SEBI’s Curveball To VC Funds: Why Regulator Wants Details Of LPs

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SEBI, the Securities and Exchange Board of India, has recently asked venture capital (VC) funds to disclose the details of their limited partners (LPs) and upstream investors. This has caused concerns among VC funds as they view this move as an infringement of their confidentiality and privacy. SEBI’s rationale for requesting this information is to gain a better understanding of the structure and composition of VC funds and to identify any potential risks or conflicts of interest that may arise. By knowing who the LPs and upstream investors are, SEBI hopes to get a better sense of the source of funds for VC firms and their potential exposure to any regulatory or legal issues. VC funds argue that disclosing such information would violate the confidentiality of their LPs and undermine the trust between them. They also argue that the SEBI’s request goes beyond the regulatory purview and could potentially harm the VC industry by deterring foreign investment.

The SEBI has responded by stating that the disclosure of such information is necessary to ensure transparency and prevent any conflicts of interest or illegal activities. The regulator has assured VC funds that the information provided will be kept confidential and used only for regulatory purposes.

The debate over the disclosure of LPs and upstream investors highlights the tension between the need for regulatory oversight and the importance of maintaining confidentiality and privacy in the VC industry.

SEBI, the Securities and Exchange Board of India, recently issued a circular requiring venture capital (VC) funds to disclose information about their limited partners (LPs) and upstream investors, which has raised concerns in the Indian startup ecosystem. This move is part of SEBI’s efforts to prevent money laundering and ensure that VC funds are complying with regulatory norms.

VC funds typically raise money from LPs such as wealthy individuals, family offices, and institutions, and then invest that money into startups. Upstream investors are those entities that invest in VC funds, such as fund-of-funds, sovereign wealth funds, and other large institutions.

SEBI’s circular requires VC funds to disclose information such as the identity of the LPs and upstream investors, the percentage of their investment in the fund, and the source of their funds. The circular also requires VC funds to conduct background checks on their LPs and upstream investors to ensure that they are not involved in any illegal activities.

While SEBI’s move has been welcomed by some as a step towards greater transparency in the Indian startup ecosystem, others have expressed concerns about the potential impact on the VC industry. Some industry insiders have pointed out that disclosing LP information could deter some LPs from investing in Indian VC funds, as they may not want their identity to be made public. Others have argued that the disclosure requirements could be onerous for smaller VC funds, which may not have the resources to conduct background checks on all their LPs and upstream investors.