Start-ups get nod to raise 100% FDI from venture capitalists

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The Central Government has finally allowed the Start-ups to raise 100 per cent Foreign Direct Investment (FDI) from overseas venture capitals registered under Securities and Exchange Board of India (SEBI).

 “A SEBI registered Foreign Venture Capital Investor (FVCI) may contribute up to 100 per cent of the capital of an Indian company engaged in any activity mentioned in Schedule 6 of Notification No. FEMA 20/2000, including start-ups irrespective of the sector in which it is engaged, under the automatic route,” said the policy document.

A FVCI is an investment vehicle that assists early-stage companies to enable the desired initial capital, in return for a stake in the venture.

According to the FEMA regulation, the start-ups can grant equity or equity synced instruments or debt instruments to FVCI against the receipt of foreign remittance.

Further, start-ups are allowed to issue short term debts that can be converted into equity (convertible notes) to a person residing outside India with regards to terms and conditions.

The policy, however, explained that a start-up company engaged in a sector where foreign investment requires government’s permission may issue convertible notes to a non-resident only with the due approval of the government.

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