Startups rejoice as RBI eases foreign funding norms

Startups say the regulatory changes will increase diversity of new ventures, help set up new enterprises at a faster rate and bring in the concept of venture debt

Sourabh Gupta, TechGig.com

Startups in India, majority of whom have been funded through foreign capital, are again rejoicing. After promise of sops and funds from the government, the Reserve Bank of India (RBI) has made it easy for new ventures to raise money from abroad and letting foreign investors to sell their stake to local companies. The startups say the new rules will increase the diversity of new ventures, help set up new enterprises at a much faster rate and bring in the concept of venture debt.

'Free flow of cash essential for business'

"The supply-side trigger is much needed for faster economic growth. Hence, the free flow of cash becomes essential for ease of doing business. As the startups can now raise foreign money irrespective of the sector that they operate in, the diversity of startups will increase manifolds. The measures taken by RBI and central government looks promising for a strong and enabling infrastructure, and we really hope India will emerge as the next big destination for investments and IRRs."

Pankaj Vermani, CEO of Clovia, a fashion e-commerce startup. One of its investors is Switzerland-based Mountain Partners AG

'Venture debt was missing in the ecosystem'

"These measures will create an enabling framework for receiving foreign venture capital. Startups have only been used to equity as a mode of capital and we believe the RBI's initiative will bring in the concept of venture debt which is miserably missing in the ecosystem.

We have already set up an ecosystem to help startups raise funds and are also poised to launch venture debt. This will help our partner banks and NBFCs walk the road along with us more aggressively as credit is easily available."

Manish Kumar, founder and CEO of GREX, a startup that provides a stock exchange-like transaction platform letting startups and unlisted companies raise funds. He is also senior venture partner at early stage VC firm IncuCapital

'Startups will gain easy access to capital'

"The RBI's initiative is refreshing. It will help the entire startup ecosystem in setting up a new enterprise at a much faster rate than usual. The decision will help startups like us to gain easy access to capital. With Startup India event boosting startup businesses and with RBI's support, the startup ecosystem poised to get a great push."

Himanshu Meena, founder and CEO of Parsel, a logistics startup that provides plug and play delivery infrastructure for businesses

'Equity issuance below FMV to foreign partners needed'

"Nearly 90 per cent of venture financing over the past decade has been through foreign capital. The RBI's easing of cross-border transaction norms for overseas investors in Indian startups is a step that conforms with the policy announcements proposed at the Startup India event. Discontinuation of physical forms and electronic reporting of investments through the e-business platform is a big positive in terms of side-stepping the hurdles of red-tapism. However, these norms could have been of greater benefit to Indian startups had the following measures been adopted:

-Equity issuance below fair market value (FMV) to foreign partners and stakeholders to compensate for their skill transfer and value creation.

-Widening the list of instruments for raising capital from foreign investors by including non-convertible preference shares (today only convertible preference shares are allowed) and foreign currency denominated debt.

-Further simplification of the reporting process by removing the two-step reporting (advance reporting and then post-share issuance reporting) to single step. The proposal of national banks (as authorised dealers) and Registrar of Companies (ROC) reporting to be automatically forwarded to the RBI in the desired formats could also have been considered."

Kunal Nandwani, CEO of uTrade Solutions, a fin-tech startup, and founder of Chandigarh Angel Network

This article first appeared in techgig.com