The industry players this year are expecting enhanced support from the government with demands such as sector-specific funds, sector-specific funds, MSME-focused private equity (PE) funds, strengthening of the domestic VC industry, revisions to ESOP taxation and more attention towards the deep tech startups.
Utkarsh Sinha, Managing Director of Bexley Advisors, emphasises the crucial role of FFS in bringing high-quality limited partner (LP) capital into India’s VC ecosystem which has resulted in a multiplicative impact on total funds raised.
He says, “In addition to the flagship FFS scheme, we are keen to see sector specific funds in key areas to enable setting up light poles across the VC chain from early to late stage investor in sectors critical to our economy.” India’s MSME sector has reached a certain level of growth, but to achieve the next phase of expansion, equity funding is essential. Sinha adds, “We need to see massive-scale M&A and consolidation in India’s MSME sector and private equity-driven growth to ensure that MSMEs graduate to become large-scale and even global companies.” He also suggests that the government introduce specific schemes to enable the deployment of Alternative Investment Fund (AIF) capital into non-tech MSMEs.
Apoorva Vora, co-founder of Finvolve, highlights the need for targeted policy interventions to support the growth of deep-tech sectors like AI, robotics, and agritech.
“To encourage investments in deep-tech areas like as artificial intelligence, robotics, and agritech, we foresee policies that enhance access to capital, provide tax benefits for venture capital, and streamline regulatory regimes. In addition to accelerating startup growth, providing these industries with targeted funding programs and infrastructure will boost the pipeline for venture capitalists looking to invest in game-changing ideas.,” Vora notes.
He suggests that the government should focus on enhancing access to capital, providing tax benefits for venture capital, and streamlining regulatory regimes.
He added that this would accelerate startup growth and attract more investments into emerging technologies, positioning India as a global leader in technology-driven innovation.
Archana Jahagirdar, Founder and Managing Partner at Rukam Capital, has highlighted two key issues for the government’s consideration. First, she believes that employees who join early and take risks should be rewarded, not taxed, when the Employee Stock Option Plan (ESOP) is exercised.
“It would be fairer to tax ESOPs only when the shares are sold, aligning the tax obligation with the employee’s financial ability to pay.” This would help reduce the financial burden on employees who contribute to the growth of startups in their early stages.
Rehan Yar Khan, Managing Partner at Orios Venture Partners, calls for a focus on bolstering the domestic venture capital industry.
“95% of all VC capital comes from overseas… This capital can be fickle and from time to time withdraw from India. This is a large risk to the Indian startup ecosystem,” he said.
Khan advocates for tax breaks to encourage domestic participation in VC funds and for the government to unlock capital from large institutional pools such as insurance companies, pension funds, and banks.
Jahagirdar also calls for the creation of a sovereign fund, similar to those maintained by several governments around the world. This would help unlock more capital for startups by institutionalising risk capital, making it more accessible to the startup ecosystem.
She commends the government’s move to announce a Rs. 1000 crore VC fund for space startups in the previous budget and hopes for similar initiatives in the upcoming budget to support the broader startup ecosystem.
