Taking a cue from the Government’s Start-up India initiative, the RBI in its monthly monetary policy statement announced certain measures that will increase ease of doing business and create a conducive ecosystem for start-ups. Some of the key developments include –
· Creating an enabling framework for receiving foreign venture capital and for transfer of shares from FVCI to other residents and non-residents,
· Permitting in case of transfer of ownership of a start-up enterprise, differing contractual structures and receipt of consideration on a deferred basis through an escrow or indemnity arrangement for a period of upto 18 months,
· Simplification and online submission of various forms related to inward and outward remittances (ARF, FC-GPR and FC-TRS) - Electronic reporting of investment and subsequent transactions to be made on e-Biz platform only and submission of physical forms will be discontinued with effect from February 8, 2016
RBI has created a dedicated mailbox (email@example.com) to provide assistance and guidance to the start-up sector.
Other proposals that are also under consideration by the RBI are –
· Allowing start-ups to access rupee loans under ECB framework,
· Issuance of innovative FDI instruments like convertible notes by start-up enterprises,
· Streamlining of overseas investment operations for the start-up enterprises, and
· Issuance shares without cash payment through sweat equity or against any legitimate payment owed by the company without any permissions under the FEMA
Start-ups will have easier access to foreign capital through simplified reporting and paper work and the flexibility to work with different investment structure (debt, convertible notes etc). Incentive structures for employees and advisors through sweat equity will enable start-ups to attract and retain talent.
These developments are also positive for early stage investors as they go a long way in simplify the exit process in case of sale to a non-resident, which has been a cumbersome and tedious process.