Pre-Budget Expectation By Anirudh.A.Damani, Managing Partner, Artha Venture Fund
On the eve of Union Budget 2022 announcement, every stakeholder part of the Indian startup ecosystem including micro and small enterprises across all sectors is intently waiting for Finance Minister Nirmala Sitharaman to usher in some good news for the sector. Given the lasting economic damage caused by the unrelenting global pandemic, the startup ecosystem is hoping to receive respite by way of supportive policies to alleviate some challenges brought by Coid-19.
The 2021-22 budget had several positive measures for the startup ecosystem and this year too, we hope that the government comes up with similar policies. Some of the major areas that entrepreneurs and investors are expecting the 2022 Union Budget to announce tax relaxations, additional startup friendly policies, measures to boost ease of doing business to name a few.
Anirudh A Damani, Managing Partner, Artha Venture Fund gave us his views on his expectations and hopes from the Union budget 2022.
"Considering the 3rd COVID wave we are under, it would be interesting to witness this Indian budget. The government must acknowledge the tremendous role played by the startup ecosystem in delivering goods & services to the farthest reaches of the country in crippling conditions of the various lockdowns.
The government could earn valuable tax revenues on selling these investments through recognized platforms
Our startups have empowered India's global image, and every recognizable Global VC now wants to be associated with the Indian ecosystem. Furthermore, Indian startups currently employ more than 6.50 lakh people and indirectly employ lakhs more.
Therefore, one of the essential demands requested from the government is to reduce the tax burden for founders, employees, and investors when they sell their startup investments. It is unfair for these stakeholders to pay 2x the tax applicable to listed investments.
Second, it would be a blessing if the budget would rationalize the GST (Goods and Services Tax) slabs to improve compliance. The Good & Simple Tax promotion should implement in reality what it intended to be in spirit!" says Anirudh.
Last year, the government had extended the eligibility for claiming tax holidays by a year to March 31, 2022, for all startups, in a bid to incentivize them. In order to boost funding, last year's budget had also extended the capital gains exemption for investment in startups to March 31, 2022.
"Third, individuals have tax benefits to set off long term capital gains against real estate assets. If those benefits could get extended to the individuals investing in startup funds where SIDBI/DPIIT is an investor, it would significantly boost the local participation of investors in the startup ecosystem.
Fourth, I also believe that the government has attempted to simplify fundraising for startups and fund managers. However, the various processes that a startup or its investments must undergo to issue, buyback, or sell securities (debt or equity) are super complicated.
Fifth, it is simply impossible for anyone to scale a business quickly and raise multiple rounds without violating a law. The government should simplify this process and make it easy to enter and exit startup investments. Hyper growth startups requiring multiple valuation certificates create unnecessary complications during fundraising. When SEBI(Securities and Exchange Board of India) recognizes fund managers to have the expertise to deal with such complicated instruments why is there a need for getting an additional stamp from merchant bankers? These requirements increase deal costs & timelines and must get done away with immediately!" says Anirudh.
He further adds, "Lastly, there is a long-standing demand and need to develop a secondary market for selling startup investments without listing them on exchanges. Creating such a market would encourage more investors to go back to early stage startups and help startups incentivize employees with ESOPs (Employee Stock Ownership Plan)that could easily get converted into cash when required! The government could earn valuable tax revenues on selling these investments through recognized platforms!
Suppose there could be a budgetary allowance towards the creation of such a market. In that case, it could further increase the inflow of foreign and domestic capital into the VC (Venture Capital)industry!"
2021 was a watershed year for Indian startups with $24.1 Billion being invested in varied startups. We also saw a record number of startups turn unicorns and go the IPO way successfully. India today boasts of the third most lucrative startup ecosystem in the world and the scope of its growth is stronger than ever. We must now wait and watch how 2022's Union budget supports this burgeoning sector.
Anirudh A Damani is the Managing Partner at Artha Venture Fund. Previously, Anirudh led the alternative investment arm for his family office, Artha India Ventures. He invested in high yielding renewable energy projects and into early stage startups with high growth potential.
In 2018,he set up India's first MicroVC Fund, Artha Venture Fund. The company's goal is to fund and build game changing ventures from India! At Artha India Ventures, Anirudh invested in category defining startups like OYO Rooms, Purplle, Tala, Now Floats, Coutloot, Mobilewalla, Rapido and others.
Before this Anirudh was an entrepreneur in the energy space in the US. He worked with some of the largest energy companies in the world, like Suez Energy, Direct Energy, Constellation etc.
Anirudh is an alumnus of Austin College and Cathedral & John Connon School in Mumbai