Investors, Venture Capital & Angel Investors expectations from Budget 2022: As Union Finance Minister Nirmala Sitharaman is all set to present her third Union Budget on February 1, 2022.
Here’s what the Startup Investors expects from Finance Minister Nirmala Sitharaman:
Gaurav VK Singhvi, Co-Founder, We Founder Circle:
The startup income tax exemption which is available to startups is very complex and time-consuming. We understand the government must look for a simpler procedure. Additionally, ESOPs taxation is a hurdle for startups. In the early stages, startups cannot offer handsome salaries, therefore they provide ESOPs.
However, if at current valuation ESOPs have tax liability then even that cushion is not there anymore. Furthermore, Indian startups cannot raise funds through SAFE Notes which is the most acceptable instrument across the world.
Lastly, I request the government, the way they have established SEZ Special Economic Zones or investment regions should form a Special Startup Region, SSR, which is spread across the country in Tier-II or Tier-III of India
Anirudh. A. Damani, Managing Partner, Artha Venture Fund:
Considering the 3rd COVID wave we are under, it would be interesting to witness this Indian budget. The government must acknowledge the tremendous role played by the startup ecosystem in delivering goods & services to the farthest reaches of the country in crippling conditions of the various lockdowns. Our startups have empowered India’s global image, and every recognizable Global VC now wants to be associated with the Indian ecosystem.
Furthermore, Indian startups currently employ more than 6.50 lakh people and indirectly employ lakhs more. Therefore, one of the essential demands requested from the government is to reduce the tax burden for founders, employees, and investors when they sell their startup investments. It is unfair for these stakeholders to pay 2x the tax applicable to listed investments. It would be a blessing if the budget would rationalize the GST (Goods and Services Tax) slabs to improve compliance. The Good & Simple Tax promotion should implement in reality what it intended to be in spirit.
Individuals have tax benefits to set off long-term capital gains against real estate assets. If those benefits could be extended to the individuals investing in startup funds where SIDBI/DPIIT is an investor, it would significantly boost the local participation of investors in the startup ecosystem. I also believe that the government has attempted to simplify fundraising for startups and fund managers. However, the various processes that a startup or its investments must undergo to issue, buyback, or sell securities (debt or equity) are super complicated.
It is simply impossible for anyone to scale a business quickly and raise multiple rounds without violating a law. The government should simplify this process and make it easy to enter and exit startup investments. Hypergrowth startups requiring multiple valuation certificates create unnecessary complications during fundraising. When SEBI (Securities and Exchange Board of India) recognizes fund managers to have the expertise to deal with such complicated instruments – why is there a need for getting an additional stamp from merchant bankers? These requirements increase deal costs & timelines and must get done away with immediately.
There is a long-standing demand and need to develop a secondary market for selling startup investments without listing them on exchanges. Creating such a market would encourage more investors to go back to early-stage startups and help startups incentivize employees with ESOPs (Employee Stock Ownership Plan) that could easily get converted into cash – when required! The government could earn valuable tax revenues on selling these investments through a recognized platform.
