Got a great hearing from Minister of State (Finance) Jayant Sinha at a meet in NorthBlock organised by SIDBI on the needs of our start-ups and the design of Rs.10000 crore Fund of Funds to support start-up ecosystem in India. Modi Sarkar leading the way proactively for creating Jobs.

1. Creating a Vibrant Startup &
Entrepreneurial Ecosystem in
India
Jan’15
YourNest Angel Fund (SEBI/11-12/0226)
www.yournest.in

2. Need for Start-ups
• Facilitate FDI in Domestic Venture Capital Funds
• Allow flow of Long-Term Institutional Capital for Start-ups
• Drive Saving of Rich towards Risk Capital
• Operationalize MSME & Start-up “Fund of Funds (FoF)”
• Develop & Scale-up debt Offering
• Ease Process of Starting & Closing a Business
• Ease Operating a Business in Early Days
• Guide Our states for Entrepreneurship Initiatives
• Our Commitment

3. • NRI/PIOs have experienced the reward on investing in start-
ups in US, UK, Singapore... They are open to investing in India.
• Clause 3.2.3 under 3.2 of the CONSOLIDATED FDI POLICY
requires DIPP / FIPB approval for non-residents to Invest in
VCFs/AIFs.
• India need local Fund Managers to mentor and coach start-ups.
• SEBI approved Trust are highly regulated. Dual regulation by
FIPB not desired.
• 97% of VCF/AIF are structured as Trust, whereas this rule allows
“non residents” to invest in a VCs as Company that are only 3%.
• Automatic Route required for “Non Resident incl. NRI”
investment
• A similar provision to be extended to at least International
financial institutions such as ADB, IFC, CDC, DEG…
Facilitate FDI in Domestic Venture Capital
Funds

4. • RBI to encourage VC/Start-up investments by Banks.
• Start-up Equity Funding thru SEBI Approved AIF Category I to
be at par with priority sector lending norms.
• Vibrancy of start-ups is comparable to agriculture/farming in
having a positive spillover effect on the economy.
• Developmental Institution such as SIDBI, TDB to be
strengthened.
• Endowment Fund worldwide invest in VC/PEs.
• Allow Indian Charitable & Religious institutions approved u/s
80G to invest in VC/AIF Category 1 & II (Amend Rule 17C u/s
11(5))
• Globally Pension Funds too invest in VC/PEs.
• Allow under “New Pension Scheme” of PFRDA for “Asset Class
E” to include “within the cap of 50%, a sub-limit of 10% may be
invested in VC/AIF Cat I & II.
Allow flow of Long-Term Institutional
Capital for Start-ups

5. • Indian HNIs & Ultra HNIs are obsessed with Real Estate,
Gold, and Fixed Income – Encourage them to be an angel
investor, investing in venture capital (AIF Category 1), and
even Private Equity.
• Allow Capital Gains to be invested in “Risk Capital” in addition
to RBI Bonds u/s 54 of IT Act.
• Consider Incubation, VCF/AIF Cat 1 investment as CSR.
• Upfront exempt Angel Investing from Start-up Tax u/s 56
(2)(viib).
• UK offers best practice for India to learn on this front
• Replicate “Enterprise Investment Scheme (EIS)” that started as
“Business Start-up Scheme (BIS)” in 1982 in UK to offer personal
tax relief for investment in startups & early stage business.
• Replicate scheme of 1995 of UK to extend relief for investment in
Venture Capital Trusts (AIF/VCF) for individuals investing GBP
200K for at least 5-years as against taxing as business income as
per CBDT circular dated July 28 2014.
Drive Saving of Rich towards Risk
Capital

6. • FoFs is a self sustaining model over 7-8 years. Requires
budgetary support in these initial years.
• Immediate allocation essential for the highly effective
schemes of supporting high-risk investments during stage of
research, incubation & acceleration–
• Technology Development Board (TDB)
• National Research Development Corporation (NRDC)
• SIDBI
• Allocate 10% of the Rs.10,000 crore corpus to Funds with
Venture Capital exposure for FoF deployment including “India
Inclusive Innovation Fund” and “India Opportunity Fund”.
Operationalize MSME & Start-up “Fund
of Funds (FoF)”

7. • Small-B Branch initiative of 2012 must be multiplied many-
fold
• Funding start-ups is a specialized skill.
• Multiply current network of Small-B independent branches.
• Collateral Free Loans for SME – CGMSE Loans of Rs.1
crore
• Stop taking personal guarantee of promoters when it is by
definition collateral free with no 3rd party guarantees.
• Push banking network to release such loans or create a FoF for
Venture Debt Funding through AIF’s
• Develop lending options for innovative start-ups
• Bridge funding / Working capital loans.
• Auto payment to MSMEs by Large corporates within stipulated
45 days.
Develop & Scale-up debt Offering

8. Ease Process of Starting & Closing a
Business
• Catch global headlines in May’2015 that India Improve its
rank to sub-100 from 179th Rank - Ease formation of a
company by leveraging India’s software competence for
• Single Application with 24-hour Turnaround Time (SATTT) - Name
Search, DIN, Digital signatures, Incorporation certificate, and PAN.
• When the start-up decides the place of operation in SATTT - Allocate
Tax Account Number, register it under Shop & Establishment and the
MSME Act.
• Make Stamp Duty on Issue of shares an online process
• When the start-up reaches the minimum number of employees in
SATTT – Register under Professional Tax, EPFO, ESI, and Gratuity.
• Similarly, ease the process of closure of a Private Limited
Company. Entrepreneurs who start a business must find it
easy to close upon failure.

9. Ease Operating a Business in Early
Days
• Permit self-regulation & self-compliance for Small & Medium
Companies (SMCs) during infancy of a business.
• Define a “Small Business” and relax regulations. such as –
• Why a start-up from Day 1 need to deduct Withholding Tax,
comply with Tax Deduction at Source (TDS), and even the
Reverse Charge Mechanism to gross-up for deposit of income
tax and service tax.
• Enhance exemption for “Small Company” multi-fold in The
Companies Act 2013 e.g. Process of Issue of Shares Capital,
Valuation Report by Merchant Banker, Need for Valuation for
issue of ESOPs, Need for Internal Audit.
• Waiver of Foreign Exchange Regulations. Allow “auto-debit” by
Indian Company like Google and Apple.
• Revisit current revenue limits for Service Tax, VAT, Excise Duty.

10. • Replicate Kerala Government Model
• Start-up Village for 1000 local start-ups
• Chief Minister’s commitment to allocate funds for Start-ups
• Governments to Encourage Adoption of Productivity
Enhancement tools
• Leverage automation in services of mass nature : taxi booking,
bus ticket, tourist ticketing, e-governance…
• State Finance Corporations to Invest in VCFs/AIFs
• Seek a commitment of double the sum invested by SFCs be
allocated by the fund for the businesses from the state.
Guide Our states for Entrepreneurship
Initiatives

11. • Build and nurture Entrepreneurial Eco-system
• Mentor, Coach, Share Learning through institutions or events -
• Incubators, Accelerators, Start-up Weekend, NEN, TiE,
eCells, EDI, iCreate, Start-up leadership, Founder Clubs,
Common Work Spaces.
• Lead Early Stage Investments (i.e. seed, angel, and venture
capital rounds)
• By investing in Indian start-ups mainly involved in new products,
new services, technology, or new business model.
• Handhold our start-ups to go global
• True test on technology innovation is serving global customers
and being globally competitive.
Our Commitment

12. Thank You