India Intelligence Report



   Panel Recommends Revamp of Venture Fund  


  A Planning Commission sub-Committee has suggested a slew of fiscal incentives to encourage more domestic venture capital funds (VCF) and has included a proposal to set up an Early Stage Venture Fund (ESVF) through public-private partnership.

The Committee on Technology Innovation and Venture Capital has recommended several improvements to the restrictive Securities and Exchange Board of India (SEBI) regulations. It wants:

  1. 1. SEBI to register high-network individuals and foreign investors as accredited investors if they should fund projects independently. Called “angel financers” in the US, the panel recommended that these investors be treated at par with registered venture capital firms (VC).

  2. 2. Removal of the cap of 25% for VCF so startups can seek no-cost angel or VC financing to grow faster

  3. 3. Removal of the cap of 33% in investing in registered securities. Since many startups are also registered, they are unable to take advantage of VC financing to grow faster.

  4. 4. Capital gains tax emption for investments on exit when it is less than Rs. 250 crores (USD 54 million) in research organizations leading to revenue generation. This recommendation primarily to help seed research organizations and also smaller companies that cannot raise funds in capital markets.

  5. 5. The Companies Act to be amended so VCF are treated as Limited Liability Partnership through the creation of a Limited Liability Corporations so that they are not held liable for failure of startups.

  6. 6. Permission for domestic VCFs to gain securities in foreign capital markets when their startups are procured by foreign companies.

  7. 7. Tax breaks to companies for funding technology incubation, research, and innovation projects.

  8. 8. Removal of restrictions of foreign ownership to boost knowledge-based start-ups.

The panel said that the Federal Government should create an ESVF under the control of the Department of Scientific Industrial Research (DSIR) but funded by non-commercial Government research organizations.

Planning Commission Deputy Chairman Dr Montek Singh Ahluwalia reviewed the proposals and said that the implementation of the committee's recommendations would lead to an increased flow of VC funds. He also praised the recommendations that could lead to increased commercialization of technology ventures, particularly from incubation centers in universities and research and development (R&D) centers.

The recommendations are expected to be accepted through changes in law and executive ordinances



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