Structuring Venture Capital and Other Investments in India

Many U.S. and other foreign investors are evaluating alternatives for structuring investments into software development, business process outsourcing, drug discovery and other tech and non-tech companies based in India.

Here's a whitepaper from Fenwik & West, a Cali based legal firm covering 2007 update to Structuring Venture Capital and Other Investments in India.

The primary structures for investing in India are:

1. Direct investment in an India company from outside India(usually through a Mauritius or a Cyprus subsidiary fortax reasons)
2. Investment in a U.S. company with a services fulfillmentsubsidiary in India
3. Investment in a Cayman Islands or Mauritius companywith a services fulfillment subsidiary in India
4. Direct investment in an India company from outsideIndia through a venture capital fund registered with theSecurities and Exchange Board of India.

The primary business considerations in determining how tostructure such an investment are:

1. Relative valuations in the U.S. and India capital marketsfor the type of investment in question, particularly aservices business;
2. Ease of IPO exit including any currency exchangerestrictions, the impact of Sarbanes-Oxley in the U.S. andoverseas company listing requirements in India;
3. Ease of acquisition by the likely set of acquirors as an exit-strategy
4. Investor “comfort” with the limitations on preferenceshares under the India Companies Act of 1956, asamended (the “Companies Act”)

It also covers the IPOs, Company act, Mauritius Financial Services Commission strategy, Cyprus and other key areas. Download the paper here