The Budget has evoked a mixed reaction from the Venture Capital (VC) funds with a few unhappy over the ‘pass through status’, while others hailed it for creating more exit options.
Finance Minister P. Chidambaram announced that VC funds have been allowed ‘pass through status’. This means that taxes of a business are ‘passed through’ (according to the Income Tax Act) to the business owners and not external investors.
VC firms which invested about $762 million in India in 2012 (according to Venture Intelligence data) continue to be unimpressed with the FM’s proposals on tax issues. The FM said that SEBI will now prescribe requirements for angel investor pools by which they can be recognised as Category I AIF VC funds.
Not extended to all
There are three such categories and market watchers are unhappy over the fact that a blanket pass through status was not extended to all of them.
“With this, the Government does not seem to recognise the fact that small and medium businesses are crucial to the growth of a country’s economy,” said Vishal Tulsyan, CEO & Director- Motilal Oswal Private Equity Advisor.
Another MD of a global VC fund on the condition of anonymity said that there is a need to amend Section 56 to make this applicable to investments above Rs 5 crore.
Further, last year, SEBI had stated that existing VC funds shall not raise any fresh capital after notification of these regulations except for funding commitments already made by investors. This, in turn, has increased bureaucracy and companies want this to be simplified or abolished.
The industry also is seeking clarity between individual and collective investments.
Ravi Kiran, co-founder, VentureNursery said that angel funds getting pass through benefit needs to make a distinction between pooled investment versus individual investment.
However, there is some cheer for SMEs. Sunil Goyal, CEO, YourNest Angel Fund said that the support provided through SIDBI and privileges for scaling up beyond three years shall enable MSMEs to prosper besides listing of MSMEs without IPO for informed investors shall create a market for the risk-capital starved sector. It will also create more options for investor exits.
Meanwhile, Satish Kataria of Springboard Ventures said that the move (allowing startup listing) could open strong funding alternatives to the SME segment and increase listings at these exchanges, which were so far going through a subdued phase. Rajesh Janey, President, EMC India & SAARC has given his thumbs up for a science and technology innovation for the common man fund.