies one of the following conditions, namely,

(a)an individual investor who has net tangible assets of at least 2 crore rupees excluding value of his principal residence, and who:

•has early stage investment experience, or

•has experience as a serial entrepreneur, or

•is a senior management professional with at least ten years of experience.

(b)a body corporate with a net worth of at least 10 crore rupees, or

(c)an Alternative Investment Fund registered under SEBI AIF Regulations or a Venture Capital Fund registered under the SEBI (Venture Capital Funds) Regulations, 1996.

As per AIF Regulations, the angel fund may launch schemes subject to filing of a term sheet with SEBI, containing material information regarding the scheme, in the format and time period as may be specified by SEBI.

Angel funds shall only raise funds by way of issue of units to angel investors. An angel fund shall have a corpus of at least Rs.5 crore. Angel funds shall accept, up to a maximum period of five years, an investment of not less than Rs.25 lakh from an angel investor and such funds shall be raised through private placement by issue of information memorandum or placement memorandum, by whatever name called. No scheme of the angel fund shall have more than two hundred angel investors. However, the provisions of the Companies Act, 2013 shall apply to the Angel Fund, if it is formed as a company.

Therefore, Bon may invest in Angel Fund if qualifies for investment as stated above.

Regulation 19F of the AIF Regulations states that the Angel funds shall invest in startups which are not promoted or sponsored by or related to an industrial group whose group turnover exceeds Rs.300 crore.

•Investment by an angel fund in any venture capital undertaking shall not be less than Rs.25 lakh and shall not exceed Rs. 10 crores.

•Investment by an angel fund in the venture capital undertaking shall be locked in for a period of one year.

•Angel Funds shall not invest in associates.

•Angel funds shall not invest more than 25% of the total investments under all its schemes in one venture capital undertaking, the compliance of which shall be ensured by the Angel Fund at the end of its tenure.

•An angel fund may also invest in the securities of companies incorporated outside India subject to such conditions or guidelines that may be stipulated or issued by the Reserve Bank of India and SEBI from time to time.

Regulation 19H of the AIF Regulations prohibits units of Angel Funds from listing. It states that units of Angel Funds shall not be listed on any recognized stock exchange.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2A(i) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

1)Yes, investment by Angel funds are governed by the SEBI (Alternative Investment Funds) Regulations, 2012. Angel funds shall invest in venture capital undertakings which:

(i)complies with the criteria regarding the age of the venture capital undertaking/ start-ups issued by Ministry of Commerce and Industry, Government of India or such other policy made in this regard which may be in force;

(ii)have a turnover of less than twenty five crore rupees:

(iii)are not promoted or sponsored by or related to an industrial group whose group turnover exceeds three hundred crore rupees. For the purpose of this clause, “industrial group” shall include a group of body corporates with the same promoter(s)/promoter group, a parent company and its subsidiaries, a group of body corporates in which the same person/ group of persons exercise control, and a group of body corporates comprised of associates/subsidiaries/holding companies. For the purpose of this clause, “group turnover” shall mean combined total revenue of the industrial group.

(iv)are not companies with family connection with any of the angel investors who are investing in the company.

2)Investment by an angel fund in any venture capital undertaking shall not be less than twenty five lakh rupees and shall not exceed ten crores rupees.

3)Investment by an angel fund in the venture capital undertaking shall be lockedin for a period of one year.

4)Angel Funds shall not invest in associates.

5)Angel funds shall not invest more than twenty-five per cent of the total investments under all its schemes in one venture capital undertaking, the compliance of which shall be ensured by the Angel Fund at the end of its tenure.

6)An angel fund may also invest in the securities of companies incorporated outside India subject to such conditions or guidelines that may be stipulated or issued by the Reserve Bank of India and SEBI from time to time.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 4(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

‘Angel Investor’ means any person who proposes to invest in an angel fund and satisfies one of the following conditions, namely,

(a)an individual investor who has net tangible assets of at least two crore rupees excluding value of his principal residence, and who:

•has early stage investment experience, or

•has experience as a serial entrepreneur, or

•is a senior management professional with at least ten years of experience.

(b)a body corporate with a net worth of at least ten crore rupees; or

(c)an Alternative Investment Fund registered under SEBI AIF Regulations or a Venture Capital Fund registered under the SEBI (Venture Capital Funds) Regulations, 1996.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2A(i) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Private equity investments can be divided into the following categories:

Leveraged Buyout (LBO): This refers to a strategy of making equity investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage. The companies involved in these type of transactions that are typically more mature and generate operating cash flows.

Venture Capital: It is a broad sub-category of private equity that refers to equity investments made,

typically in less mature companies, for the launch, early development, or expansion of a business.

Growth Capital: This refers to equity investments, mostly minority investments, in the companies that are looking for capital to expand or restructure operations, enter new markets or finance a major acquisition without a change of control of the business.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 4(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Answer: (C) Leveraged Buyout (LBO)

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), June 2023, Q. 35 (Financial and Strategic Management paper, Syllabus 2017).

Answer: (B) Management Buyout

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers (answer key), December 2022, Q. 43 (Financial and Strategic Management paper, Syllabus 2017).

Seed Funding

Seed funding, taken from the word "seed" is the capital needed to start / expand your business. It often comes from the company founders' personal assets, from friends and family or other investors. The amount of money is usually relatively small because the business is still in the idea or conceptual stage.

This type of funding is often obtained in exchange for an equity stake in the enterprise, although with less formal contractual overhead than standard equity financing.

Lenders often view seed capital as a risky investment by the promoters of a new venture, which represents a meaningful and tangible commitment on their part to making the business a success.This would be a type of Venture Capital Funding and hence covered under the provisions of Angel Funding in the SEBI (Alternative Investment Fund) Regulations, 2012.

Private Equity

Private equity is a type of equity (finance) and one of the asset classes that are not publicly traded on a stock exchange. Private equity is essentially a way to invest in some assets that isn't publicly traded, or to invest in a publicly traded asset with the intention of taking it private. Unlike stocks, mutual funds, and bonds, private equity funds usually invest in more illiquid assets, i.e. companies. By purchasing companies, the firms gain access to those assets and revenue sources of the company, which can lead to very high returns on investments.

Another feature of private equity transaction is their extensive use of debt in the form of high-yield bonds. By using debt to finance acquisitions, private equity firms can substantially increase their financial returns.

The private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time. Generally, the private equity fund raise money from investors like Angel investors, Institutions with diversified investment portfolio like - pension funds, insurance companies, banks, funds of funds etc.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 3(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Private equity investments can be divided into the following categories:

(i)Leveraged Buyout (LBO) : This refers to a strategy of making equity investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage. The companies involved in these type of transactions that are typically more mature and generate operating cash flows.

(ii)Venture Capital : It is a broad sub-category of private equity that refers to equity investments made, typically in less mature companies, for the launch, early development, or expansion of a business.

(iii)Growth Capital : This refers to equity investments, mostly minority investments, in the companies that are looking for capital to expand or restructure operations, enter new markets or finance a major acquisition without a change of control of the business.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 4(c) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).