In this session on Domestic venture debt, we talk about a recent announcement by Government of India, that relaxed the provision on raising debt from domestic non-banking sources of funds. Sanjay Khan speaks on the subject in below embedded video.
What is the problem, that this new announcement on domestic venture debt solves?
Private companies can raise debt funds in a restricted manner only. They could raise debt from some allowed sources. These could be like company directors, their relatives and other companies etc. But, not from sources like angel funds, domestic VCs who are not companies. A debt raised from such sources fell under deposits category.
To accept ‘deposits’, companies need to follow number of conditions, which are quite tedious.
What is the new announcement?
As per sub-clause (iii) of Clause 68 of Section 2 of Companies Act, 2013 definition of Private Company, “means a Company which by its articles prohibits any invitation to the public to subscribe for any securities of the Company”.
The new announcements open up some new avenues of raising debt funds from domestic markets.
These new sources of funds, added to this non-public funds category are funds registered and operating under SEBI’s regulated regime. Following are these three new sources
1. Alternative Investment Funds (AIFs)
2. Domestic Venture Capital funds
3. Mutual Funds
Prior to this announcements funding from these sources was treated as deposits and not loan.
What are the limits of announcements?
Whereas this announcement opens up these three highly potential sources of domestic debt funding, it is limited to Rs. 25 Lakhs only.
So the announcement is likely to benefit startups in their early phase.
The other good part is that, this is not limited to recognised Startups or startups registered under StartupIndia with DIPP. It is open to any private company hence it can apply to any startup.
The announcement adds up to efforts made by Government of India in creating better environment for funding. It is a step forward in the direction.
iSPIRT believes and is further taking up with the Government to not limit this provision to Rs. 25 lakhs.
The video below covers this topic with Sanjay Khan, the expert who was instrumental in building up the stay-in-india checklist of iSPIRT.