NABVentures, a subsidiary of National Bank for Agriculture and Rural Development (NABARD), introduced its debut venture capital fund worth Rs 700 crore for equity investments in agricultural, food, and rural start-ups. This first-of-its-kind initiative by NABVentures Fund I comes after years of contributing to other funds. With an estimated corpus of Rs 500 crore and an additional greenshoe option of Rs 200 crore, the investment is expected to make significant impacts on agricultural, food industries and the rural livelihood sector.
NABVentures Ltd. and Its Vision
Incorporated under the Companies Act 2013, NABVentures Ltd. has taken a step towards supporting start-ups with a focus on agriculture and rural enterprises. The move came in response to the lack of adequate institutional support for these sectors. The launch of this initiative marked NABARD’s first independently run fund.
The expected high impact of the fund reflects NABARB’s commitment to bolstering the investment climate in core sectors such as agriculture and food, as well as improving rural livelihoods.
Understanding the Greenshoe Option
A greenshoe option refers to an over-allotment option, often applied during an initial public offering (IPO). It empowers the underwriter with the right to sell more shares to investors than initially planned if the demand for a security issue exceeds expectations.
In the context of venture capital, a greenshoe option allows a firm to raise more capital than its original target corpus, upon receiving strong investor interest. This injects price stability and liquidity into the market, providing buying power to cover short positions if prices fall, eliminating the risk of having to purchase shares when prices increase.
The Concept of Alternative Investment Funds (AIFs)
Investments that deviate from traditional forms fall under alternative investments. In India, alternative investment funds (AIFs) are private investment pools from Indian or foreign sources in the form of trusts, companies, bodies corporate, or Limited Liability Partnerships (LLPs).
Regulation 2(1)(b) of Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, defines these funds that aren’t governed by any SEBI regulation or fall under the direct control of any other sectoral regulators in India. This definition includes venture capital funds, hedge funds, private equity funds, commodity funds, debt funds, and infrastructure funds.
| Type | Examples |
|---|---|
| Category I AIF | Venture Capital Funds, SME Funds, Social Venture Funds and Infrastructure Funds |
| Category II AIF | Private Equity or Debt Fund |
| Category III AIF | Hedge Funds |
Types of AIFs
AIFs are categorized into three types: Category I, II, and III. Category I AIFs have positive impacts on the economy and may be considered for incentives or concessions by SEBI or the government. These funds typically invest in start-ups, early-stage ventures, social ventures, SMEs, infrastructure, or other sectors deemed socially or economically beneficial.
Category II AIFs, on the other hand, receive no specific incentives or concessions. They do not undertake leverage or borrowing except to meet daily operational requirements, as specified for Category I AIFs.
Category III AIFs can sometimes have potential negative consequences and often undertake leverage to a great extent. These funds trade with an aim to make short-term returns. They can invest in Category I and II AIFs and do not receive specific incentives or concessions.
