By presenting a 5-point action plan to the finance ministry we hoped to trigger a process where in start-ups would contribute towards sustainable economic growth. A growth led by investments rather than consumption.
YourNest Angel Fund, is responsible for generating direct employment, since our launch in March'12, to over 100 people. Through our investments, in three companies so far, we build global companies amongst the first generation Indian entrepreneurs.
To provide an impetus to start-ups, we suggest the following actions points, in order of priority.
Encourage Indian fund managers to float and manage early stage Venture Funds from within India by allowing automatic route for NRI/PIO investment in these funds from the NRE/NRO account in the SEBI approved Funds on repatriation basis.
Permit pension funds, insurance funds and provident funds to invest a small part of their corpus in early-stage venture funds to improve access to long-term capital.
Offer Special incentives such as tax deduction to investors in early stage venture funds or incubators. MoF can replicate the provisions of Section 54 that encourage the HNIs / other entities to invest in the Domestic Early Stage Venture Fund (Category 1 Funds as per SEBI (AIF) Regulation'2012) to seek a deduction against capital gains. Additionally, to attract capital a general deduction in respect of investment into such funds could also be granted under Chapter VIA on the lines of section of section 80C, section 80CCB. To really incentivise capital flow into early stage ventures, it may be provided that any capital gains arising from sale of investment in venture capital undertaking, a securities transaction tax on the lines of transactions in listed companies and equity oriented mutual funds could be introduced.
MoF could also allow companies registered in India to make an initial public offer on exchanges outside India without or before listing in India, as was the case earlier. Indian start-ups require significant funding to scale themselves to serve global customers. Opening-up the doors of equity fund raising from across the globe will widen their scope. We do not want Indian Start-ups to have Head Quarters outside India to keep the option of global fund raising with them.
Ease regulations and processes for setting up, operating, and exiting a business. For example, as per Companies Act'1956 internal audit is mandatory if the paid up capital and reserves exceed more than Rs. 50 lakhs at the commencement of the concerned financial year. We as external investors do not need internal audit at such as early stage.