Introduction
Venture Capital (VC) funds today operate as technology-enabled financial institutions rather than traditional investment partnerships. Investor onboarding, portfolio monitoring, deal evaluation, reporting, communication, and compliance are all driven by digital platforms and interconnected systems. As a result, technology risk and cybersecurity risk have become inseparable from fiduciary responsibility. Recognising this shift, the Securities and Exchange Board of India (SEBI) increasingly treats IT governance as a core element of regulatory oversight for VC funds registered as AIFs.
SEBI inspections, supervisory interactions, and audit observations consistently indicate that weaknesses in IT governance are no longer viewed as operational oversights. Instead, they are assessed as failures in accountability, oversight, and risk management. For VC funds, where small teams often control high-value information and decision-making, governance gaps can have disproportionate consequences.
This article provides a practical, regulator-aligned guide to IT governance for VC funds under SEBI cybersecurity guidelines for AIF. It explains the roles and responsibilities expected of fund managers, sponsors, trustees, and service providers, how accountability should be structured, and what effective oversight looks like in practice. The focus is not on technology tools, but on governance structures that demonstrate due care, diligence, and fiduciary responsibility.
Why IT Governance Matters for VC Funds
VC funds handle highly sensitive information including investor data, deal pipelines, valuations, term sheets, exit strategies, and portfolio company financials. A cyber incident affecting this information can undermine investor confidence, compromise market integrity, and expose funds to regulatory scrutiny.
SEBI views IT governance as the mechanism that ensures:
- Cyber risks are identified and managed
- Accountability is clearly defined
- Oversight is exercised at the right level
- Technology supports, rather than undermines, investor protection
Without governance, even well-intentioned cybersecurity measures fail under inspection because responsibility and evidence are unclear.
SEBI’s Perspective on IT Governance
SEBI does not prescribe specific technologies or frameworks for VC funds. Instead, it evaluates outcomes through inspections and audits. The underlying expectation is that VC funds must demonstrate:
- Awareness of technology and cyber risks
- Proportionate controls aligned to fund size and complexity
- Clear ownership and escalation paths
- Ongoing monitoring and review
In regulatory terms, this aligns IT governance directly with fiduciary duty.
Fiduciary Responsibility and Technology Risk
Fiduciary duty requires VC fund managers to act with due care, skill, and diligence in protecting investor interests. In a digital operating environment, technology risk is a foreseeable and material risk.
From SEBI’s viewpoint:
- Ignorance of cyber risk is not a defence
- Delegation to vendors does not remove accountability
- Lack of oversight is a governance failure
IT governance is therefore not an optional enhancement; it is part of fulfilling fiduciary responsibility.
Core Principles of IT Governance for VC Funds
Effective IT governance for VC funds rests on five core principles:
- Accountability
- Oversight
- Proportionality
- Transparency
- Evidence
These principles guide how roles are defined, how decisions are made, and how CERT In Cybersecurity compliance is demonstrated during inspections.
Key Roles in VC Fund IT Governance
Fund Manager / Investment Manager
The fund manager is the primary accountable entity for IT and cybersecurity governance. Responsibilities include:
- Ensuring cyber risks are identified and assessed
- Approving governance structures and policies
- Allocating resources for risk mitigation
- Reporting material issues to trustees and investors
SEBI expects fund managers to own cyber risk, even if execution is outsourced.
Sponsor
Sponsors play a strategic oversight role, particularly where they influence governance, funding, or operational models. Their responsibilities often include:
- Supporting adequate governance frameworks
- Ensuring risk management aligns with sponsor standards
- Overseeing remediation of material control gaps
In inspections, sponsors are often questioned on oversight effectiveness.
Trustee
Trustees are central to SEBI’s governance expectations. Their role is not technical execution, but oversight and challenge. Trustees are expected to:
- Seek assurance on IT and cybersecurity risks
- Review reports and risk assessments
- Ensure management addresses material gaps
Trustees who fail to exercise oversight may face scrutiny for fiduciary lapses.
Compliance Officer
The compliance officer acts as a bridge between regulatory expectations and operational reality. Responsibilities include:
- Ensuring IT governance aligns with SEBI requirements
- Coordinating audits and inspections
- Tracking remediation of observations
While not responsible for execution, compliance officers ensure governance discipline.
IT / Cybersecurity Service Providers
Service providers execute controls but do not own risk. Their responsibilities include:
- Delivering services as per defined SLAs
- Reporting incidents and risks
- Supporting audits with evidence
SEBI expects VC funds to oversee providers, not rely on them blindly.
Structuring Accountability in Practice
Effective IT governance requires clarity on:
- Who is accountable
- Who is responsible for execution
- Who provides oversight
This is often formalised through:
- Governance policies
- RACI matrices
- Reporting structures
During inspections, SEBI compliance for AIF looks for clarity, not complexity.
Oversight Mechanisms SEBI Expects to See
Oversight must be demonstrable. Typical mechanisms include:
- Periodic IT and cyber risk reporting
- Trustee or board reviews
- Formal escalation of incidents and risks
- Tracking of remediation actions
Oversight without documentation is treated as non-existent.
Risk-Based and Proportionate Governance
SEBI recognises that VC funds vary in size and complexity. Governance expectations are therefore proportionate. However, proportionality does not mean absence of controls.
Smaller funds are still expected to:
- Identify key risks
- Assign accountability
- Maintain basic evidence
The scale may differ, but the governance principles remain consistent.
Common IT Governance Failures Observed in VC Funds
SEBI inspections frequently identify:
- No formal IT governance framework
- Cyber risk absent from risk registers
- Excessive reliance on vendors
- Lack of trustee oversight evidence
- Poor documentation and audit trails
These failures are governance-related, not technical.
IT Governance as an Enabler, Not a Constraint
Well-designed IT governance supports:
- Faster decision-making
- Reduced regulatory friction
- Improved investor confidence
- Operational resilience
VC funds that treat governance as an enabler rather than a burden are better positioned for growth and fundraising.
Integrating IT Governance with SEBI Inspections
VC funds that integrate IT governance into day-to-day operations find inspections significantly smoother. Governance artefacts become inspection-ready by default rather than created reactively.
This integration reduces stress, cost, and reputational risk.
How Infodot Helps VC Funds Build SEBI-Aligned IT Governance
Infodot Technology helps VC funds design and operationalise IT governance frameworks aligned with SEBI expectations. Infodot focuses on accountability, evidence, and proportionality rather than overengineering.
Infodot supports VC funds by:
- Designing IT and cybersecurity governance structures
- Defining roles, accountability, and oversight models
- Establishing trustee-ready reporting mechanisms
- Supporting vendor governance and audits
- Preparing inspection-ready documentation
This enables VC fund leadership to demonstrate fiduciary diligence with confidence.
Conclusion
SEBI’s expectations around IT governance for VC funds reflect a broader regulatory reality: technology risk is now fiduciary risk. Fund managers, sponsors, and trustees are expected to understand, govern, and oversee IT and cybersecurity with the same seriousness as financial risk.
Effective IT governance does not require large teams or complex tools. It requires clarity of roles, disciplined oversight, and defensible evidence. VC funds that invest in governance early reduce regulatory friction, strengthen investor trust, and build long-term credibility.
In an increasingly digital investment ecosystem, IT governance is no longer optional. It is a foundational element of responsible fund management under SEBI.
FAQs
Why is IT governance important for VC funds?
It ensures technology and cyber risks are managed responsibly, protecting investors, fund operations, and regulatory compliance.
Does SEBI explicitly require IT governance for VC funds?
SEBI expects proportionate IT governance as part of fiduciary responsibility, even if not prescribed in detailed technical rules.
Who is accountable for cybersecurity in VC funds?
The fund manager remains accountable, regardless of outsourcing or third-party service providers.
Are trustees responsible for IT governance?
Trustees are responsible for oversight, assurance, and challenge, not technical execution.
Can VC funds outsource IT governance?
Execution can be outsourced, but accountability and oversight must remain with the fund.
Is IT governance required for small VC funds?
Yes, expectations apply proportionately based on fund size, complexity, and risk.
What does SEBI look for during inspections?
SEBI looks for governance, accountability, oversight evidence, and risk management effectiveness.
Is cybersecurity part of fiduciary duty?
Yes, cyber risk is considered a foreseeable risk impacting investor interests.
Do VC funds need formal IT policies?
Yes, documented policies help demonstrate due care and governance discipline.
Are cloud platforms included in governance scope?
Yes, all technology platforms handling fund data fall within governance scope.
Does SEBI mandate specific cybersecurity tools?
No, outcomes and governance matter more than specific tools.
How often should IT risks be reviewed?
At least annually, or more frequently if risk exposure changes.
Is vendor risk part of IT governance?
Yes, third-party oversight is a core governance requirement.
Do trustees need technical expertise?
No, trustees need assurance mechanisms, not technical configuration skills.
Is documentation really that important?
Yes, undocumented controls are treated as non-existent during inspections.
Can IT governance reduce regulatory risk?
Yes, strong governance reduces adverse observations and inspection intensity.
Are deal teams subject to IT governance?
Yes, governance applies to all users handling sensitive information.
Does IT governance affect fundraising?
Yes, institutional investors increasingly assess cyber and IT governance maturity.
What is proportionate governance?
Controls scaled appropriately to fund size, complexity, and data sensitivity.
Are incident response plans expected?
Yes, preparedness for cyber incidents is a key governance indicator.
Can weak IT governance trigger SEBI action?
Yes, it may result in observations, remediation directives, or enhanced scrutiny.
Is cyber insurance sufficient governance?
No, insurance does not replace preventive and oversight controls.
Does governance include access control oversight?
Yes, access and privilege governance is a critical element.
Are SaaS tools covered under IT governance?
Yes, unmanaged SaaS usage is a common inspection concern.
How can VC funds demonstrate oversight?
Through reports, meeting minutes, risk reviews, and documented decisions.
Is IT governance a one-time exercise?
No, it requires continuous review and improvement.
Do compliance officers own IT governance?
They support governance, but accountability rests with fund management.
Can MSPs support IT governance?
Yes, under clear accountability and oversight structures.
Is IT governance aligned with global best practices?
Yes, regulators globally emphasise technology risk governance.
Does governance include backup and resilience planning?
Yes, operational resilience is a governance concern.
Are informal IT practices acceptable?
Rarely; structure and evidence are expected by regulators.
Can IT governance be lightweight?
Yes, as long as it is effective and documented.
Does governance reduce cyber incidents?
Yes, it improves prevention, detection, and response capabilities.
How does Infodot help VC funds?
By designing SEBI-aligned governance frameworks and inspection-ready documentation.
Why should VC funds act now?
Because SEBI scrutiny is increasing and proactive governance reduces regulatory and reputational risk.
