Dear Sir,
Venture Capital and Private Equity have been the drivers of innovation and economic growth around the world and in India. Over the last 5 years, over US$ 35 billion has been invested in India, helping create Companies such as Bharti, Suzlon, Biocon etc. Over the last years VC/PE accounted for around half the FDI in to India. Countries around the world notably US and Israel have created several policy measures that encourage VC/PE in their countries.
Given below are some regulatory actions that, as a representative of the Indian Venture Capital Association (IVCA) we wish for, which could significantly aid growth of VC/PE growth in India
a) FDI in to India has already dropped to around US$30 billion last year from over US$80 billion in 2007. For our economy to grow at 8% we desperately need more investment in all sectors. Unfortunately, today foreign VC firms (FVCI's) are allowed to invest only in some restricted sectors. This must change as not only do we need their money in all sectors, if we discourage them, this money will flow to countries competing with us.
b) Similarly, tax pass through for Domestic VC firms is restricted to just a few specifies sectors. For instance, it does not include BPO/KPO. This restriction should also be removed because no one, in the private sector or government, can predict where the next innovation will come from. Also, because of these restrictions, domestic VC/PE firms find it difficult to raise money, especially since most of this has to raised abroad.
c) Such restrictions discourage the flow of VC/PE to India, which will then find other attractive locations.
d) To improve corporate governance and protect minority interests VC/PE investors ask for several affirmative rights. This gets confused with " deemed control", "change of control", "acquiring promoters obligations", etc. This confusion should be removed as it makes the investments more risky and so the investments may not happen.
e) Over 80% of all VC/PE invested in India is from foreign sources. This is dangerous as tomorrow some other country could become the flavor of the day and this sector will be left with no capital. It is therefore critical that government introduces policy measures that enable the creation of a domestic pool of money for VC/PE. This could be done by allowing/encouraging Pension Funds, Insurance Companies, Banks and other institution to invest in VC/PE. Also, like in many other countries, we should provide a tax write off to HNI's investing in seed stage Companies/Funds. These measures are important to encourage innovation as globally; it is mostly domestic capital and domestic HNI's that invest in early stage companies.
Best Regards,
Saurabh Srivastava
Chairman, Indian Venture Capital Association
Given below are some regulatory actions that, as a representative of the Indian Venture Capital Association (IVCA) we wish for, which could significantly aid growth of VC/PE growth in India
a) FDI in to India has already dropped to around US$30 billion last year from over US$80 billion in 2007. For our economy to grow at 8% we desperately need more investment in all sectors. Unfortunately, today foreign VC firms (FVCI's) are allowed to invest only in some restricted sectors. This must change as not only do we need their money in all sectors, if we discourage them, this money will flow to countries competing with us.
b) Similarly, tax pass through for Domestic VC firms is restricted to just a few specifies sectors. For instance, it does not include BPO/KPO. This restriction should also be removed because no one, in the private sector or government, can predict where the next innovation will come from. Also, because of these restrictions, domestic VC/PE firms find it difficult to raise money, especially since most of this has to raised abroad.
c) Such restrictions discourage the flow of VC/PE to India, which will then find other attractive locations.
d) To improve corporate governance and protect minority interests VC/PE investors ask for several affirmative rights. This gets confused with " deemed control", "change of control", "acquiring promoters obligations", etc. This confusion should be removed as it makes the investments more risky and so the investments may not happen.
e) Over 80% of all VC/PE invested in India is from foreign sources. This is dangerous as tomorrow some other country could become the flavor of the day and this sector will be left with no capital. It is therefore critical that government introduces policy measures that enable the creation of a domestic pool of money for VC/PE. This could be done by allowing/encouraging Pension Funds, Insurance Companies, Banks and other institution to invest in VC/PE. Also, like in many other countries, we should provide a tax write off to HNI's investing in seed stage Companies/Funds. These measures are important to encourage innovation as globally; it is mostly domestic capital and domestic HNI's that invest in early stage companies.
Best Regards,
Saurabh Srivastava
Chairman, Indian Venture Capital Association
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