Boston University School of Law
Foreign Venture Capital Investment in India
Arsala Kidwai
4/19/2009
Objective
Foreign investment in India has been a large contributor to its growth story. After liberalization and opening up of the Indian markets in the early 1990s, India has managed to attract foreign investments at a steady growth rate. Over the span of the last few years, India has managed to find itself a place in the emerging markets acronym “BRIC”. The likes of leading private equity houses like Blackstone, Carlyle, Texas Pacific, Temasek, General Atlantic, etc have invested their funds in the Indian market.
The regulatory authorities in their part have a tough job. They have to provide for opposing interests in the economy. On one part, foreign investment is to be encouraged in light of ever expanding globalization and the influence and reputation attached with foreign investments in an emerging economy, as opposed to providing for the sustenance of a growing domestic economy which cannot be too dependent on foreign capital. They need to provide for a healthy and competitive market for domestic as well as foreign investors. A heavy reliance on foreign funds would prove to be a competitive disadvantage, not only from the investor perspective, but also from the business and industry perspective.
The aim and objective of this paper is to highlight, analyze and breakdown the concept and process of foreign venture capital investment in India. The focus is to provide guidelines and a check list for foreign venture capital investors looking to invest in India.
The paper will deal first with regulatory considerations, in the form of mode of entry to be adopted, regulatory approvals and requirements and sectoral limits on foreign investment. It will then move on to describe the various peculiarities of deals in India, with respect to the kinds of shares and shareholder agreements used, the valuation process in place and IPO exits....