VC Industry To Submit White Paper On Issues Faced By Startups And Fund Managers

The country’s venture capital industry is working on a white paper containing policy recommendations for regulators. As per sources, in the paper, the VC community is looking to raise a number of concerns pertaining to taxation, availability of capital, among other things.

The decision to submit a white paper was reportedly made after a roundtable organised by Startup India, which is run by the government under the Ministry of Commerce and Industry.

The event, which was chaired by Union Commerce Minister Suresh Prabhu, was attended by several venture capital firms and debt funds, in addition to government officials representing the Department of Industrial Policy and Promotion (DIPP), Department of Revenue, market regulator Securities and Exchange Board of India (SEBI), Small Industries Development Bank of India (SIDBI) and the Department of Economic Affairs.

Commenting on the development, SIDBI Chairman Mohammad Mustafa said, “The idea was to understand the different regulatory issues faced by venture capital firms so that they can be taken up by the concerned authorities for further resolution. Union Commerce Minister has assured an early resolution of outstanding issues.”

According to people in the know, the recommendations will likely be submitted by the Indian Private Equity and Venture Capital Association (IVCA). Established in 1993, IVCA is the chief nodal body that is responsible for promoting the risk capital industry both within India and overseas.

On the matter, Karthik Reddy, Managing Partner at Blume Ventures said, “The minister said whatever we are proposing, should be done as a white paper or policy recommendations, and presented to the respective stakeholders. There seems to be an urgency to drive this process faster.”

In the white paper, the country’s VCs will reportedly be calling for changes in the taxation of alternative investment funds (AIFs) as well as the treatment of employee stock options. Additionally, they will urge the government to increase the availability of the domestic pool of capital, while also allowing different entities to invest in AIFs operating in the country.

This, according to the stakeholders, will help enhance the ease of doing business for startups. Furthermore, the white paper will likely contain the suggestion of capital allocation by different ministries to AIFs, Trifecta Capital Managing Partner Rahul Khanna stated.

Elaborating further, he said, “The idea of bringing together stakeholders from both sides of the table was very good. The message from the government is that they are on a mission-mode to drive employment.”

The Growing VC Industry In India

According to Inc42 DataLabs’ annual Indian tech startup funding report 2017, Indian tech startups raised $13.5 Bn in funding across 885 deals in 2017. The investor wise breakdown of deals revealed that 302 VC funds participated in 2017.

In 2017, Accel Partners took the first spot, registering 25 deals. Blume Ventures maintained its second spot with 20 deals. However, the number of deals was significantly lower as compared to 2016. Sequoia Capital India, on the other hand, took the third spot with 20 deals.

Further, IDG Ventures and Kalaari Capital took the fourth and the fifth spots respectively, with no change in their rankings in comparison to 2016.

VC investments in Indian startups have seen a lot of change in the past few years. Over 302 VC firms participated in 650 deals in 2017 alone. As per Inc42 estimates, from 70 active VC firms in 2014, this number grew to 230 in 2015 and 253 in 2016. In 2017, this number jumped by 19.3% to 302 active VCs.

The number of deals that VCs have participated in, has grown over the years. Starting with a figure of 291 in 2014, the number grew to a staggering figure of 711 in 2015. However, it fell to 634 in 2016. But, it reported a small hike in 2017, with 650 deals.

Over the years, VC participation in seed funding has also increased. While in 2014, 18.5% of the total VCs participated in seed funding, this number reached 38.74% in 2017.

Whether the yet-to-be-submitted white paper helps resolve some of the issues that are currently posing a hindrance to the growth of the country’s venture capital industry remains to be seen.

(The development was reported by ET)

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