Startup body tells Piyush Goyal, DPIIT to exempt Chinese VCs from FDI curbs; set up emergency fund

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April 30, 2020 1:25 PM

Startup Association of India has urged Commerce Minister Piyush Goyal and DPIIT Secretary Guruprasad Mohapatra to set-up a Rs 25,000 crore Startp India Fund on a priority basis as the domestic pool of venture capital remains negligible.

India had recently tweaked its FDI policy to curb opportunistic takeovers of Indian firms by Chinese companies.

National association for startups in India – Startup Association of India (SAI) has written to Commerce Minister Piyush Goyal and DPIIT Secretary Guruprasad Mohapatra to exempt Chinese venture capital investments, from the FDI’s government approval route, into Indian startups that have been “immensely supported” and raised over $8 billion from Chinese investors. “Government should at least exempt DPIIT-registered startups. The US and European investors will become very conservative ahead to put the money elsewhere than their own country due to the Covid impact. So the major source of funding would be China,” Mahendra Swarup, Chairman, SAI and Founder, Venture Gurukool told Financial Express Online. SAI was set-up in 2018 and has Info Edge executive vice-chairman Sanjeev Bikhchandani, MakeMyTrip’s Deep Kalra etc. among its members. DPIIT has so far registered 31,464 startups. A copy of the letter, sent on Tuesday, was seen by Financial Express Online.

India had recently tweaked its FDI policy to keep an eye on investments from India’s neighbouring countries including China to curb opportunistic takeovers of Indian firms pursuant to COVID-19. The move followed China’s central bank People’s Bank of China raising equity stake in HDFC above 1 per cent. “This amendment has the potential to create certain undesired consequences for startups which can be resolved,” the letter said. Swarup clarified that VC investments do not concern a takeover or acquisition of a company and are fresh investments into a freshly incorporated or an existing entity in India. Also, investments into an existing portfolio company “pursuant to subscription of instruments also do not concern a takeover or acquisition,” he said.

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Chinese venture funds and corporates have been among the biggest backers of Indian technology startups. Alibaba, Tencent, Fosun RZ Capital, Shunwei Capital, Morningside Ventures and more have backed the likes of Paytm, Zomato, Ola, Byju’s, OYO, Delhivery, Swiggy, Rivigo, Ixigio including emerging startups such as Rapido, ShareChat, Trell, LetsTransport and more. According to a report by Gateway House: Indian Council on Global Relations, 18 out of 30 Indian unicorns are backed by Chinese investors as Indian venture capital ecosystem lacks deep-pocket investors even as China offers “patient capital”.

“We told them (government) that companies like Paytm, Swiggy, Zomato etc. have raised capital from investors in China to grow the Indian market in terms of digital payments, enable online deliveries etc. Lack of capital might kill a whole generation of entrepreneurs while 90 per cent of Indian startups remain non-funded as domestic funds contribution to startup investment remains negligible. If India wants to become the biggest ecosystem, investments from China should be freely allowed,” Swarup added.

SAI also suggested setting up a Rs 25,000 Startup India Fund on a priority basis for startups running out of cash and are unable to raise further capital in the current healthcare crisis. Swarup suggested the government to contribute Rs 15, 000 crores and roll back SIDBI’s Rs 10,000-crore Fund of Funds into this as “out of the corpus of Rs 10,000 crores, only Rs 3,798 crores has been committed out of which just Rs 1,025 crores has been disbursed till June 2019.” The new fund can be registered as an AIF category-II Fund similar to the National Investment and Infrastructure Fund and managed by professional fund managers.

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