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Sequoia, SoftBank, Other Global VCs Seek Clarity On India’s New FDI Rules

Sequoia, SoftBank, Other Global VCs Seek Clarity On India’s New FDI Rules

Warburg Pincus and Carlyle Group were also among the investors in the meeting

The investors raised concerns with union commerce minister Piyush Goyal

Earlier, IVCA had recommended an exemption for AIFs etc

After Indian startups, global investors have reached out to the government seeking clarity on the new FDI rules and the funds it will impact.

A CNBC TV-18 report said that investors like SoftBank, Warburg Pincus, Sequoia Capital, Carlyle Group and several others held a virtual meeting with union commerce minister Piyush Goyal last week. The meeting was to seek clarifications about new FDI rules around investments from entities or beneficiaries based in China.

The investors have sought to understand whether the rules will apply even to funds that may have Chinese as limited partners. A SoftBank spokesperson reportedly said, “We don’t comment on confidential discussions held with relevant stakeholders, including the government.”

The development comes after the India Private Equity and Venture Capital Association (IVCA) reached out to government departments of Department of Promotion of Industry and Internal Trade (DPIIT), NITI Aayog as well as the union finance ministry to seek clarity on the issue.

IVCA has also recommended an exemption for Alternative Investment Funds (AIFs) registered with SEBI and the need for a ceiling on the value of investments under which investments can be done without government approval.

Karthik Reddy, vice-chairperson, IVCA, reportedly said, “We have sought clarity on whether pooled vehicles with Chinese capital will be impacted. IVCA has also asked if there can be a cap below which funding does not need to go through govt approval.”

In light of the recent changes in FDI rules, which restrict direct investments from China as well as other neighbouring countries, several startups and investors have been concerned.

To put it in perspective, Chinese investments in India have grown from $1.6 Bn in 2014 to over $8 Bn in 2017. Further in the context of segment-wise deals between 2014-2019, more than 234 funding deals have been done with Chinese investor participation of which, 49% or 115 were in the growth stage and 39% or 91 were in the late stage.

Hence, undoubtedly, China contributes a significant portion to Indian startup funding. Therefore, the new FDI regulations have raised questions about the impact along with the finer details of the matter.

In the Inc42 Show, the ecosystem experts had identified key incentives to be taken by the government to support the domestic investments. This included differentiating sector-based investments etc.

Siddarth Pai, founding partner, 3one4 Capital suggested that the government can incentivise investments in the startup ecosystem by creating conditions conducive for larger domestic investors like life insurance companies, University endowments etc to invest into AIFs and startups.