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This Budget, can we get India’s massive pension and insurance players to invest into VC funds

From a “pure” taxation standpoint, the ecosystem wishes for lowering of the GST rates for Fund managers for management fees charged to AIFs.

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Last Updated: Jan 25, 2020, 12.13 PM IST
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What if there could be a tax incentive for larger corporations to hire entrepreneurs of failed startups; or alternatively give some monetary incentives to these entrepreneurs for their next career path – for example seed funding from a Government Fund of Funds program, reasons Prasad Vanga, Founder & CEO, Anthill Ventures.
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By Prasad Vanga

It is fair to say that India’s VC industry is broadly happy with Government policy in recent times; and yet there always seem to be unmet aspirations that everyone hopes would be addressed in the next Budget. This is the common theme in every conversation I have at industry events, panels and the like – so at the risk of being repetitive, I will enumerate these.

From a “pure” taxation standpoint, the ecosystem wishes for lowering of the GST rates for Fund managers for management fees charged to AIFs. This could be especially useful for smaller funds (say less Rs 100 crore). Second, they wish for rationalization of the timing of taxes on ESOPs – by which taxes are calculated only when true capital gain (as opposed to paper gains) are realized. Both changes would improve sentiment and the viability of careers in these fields.

Second, the government should make it easier for India’s massive pension funds and insurance players to invest into VC funds. This could be done through a mixture of beneficial taxation, well-defined and forward-thinking policy and broad education amongst decision makers in such institutions on the benefits of investing into PE/VC funds. In India, the AIF asset class, remains largely misunderstood by large financial institutions that continue to balk at the risk to reward ratio in VC funds; and still refuse to take a “portfolio approach” to deploying their large capital reserves, and in turn not allocating anything at all to high risk/high reward assets.

Out of the Box
Aside from the oft-requested incentives, I’ve often thought of some out-of-the-box mechanism that the government could initiate to further catalyze growth in the ecosystem and encourage entrepreneurship. There are many entrepreneurially minded people that don’t venture out of more defined career paths because of the fear of failure. What if there could be a tax incentive for larger corporations to hire entrepreneurs of failed startups; or alternatively give some monetary incentives to these entrepreneurs for their next career path – for example seed funding from a Government Fund of Funds program. Sure, this cannot be rolled out to all startups, for obvious reasons, but could be offered to startups that create over 100 new jobs but don’t go on to achieve lucrative exits.

Such creative measures would further encourage people to start new businesses and create numerous new opportunities. A few of these startups would raise money and realize exits – thereby positively impacting the entire ecosystem. The key point here is that a lot of these activities would not have been possible had these entrepreneurs not chosen to break free from ‘safer’ career paths.

The writer is is Founder & CEO, Anthill Ventures

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