3one4 Capital Stewardship Policy

3one4 Capital Stewardship Policy

Introduction

This Stewardship Policy outlines the guiding principles and practices of 3one4 Capital, an early-stage venture capital fund based in India. The purpose of this policy is to ensure responsible and effective management of investments, promote sustainable business practices, and deliver long-term value to our stakeholders.

Objectives

•    To align the interests of the fund, its investors, portfolio companies, and other stakeholders.

•    To foster transparent and accountable relationships with portfolio companies.

•    To encourage sustainable and ethical business practices.

•    To support the growth and development of early-stage businesses in India.

•    To prioritize specific ESG (Environmental, Social, and Governance) factors in stewardship activities.

Governance Structure

 1.    Manager

         •    The Manager shall ensure robust governance frameworks within the fund and portfolio companies and is tasked with the enforcement of this stewardship policy. The Manager is tasked with the overall management of the fund as per the respective fund documents.

 2.    Internal Investment Committee (IIC)

         •    The IIC shall evaluate and approve investment opportunities and do all such acts as mentioned in the respective fund documents and as required by law.

 3.    Portfolio Advisory Committee (PAC)

         •    The PAC shall comprise industry experts and advisors to provide insights and guidance and do all such acts as mentioned in the respective fund documents

Investment Criteria

•    The investment criteria and investment thesis for each fund is mentioned in the respective fund documents

•    The Manager shall evaluate companies based on their business model, market potential, team capability, and alignment with ESG principles as mentioned in the respective fund documents

Due Diligence Process

The process to be followed by the Manager, as further elaborated in the respective fund documents, is summarised here:

 1.    Initial Screening

         •    Assess alignment with the respective fund’s investment criteria.

         •    Preliminary evaluation of business model, market size, and competitive landscape.

 2.    Detailed Analysis

         •    Conduct thorough financial, legal, and operational due diligence.

         •    Evaluate management team capabilities and track record.

         •    Assess potential risks and mitigation strategies.

 3.    Approval and Documentation

         •    Present findings to the Investment Committee for approval.

         •    Ensure all legal and regulatory requirements are met before finalizing investments.

Post-Investment Stewardship

 1.    Active Engagement

         •    Maintain regular communication with portfolio companies.

         •    Provide strategic guidance and operational support.

         •    Facilitate access to networks, resources, and follow-on funding.

 2.    Performance Monitoring

         •    Regularly review financial and operational performance.

         •    Set and monitor key performance indicators (KPIs).

         •    Conduct periodic reviews and provide feedback.

 3.    Governance and Compliance

         •    Ensure portfolio companies adhere to robust governance standards.

         •    Promote compliance with legal, regulatory, and ethical standards.

         •    Support the development of effective board structures and practices.

Environmental, Social, and Governance (ESG) Principles

 1.    Environmental Stewardship

         •    Encourage sustainable business practices and resource efficiency.

         •    Assess and mitigate environmental risks and impacts.

 2.    Social Responsibility

         •    Promote diversity, equity, and inclusion within portfolio companies.

         •    Support initiatives that contribute to community development and social well-being.

 3.    Governance Excellence

         •    Uphold high standards of corporate governance and transparency.

         •    Foster ethical business practices and integrity.

As an early-stage venture capital fund, 3one4 Capital has prioritised a phased approach to ESG to ensure that the early stage ventures balance their ESG priorities with business sustainability. This is further elaborated in the Responsible Investing Policy (link) and other policies of the Manager.

Standard of Care

The Manager each shall manage and control the respective and their affairs reasonably and in good faith and with the care that an ordinarily prudent person in a like position would exercise under similar circumstances.  The foregoing duties apply to all investment decisions, delegations of authority, and all other acts or omissions of the Manager and/or Key Persons under the respective Fund Documents.  The standard of care supplements, and does not replace, the fiduciary duties applicable to the Key Persons or the Manager, as the case may be, pursuant to the FM Regulations or any other Applicable Law.

For the avoidance of doubt, (i) the Manager and Key Persons each shall exercise its “good faith,” “discretion,” “sole discretion,” “reasonable discretion,” “reasonable and good faith discretion,” or other subjective standard of care set forth in the respective Fund Documents in a manner consistent with this Stewardship policy and (ii) whenever taking an action or making a determination under the respective Fund Documents in its “discretion,” “sole discretion,” “reasonable discretion,” “reasonable and good faith discretion,” or under a grant of similar authority or latitude, Manager and Key Persons shall not place their interests or those of its Affiliates and or Primary Personnel ahead of those of the Scheme or the Contributors.

Stewardship Activities

The stewardship activities of the Manager shall be read in tandem with the Standard of Care.

 1.    Prioritization of ESG Factors

         •    Identify and prioritize key ESG factors to advance through stewardship activities.

         •    Focus on critical areas that align with the fund’s values and objectives.

 2.    Guidance and Engagement

         •    Use structured guidelines to prioritize engagement with investors, policymakers, key stakeholders, and other entities.

         •    Focus on significant issues that can drive meaningful change and impact.

 3.    Stewardship Tools and Activities

         •    Utilize various tools and activities to implement stewardship practices across the organization.

         •    Include activities such as direct engagement, proxy voting, and collaborative initiatives.

 4.    Approach to Escalation

         •    Define a clear approach to escalating stewardship efforts when necessary.

         •    Engage in constructive dialogue with portfolio companies to address concerns and drive improvements.

 5.    Collaboration in Stewardship

         •    Foster collaboration with other investors, industry groups, and stakeholders to amplify stewardship efforts.

         •    Participate in joint initiatives to promote best practices and drive systemic change.

 6.    Conflict of Interest Management

         •    Identify and manage potential conflicts of interest related to stewardship activities.

         •    Ensure transparency and prioritize the best interests of the fund and its stakeholders.

Code of Conduct as adopted by the Manager

1.        Code of Conduct for Alternative Investment Funds

An Alternative Investment Fund shall:

(a)             carry out its business activities and invest in accordance with the investment objectives stated in the placement memorandum and other fund documents.

(b)             be operated and managed in the interest of all investors and not only in the interest of thesponsor, manager, directors or partners of the sponsor and manager or a select class of investors.

(c)             ensure the dissemination of adequate, accurate, explicit and timely information in accordance with these Regulations to all investors.

(d)             ensure the dissemination of any other information as agreed with the investors.

(e)             ensure that an effective risk management process and appropriate internal controls are in place.

(f)                have written policies and procedures to identify, monitor and appropriately mitigate any potential conflict of interest through-out the scope of its business.

(g)              not use any unethical means to sell, market or induce any investor to buy its units.

(h)             have written policies and procedures to comply with anti-money laundering laws.

2.       Code of Conduct for the Managers of Alternative Investment Funds and key management personnel of Managers and Alternative Investment Funds

Every Manager of Alternative Investment Funds and key management personnel of the manager and Alternative Investment Funds shall:

(a)             abide by the Act, Rules, Regulations, Guidelines and Circulars as applicable to Alternative Investment Funds at all times;

(b)             maintain integrity, highest ethical and professional standards in all its dealings;

(c)             ensure proper care and exercise due diligence and independent professional judgment in all its decisions;

(d)             act in a fiduciary capacity towards investors of the Alternative Investment Fund and ensure that decisions are taken in the interest of the investors;

(e)             abide by the policies of the Alternative Investment Fund to identify, monitor and appropriatelymitigate any potential conflict of interest throughout the scope of its business;

(f)                not make any misleading or inaccurate statement, whether oral or written, either about their qualifications or capability to render investment management services or their achievements;

(g)              record in writing, the investment, divestment and other key decisions, together with appropriate justification for such decisions;

(h)             provide appropriate and well considered inputs, which are not misleading, as required by the valuer to carry out appropriate valuation of the portfolio;

(i)                not enter into arrangements for sale or purchase of securities, where there is no effective change in beneficial interest or where the transfer of beneficial interest is only between parties who are acting in concert or collusion, other than for bona fide and legally valid reasons;

(j)                abide by confidentiality agreements with the investors and not make improper use of the details of personal investments and/or other information of investors;

(k)              not offer or accept any inducement in connection with the affairs of or business of managing the funds of investors;

(l)                document all relevant correspondence and understanding during a deal with counterparties asper the records of the Alternative Investment Fund, if they have committed to the transactions on behalf of Alternative Investment Fund;

(m)          maintain ethical standards of conduct and deal fairly and honestly with investee companies at all times; and

(n)             maintain confidentiality of information received from investee companies and companies seeking investments from Alternative Investment Fund, unless explicit confirmation is received that such information is not subject to any non-disclosure agreement.

3.       Code of Conduct for members of the Investment Committee, trustee, trustee company, directors of the trustee company, directors or designated partners of the Alternative Investment Fund

Members of the Investment Committee, trustee, trustee company, directors of the trustee company, directors or designated partners of the Alternative Investment Fund shall:

(a)             maintain integrity and the highest ethical and professional standards of conduct;

(b)             ensure proper care and exercise due diligence and independent professional judgment in carrying out their roles;

(c)             disclose details of any conflict of interest relating to any/all decisions in a timely manner to the Manager of the Alternative Investment Fund, adhere with the policies and procedures of the Alternative Investment Fund with respect to any conflict of interest and wherever necessary, recuse themselves from the decision making process;

(d)             maintain confidentiality of information received regarding the Alternative Investment Fund, its investors and investee companies; unless explicit confirmation is received that such information is not subject to any non-disclosure agreement;

(e)             not indulge in any unethical practice or professional misconduct or any act, whether by omission or commission, which tantamount to gross negligence or fraud.

Communication and Feedback

The Manager shall:

•    Communicate stewardship efforts and results across the organization to inform investment decision-making.

•    Ensure feedback loops between stewardship activities and investment strategies to enhance overall effectiveness.

•    Provide regular updates to investors on fund performance and portfolio developments.

•    Disclose material events and changes in a timely manner.

•    Ensure transparency in financial reporting and adherence to accounting standards.

Review and Continuous Improvement

The Manager shall:

•    Regularly review and update the stewardship policy to reflect evolving best practices and regulatory requirements.

•    Seek feedback from stakeholders and incorporate improvements.

The Manager has also voluntarily adopted the SEBI Stewardship code and transcribed the following principles into its Stewardship Policy and its Portfolio Monitoring Framework.

Principles from the SEBI Stewardship Code

 1.    Formulation of Policy

         •    Develop a comprehensive policy on the discharge of stewardship responsibilities.

         •    Publicly disclose the policy and review it periodically.

 2.    Conflict of Interest Management

         •    Have a clear policy for identifying and managing conflicts of interest.

         •    Ensure the interests of clients/beneficiaries are prioritized over the entity’s interests.

 3.    Monitoring Investee Companies

         •    Continuously monitor investee companies’ performance, governance, strategy, risks, etc.

         •    Establish different levels of monitoring based on the significance of investments.

 4.    Intervention in Investee Companies

         •    Define circumstances for active intervention and the manner of intervention.

         •    Assess and document the outcomes of such interventions regularly.

 5.    Voting and Disclosure of Voting Activity

         •    Frame a comprehensive voting policy, including mechanisms of voting and disclosure of voting decisions.

         •    Disclose voting activities and the rationale for decisions publicly.

 6.    Periodic Reporting

         •    Report periodically on stewardship activities to clients/beneficiaries.

         •    Ensure easy-to-understand formats for reporting and transparency in disclosures.

Conclusion

3one4 Capital is committed to responsible stewardship and the creation of long-term value for all stakeholders. By adhering to this policy and the principles of the SEBI Stewardship Code, we aim to foster a sustainable and thriving ecosystem for early-stage ventures in India.