NEW DELHI: In a bid to enhance the flow of funds into start-ups, a committee set up by the Planning Commission on Wednesday suggested the provision of fiscal incentives to domestic venture capital funds, while recommending the setting up of an Early Stage Venture Fund (ESVF).

Headed by former Finance Secretary Nitin Desai, the Committee on Technology Innovation and Venture Capital recommended that the Securities and Exchange Board of India (SEBI) should register as accredited investors those groups of high net worth individuals in the country and overseas who meet the criteria of being independent investors. They should also be offered the same rights as available to the registered VC firms, it said.

Briefing newspersons here after presenting the report to the Planning Commission Deputy Chairman, Montek Singh Ahluwalia, Dr. Desai said: "The committee recommends that the Central Government establish an ESVF through public-private partnership [PPP] under the auspices of the DSIR [Department of Scientific and Industrial Research] and the major non-commercial research organisations of the Government.''

VC funds flow to increase

On receiving the report, Dr Ahluwalia noted that implementation of the committee's recommendations would lead to an increased flow of VC funds for commercialisation of technology ventures, particularly those emanating from incubation centres of universities and research and development (R&D) centres.

In its package of recommendations, the committee suggested that for those individuals investing in start-ups which emanate from incubation facilities in research institutions, a fiscal incentive should be provided by way of a set-off against taxable income. Such an incentive, it said, should also be extended to those who invest in domestic venture capital funds with a corpus less than Rs. 250 crore and whose charter clearly states that the VCF would be investing mainly in seed stage companies.

The Government, the committee said, should enable creation of limited liability corporations (LLCs) through an amendment on redeemability under the Companies Act. "t should also extend the applicability of such LLCs and the proposed Limited Liability Partnership (LLP) structure to venture capital funds,'' it said.

The committee recommended tax exemption of capital gains for registered VCFs on exit from unlisted companies, while suggesting that the restrictions in this regard be confined to purchases in secondary markets. This, it said, would provide access to capital to a large number of small corporations which were unable to raise funds directly from capital markets.

The committee suggested that the restriction on domestic and foreign VC funds which limited their investment in a single VC undertaking to 25 per cent should be removed. The Lahiri Panel recommendation with regard to foreign securities acquired by a VC fund on exit from a domestic venture investment, it said, should be notified while that on VCFs being permitted to invest in offshore VC undertakings be implemented.

The committee also favoured removal of the minimum capitalisation requirement of Indian subsidiaries of SEBI-registered foreign VC investors, as it would enable smaller funds, which mostly invest in seed stage companies to operate in the country.

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