[Editorial Notes : The new government will soon announce Budget 2014 and we certainly would like to believe that the new budget will also focus on giving wings toIndia’s entrepreneurial energy. V.Shankar, Angel Investor at The Chennai Angels shares key points that the new government should definitely fix.]
Angel Investor Groups play an important role in the promotion of Entrepreneurship in the country. In addition to capital, they provide mentoring, access to networking and access to market, and these are inputs that a startup desperately needs.
Angel Investing has been adversely impacted by well known recent regulatory changes. These need to be reviewed to re-energise Angel Investing and promote entrepreneurship. Some of these are:
1. Sec 56 of the Income Tax Act imposes a tax liability on issue of shares at premium and gives leeway to the ITO to question the DCF valuation. Some investor entities are exempt; Angel Groups must also be made exempt.
2. The Companies Act 2013 requires convertible instruments to be issued at a fixed conversion. Promoters of start-ups prefer to have conversion ratios dependent on the success of their business; this way if they do well they get to keep a larger share of their business. The Act must allow for an exception to start-ups or to Angel Investing.
3. Crowdfunding is an avenue where the focus is more on funds than on mentoring. It cannot replace Angel Investing. The SEBI should allow for the coexistence of Angel Investing and Crowdfunding when they finalise the Crowdfunding guidelines.
India is on the cusp of a great new growth cycle. One obvious way of increasing employment and benefiting from the demographic dividend is to promote entrepreneurship, and removing hurdles to groups such as The Chennai Angels is a great way to achieve that.
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