A growing number of angel investors and venture capitalists in India feel that there is no need to wait for foreign investors to recognise and fund start-ups here. All the government needs to do is loosen its regulatory strings and let capital flow from one channel to another. Firstpost spoke to Sunil Goyal, CEO of Gurgaon-based YourNest Angel Fund to know what venture capitalists expect from this budget.
What do you think the government can do in this budget to get capital flowing into venture capital and private equity?
One thing is very clear, and there is some kind of realisation in the government as well, that jobs can be created only through equity savings. One step in this direction was the Rajiv Gandhi Equity Savings Scheme. We know that you and I have jobs because some entrepreneur put in the risk capital to start a company. We are an economy where most of our savings go into fixed income or gold and largely real estate. Think of a person who has an investable surplus of Rs 5 crore plus and still he has hardly any exposure to equity, leave alone venture capital or private equity.
Jobs are created by someone who cuts the first cheque to the entrepreneur. This asset class will always be favoured by the locals. You cannot expect someone to come from abroad and invest in this space. People will come and invest when the market is ready for a much higher risk and return. In the early 90's, the government did the job of being the VC investor through state funds like the Gujarat Venture Fund. Then came international funds with international managers, subsequently with Indian managers and in the last few years we have seen Indian fund managers raising local capital.
Where can this capital come from?
For capital to be made accessible, it has to come from insurance companies, provident funds, pension funds or charitable institutions. Endowment funds or charitable institutions under the Income Tax Act cannot invest in venture capital. Today our religious institutions are sitting on huge chunks of money which are not utilised. Decision has to be taken by fund managers there to invest, I would say that they should be allowed to invest in venture capital. This is the first action the government can take in this budget, allowing these institutions to invest in venture capital. Second is pension funds, the new pension policy is a positive step but still nothing is allowed in the VC space. If our long-term savings go just into government securities and safe assets, we won't be able to create jobs at all.
Pension funds and provident funds being allowed to invest in this asset class would be a good start. In this budget, we believe the FM can even encourage HNIs to invest in this asset class. The long-term capital gains was until now encouraged to be invested in government bonds or real estate. I believe that the government should allow these individuals to invest this long-term capital gains in venture capital.
In china, the largest portion of the venture fund comes from yuan-denominated local funds. We need to learn from this insight and replicate it. The problem in India is that, we know how to save but we don't know how to invest.
What can the budget offer to entrepreneurs?
To start and run a business in India is very tough. Today, if you go to ROC (Registrar of Companies) to register your company with proper paperwork, there shouldn't arise a need for me to apply for PAN (Permanent Account Number) separately. It should all be streamlined.
The impact of the proposed National Entrepreneurship Policy should be seen in this budget. We need to make entrepreneurs' lives easier in order to make them as competitive as their global peers.