1. 'Insurers, pension firms should invest in VC funds'
Plan panel asks Sebi, RBI, MCA to ease norms to spur early-stage investment
N Sundaresha Subramanian / New Delhi Aug 30, 2012, 00:22 IST
A 12-member expert committee formed by the Planning Commission has asked insurance
and pension regulators to allow investments in venture capital (VC) funds by firms under
their respective jurisdictions.
The suggestions are part of a report on angel investors and early-stage venture capital funds
titled ‘Creating a vibrant entrepreneurial ecosystem in India’, submitted by the committee
earlier this week.
The Pension Fund Regulatory and Development Authority and the Insurance Regulatory and
Development Authority (Irda) could permit investment of part of pension and insurance funds in
early-stage VC funds,” the panel suggested. These investments may be capped at one to two per
cent and limited to funds registered as VCs under the Securities and Exchange Board of India’s (Sebi)
Alternative Investment Funds Regulations. This would address the lack of sufficient institutional
capital from the domestic space
KINDLING HOPE
Early stage VC investment is very small in India
Rs 5,000 crore invested in last five years vsRs 1.5 lakh crore in the US
Investments significantly biased towards services, especially tech and e-commerce
Need to bring in domestic funds to early-stage investing
Investment norms of Sebi, Irda, PFRDA, RBI, MCA need tweaking
Source: Creating a vibrant entrepreneurial ecosystem in India
According to the report, a large part of VC investments in India is accounted for by offshore funds
that haven’t traditionally invested during the seed stage. Therefore, there is a need to encourage
investments of less than Rs 5 crore locally, it stated.
While the VC industry is upbeat, some insurers are sceptical about venturing into the “high risk”
space. NirakarPradhan, chief investment officer, Future Generali Life Insurance, said, “Given the
insurance industry is distinct from other investment funds, as it needs to look at sustainable long-
term returns, and keeping in mind the safety and liquidity of the portfolio, it may not be advisable to
get into a high-risk, high-return asset class.” However, he added since early-stage investments were
critical to the economy, these could be routed through some state-supported funds “in whose rated
instruments the insurance companies can be allowed to invest.”
The panel also suggested various measures for regulators such as Sebi, the Reserve Bank of India
(RBI) and the Ministry of Corporate Affairs to kick-start the venture capital industry. It wants Sebi to
lift the 33.3 per cent cap on debt investments by venture funds registered with it to encourage debt
investment. This would “encourage both the creation of venture debt offerings in India and the
entry of foreign players.” The 12-member panel suggested RBI include venture investing in the

2. priority sector and exclude lending to VCs (up to Rs 500 crore) from provisioning norms. It added
such investments should not be considered “capital market exposure”.
The central government and regulatory bodies can enable the flow of capital in the entrepreneurial
ecosystem. They can create a policy environment that offers fiscal and non-fiscal incentives and easy
investment norms for angel investors and venture capital funds,” the report stated, adding, “At least
these classes of investments must be exempted from any restrictive policy measure.”