28 January, 2015

Representation Note for Shri Jayant Sinha, MoS Finance, Government of India

Our Vision: A $4 trillion economy by 2024Entrepreneurship will drive this economic growth

2

"India is a $2-trillion economy today. Can we not dream of an India with a $20-trillion economy?” - Shri Narendra Modi

IVCA-TiE-IIC-IAN-NASE represent both capital and entrepreneurship; we have many overlapping goals and requirements

We are committed to building India’s entrepreneurial ecosystem and supporting “Make in India”, “Skills Mission”, “Smart Cities”, “Digital India”, “Swachh Bharat” etc.

We need support and encouragement, especially in many overlapping needs of our 5 associations:

– Tax pass through for impact investors (SVFs and AIFs)

– Amendment to the definition of long-term capital gain tax

– Official recognition of social enterprises and impact investors

– Development of infrastructure for incubators in partnership with private players

– Single window clearance for start-ups

– Access to well-developed industrial clusters for entrepreneurs

“The Indian economy is today a $2-trillion economy and we have also grown at 7-8 percent growth and we can double the economy to $4-trillion in ten years if we are able to regain that growth rate.” - Shri Jayant Sinha

“…India needs a shared vision to achieve 9-10 percent economic growth…” - Shri Arun Jaitley

Angel Investors, Venture Capitalists, Private Equity, Corporates, Entrepreneurs

3

“Panel Member” on Committee for Social Impact Assessment

Extend Priority Sector Lending to Social Enterprises

Increase Access to ECB for Social Enterprises

Review Social Venture Fund (SVF) Guidelines

Tax Pass-through for Impact Investors (SVFs and AIFs)

Amendment to the definition of long-term capital gain tax

NASE, TIE & IIC

IIC & IVCA

IIC & NASE

IVCA, IAN & IIC

Our organisations are working together and have outlined several shared goals and asks from the government. We believe that by addressing these areas, the entrepreneurial ecosystem can be turbo-charged..

Here is what we need to achieve our shared goals.

Our Shared Vision: A Robust Entrepreneurial EcosystemWorking collectively to achieve our common goals

India Private Equity & Venture Capital Association

A Powerful Platform for Investment Funds to Interact with each other

Arvind MathurCEO, IVCA

5

AIF, growth capital source to fuel PM’s “Make in India” visionWith US$80 billion; AIF’s have invested > 2 times IPO capital

IVCA promotes the development of venture capital and private equity industry in India and to support entrepreneurial activity and innovation.

Singapore becoming hub for Indian capital flows due to its clear globally acceptable tax regime

Indian skilled fund managers move their domicile, due to apprehension of adverse tax consequence

What can be done: Pass-through status for AIFs; no permanent establishment (PE) for offshore fund managers

Manage in India NOT Singapore

Income from securities transactions treated as capital gain for only FII; should be same for AIFs

Capital gain tax @ 10% for non-residents on unlisted securities; should be the same for securities of private limited companies

Clarification that income of AIF to be investment and non-business income like it is with FIIs

Need level playing field with FIIs to attract long-term AIFs

Clarity on GAAR

Safe harbor rules for advisory entity in India

Holding period of compulsory convertible instruments for purpose of capital gain

Tax on buyback of unlisted shares not aligned to DDT as a company which does not have distributable profit is also required to pay buyback tax, parity to be established

Remove ambiguity in tax laws

Impact Investors CouncilAiming to Build a Compelling and

Comprehensive India Impact Story

Mona KachhwahaDirector- Investments, CaspianBoard Member, IIC

7

India can retain global leadership and exceed USD 1 billion in annual

impact investments by 2020, if we collectively galvanize the “impact

investment” ecosystem

1. Recognition of Impact Investors, Social Enterprises and IIC

5. “Panel Member” on Committee for Social Impact Assessment

3. Extend Priority Sector Lending to Social Enterprises

4. Increase Access to ECB for Social Enterprises

2. Review Social Venture Fund (SVF) Guidelines

Cumulative investment of over

US$1.6 billion across 300+ social

enterprises

Across high impact sectors -

financial inclusion, agribusiness,

healthcare, education, clean

energy, water & sanitation

6. Tax Pass through for Impact Investors (SVFs and AIFs)

7. Amendment to the definition of long term capital gain tax

07 08 09 10 11 12 13 14 20

92

286194210

298234235

480

1000

Annual Impact Investments in India (USD)

Impact Investors bear high-risk by funding enterprises serving low-income beneficiaries in remote geographies.

They can magnify impact if catalyse our ecosystem as follows:

Indian Angel NetworkLeveraging the Power of Entrepreneurshipfor India

Padmaja RuparelPresident, IAN

IAN is the world’s largest Angel Group 350 members, 7 locations globally, 100 portfolio companies

9

Angels are critical to start-up funding - In the US, annually, VCs invest $25 billion in 5,000 companies; Angels invest $26 billion in 50,000 companies

– Recognize Angel Investor groups as a specific category – proposed definition for such groups

– Allow angel Investor groups to make collective investments through LLP with a tax pass-through

– Provide tax credits to angels investing through recognized angel investor groups of 30% with a sunset provision that this benefit will expire in 5 years – the UK has 50%

Exempt Angel Investor groups from Section 56 (2) (viia) & (viib) which has the unintended consequence of taxing genuine angel investment

– If entrepreneurs cannot sell their shares at a premium to angels, they have to give away their companies!!!.

– Provision applies only to domestic investments and is discriminatory

Remove the new company law provision which requires any shareholder to buy at least INR 20,000 worth of shares at par

– Angel investors are happy to buy a fewer number of shares at a higher premium; this provision is against the founding entrepreneurs and makes for a more complicated structure

Leverage Angel Investors’ diligence to fast track grants/debts to investee companies under existing schemes

Treat Tax on Capital gains on investments by angel groups/VCs at par with investments in listed companies / mutual funds

AIF Category for Angel Funds- Remove 3 year restriction before exit – prevents start ups from raising needed capital from VCs, who want to buy out angels before investing

Remove RBI restriction on “ contingent payments” by foreign buyers – contingent payments common globally; this rule forces Indian companies to sell for less!!

Angel Group: > 2 years, <25 members, >15 investments; < 10Cr per investment,< 50Cr valuation

The Indus Entrepreneurs

Delhi-NCRCreating a Vibrant Entrepreneurial Ecosystem

Saurabh SrivastavaChairman Emeritus, TiE Delhi-NCR

Fostering entrepreneurship Through Awareness – Assistance – Advocacy

11

Ease of Business

Regulations and process for setting up, operating, and exiting a business in India are time consuming and complex – Startups need single window clearance, access to well developed industrial clusters - STPI scheme transformed the Software Industry

Define start-ups as companies < 5 years old, <100 employees, < INR 25 crore revenues and allow them self certification – they have no resources to deal with multiple regulatory agencies

Ease of accessing govt. schemes and expanding the limit of grant schemes for innovators

Remove MAT provision for companies with less than INR 25 crore revenue

Fostering Entrepreneurship

Leverage the INR 10,000 crore fund with additional private capital and deploy across various stages of the entrepreneurial ecosystem – entrepreneurship facilitators like TiE, Incubators, Angel Groups, VC Funds, Impact Funds, etc.

Set up infrastructure for incubators in partnership with private players

Setting up of Innovation labs in partnership with private players for pilot testing new innovations and projects

TiE is the world’s largest organization devoted to entrepreneurship, spread across 61 Chapters, 18 Countries, 5 Continents

.

National Association of Social EnterprisesA Platform for Social Enterprises, by Social Enterprises

Payal RandhawaExecutive Director, NASE

Aim to accelerate high impact work of social enterprisesEnabling them to reach marginalized and under-served communities in India

13

India’s first Industry association for social enterprises, NASE is mandated to work in consonance with all stakeholders to enhance the delivery of social value in India.

Members Include

NASE members work across high impact sectors – financial inclusion, agribusiness, healthcare, education,

clean energy, water & sanitation

Official recognition of social enterprises

Social enterprise parks along the lines of Software Technology Parks and encourage preferential benefits for social enterprises across major towns in India

Extending priority sector lending and 2% CSR to social enterprises

“Panel Member” on the high level committee on CSR and social impact assessment measures

Increasing access to External Commercial Borrowing (ECB) funding by social enterprises

Incentivize social enterprises (tax incentives, capital subsidy, part-operational subsidy on inputs like electricity, internet, etc.)

Thank You!