Budget 2019-20: This will also help enhance angel level funding. 2018 was a tough year for startups looking to raise angel or seed capital as only 484 deals happened in the entire year vis-a-vis 1,030 in 2016 and around 760 deals in 2017.
Budget 2019 India: For entrepreneurs who are not able to secure capital from investors or from his/her network of friends and family, they either invest their personal savings or raise a personal loan to launch their startups or at some point at very early stages of the business. In the absence of both cases, usually, entrepreneurs have to sell residential properties to fund their startup. So far, the government exempted the gains made on selling such properties and investing in a startup as per Section 54GB of the Income Tax Act, 1961 only till March 31, 2019.
However, finance minister Nirmala Sitharaman gave huge respite to such entrepreneurs cum investors in this year’s budget with the extension of the exemption period for investment in startups to March 31, 2021. Along with this, the minister also proposed relaxing the minimum holding of share capital or voting rights in the startup from the current 50 per cent to 25 per cent.
“It is a super move which will now provide an alternative investment opportunity for high net-worth individuals (HNI) who sell properties and fund start-ups,” said Sanjay Mehta, Private Investor – Mehta Ventures — a boutique family office.
However, this exemption should have been also applicable to investors in SEBI registered angel funds as the money would be channelled into startup investments only, Mehta added.
This will also help enhance angel level funding. 2018 was a tough year for startups looking to raise angel or seed capital as only 484 deals happened in the entire year vis-a-vis 1,030 in 2016 and around 760 deals in 2017, as per data intelligence firm Tracxn.
“Angel investors or organized angel networks don’t mind in investing startups unless they see follow on investors investing in startups and giving them exit. Hence, angels are backing off,” Vijay Anand, angel investor and founder at prominent startup accelerator The Startup Centre had earlier told Financial Express Online.
However with the extension of the period of exemption of capital gains from real estate for startup investment is “a big positive that should boost slugging angel investment,” said Pawan Gupta, Co-Founder, Curofy.
Nirmala Sitharaman had also proposed in the budget speech for relaxation of “condition restricting the transfer of new asset being computer or computer software” from 5 years to 3 years.