The government is looking at ways to boost domestic funding to start-ups and also help them list in bourses easily.
Minister of state for finance Jayant Sinha said at a press meet on Thursday that the government is planning to restructure taxation policy so that education institutes and charitable trusts among others are able to invest in the start-up ecosystem.
“Ninety-95% of the venture capital money pumped into Indian start-ups comes from outside India and that is a cause for volatility in the markets. Efforts are being made to build domestic LPs (limited partners),” he said.
To increase domestic alternative asset investments, the capital markets regulator in 2012 announced the Alternative Investment Fund (AIF) regime, which includes domestic venture capital funds. Since mid-2012, Sebi registered category I venture capital funds have invested only Rs.760.23 crore.
In 2015 alone, the total amount of investment in the start-up ecosystem stood at $5.4 billion according to data from VCCEdge, a financial research platform of VCCircle Network, which highlights the dependence on foreign capital for Indian start-ups.
Sinha said the government is also planning to make it easier for large institutional investors such as insurance and pension funds to invest in domestic venture capital (VC) and private equity (PE) funds. “We are looking at creating policies that will increase the contribution of investments made by insurance and pension funds, “ Sinha said.
In February, Pension Fund Regulatory and Development Authority (PFRDA) allowed pension fund managers to invest up to 2% of the funds in category I and II AIFs. However, for the time being, this has been restricted to only those fund managers who invest the private sector corpus under the National Pension System (NPS); also, investment is restricted to category I and II AIFs.
According to industry estimates, globally, over 40% of the investments in private equity and venture capital funds come from pension funds. In case of insurance firms, the option to invest up to 3% of their corpus in AIFs has been available since 2013.
The government efforts are expected to help domestic venture capital funds raise more funds. In the last six months, several domestic VC firms such as Unicorn India Ventures, Endiya Partners, Altius Ventures, Parampara Capital and Venture Catalysts have emerged, and are collectively looking to raise almost Rs.650 crore.
The government is planning to make it easy for start-ups to list, Sinha said, adding that a panel of the Securities and Exchange Board of India is looking into rules and regulations to do it.
It would include liberal rules for analytics and biotech start-ups with some pre-issue capital requirements. This will help the start-ups choose local exchanges over overseas bourses.
BSE, Asia’s oldest stock exchange, and its rival the National Stock Exchange have already put in place a sub-platform based on the so-called institutional trading platforms (ITPs) for listing start-ups. However, not even a single start-up has come forward to list on these platforms so far.
On Thursday, Life Insurance Corp. of India (LIC) and Small Industries Development Bank of India (SIDBI) signed a pact where LIC would invest Rs.200 crore to the corpus of micro, small and medium enterprises-focussed venture capital funds. This would be a part of the India Aspiration Fund managed by SIDBI.
SIDBI has committed Rs.1,400 crore in 38 venture capital funds for early-stage investments in start-ups. The total funds invested by SIDBI and VC-PE funds is expected to touch about Rs.20,000 crore by March 2017.