VCs welcome SEBI's AIF green channel, see quicker fund launches and capital deployment

Venture capital investors have welcomed the Securities and Exchange Board of India's (Sebi's) decision to introduce a green-channel mechanism for alternative investment funds (AIFs), saying it will reduce launch delays, lower compliance costs and speed up capital deployment into startups.

The remarks follow Sebi’s recent approval of the Green-Channel: AIF Rollout Upon Document Acknowledgement (GARUDA) framework, which seeks to streamline the launch of AIF schemes by shortening regulatory timelines and easing compliance.

"The GARUDA Scheme is a landmark decision by Sebi that will accelerate the Go To Market for AIFs as accredited investor can launch schemes upon obtaining registration," said Siddarth Pai, founding partner at 3one4 Capital.

Pai said the move was important for VC, private equity, private credit and hedge fund managers, where speed can be critical to capitalise on market opportunities.

The explosion of AIF schemes, which outnumber AIFs, requires a framework like GARUDA to ensure expeditious launches. “This is a natural successor to several regulatory changes by Sebi such as standardised PPMs, merchant bankers in the mix, etc," he said.

VC and private equity firms often spend months raising capital before they can begin deploying it.

"Even if funds could raise the requisite sort of capital from the market, they couldn't really deploy anything till the vehicle was set up, leading to great delays in deploying capital into startups," said Archana Jahagirdar, founder and managing partner at Rukam Capital.

The industry had been seeking a lighter-touch regulatory approach, as AIFs largely cater to sophisticated investors with significant investable capital, she said.

AIFs are privately pooled investment vehicles through which venture capital, private equity, private credit, real estate and other alternative asset managers raise and deploy capital.

Under GARUDA, AIF schemes can now be launched after 10 working days instead of 30.

The biggest changes comes to accredited investor-only funds and angel funds, which can now be launched immediately after filing documents with Sebi without requiring merchant banker due diligence certificates.

Regular schemes will continue to require merchant banker involvement. Accredited investor-only and angel funds can file directly with SEBI after furnishing compliance undertakings from designated officers.

Industry body IVCA, which engaged with Sebi on eliminating bottlenecks in the AIF ecosystem, said the framework would improve ease of doing business.

"The introduction of the GARUDA framework marks a significant step towards enhancing ease of doing business for India's Alternative Investment Funds ecosystem… Sebi has enabled fund managers to access the market faster and deploy capital more efficiently," Indian Venture and Alternate Capital Association president Rajat Tandon said.

The reforms reflect a more differentiated and risk-based regulatory approach for sophisticated investor categories such as accredited investor-only funds, angel funds and large value funds.

Shift towards disclosure-based oversight

Investors also see the move signalling a broader shift in regulatory approach.

"The introduction of the GARUDA mechanism marks a structural shift from rigid pre-clearance to rapid, disclosure-backed rollouts for AIFs. By exempting sophisticated investor pools from the mandatory merchant banker route for PPM filings, SEBI acknowledges the maturity of these market participants," said Vinod Shankar, managing partner at Java Capital.

The framework recognises that accredited investors possess the sophistication to evaluate investment opportunities, allowing the regulator to adopt a lighter-touch approach without compromising investor protection, industry participants said.

The changes do not eliminate accountability. While merchant bankers will continue to share responsibility for disclosures in regular schemes, responsibility for compliance and disclosures in accredited investor-only and angel fund schemes will rest with AIF managers and designated officers.

The move comes against the backdrop of rapid growth in India's alternative investment industry.

According to Sebi, as of March, the country had 1,849 registered AIFs, up from 732 five years ago, with cumulative commitments of Rs 15.74 lakh crore.

For fund managers, the immediate benefit is speed. The new framework will help managers bring funds to market faster, begin fundraising earlier and deploy capital more efficiently.

For startups that could mean fewer delays between capital being raised and capital being put to work, they say.

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