Finance Minister announces sops for VCs

Cyber News Service


New Delhi

The Finance Minister, Yashwant Sinha announced, that domestic VCs would no longer have the constraints as their foreign counterparts in the exit policy. In a recent guideline circulated by the Finance Ministry, the government had imposed two exit clauses for VC Funds, firstly, the VC Funds cannot exit before one year in unlisted companies and secondly they must exit within one year post IPO. Speaking at the inauguration ceremony of the Nasscom-TIEcon India 2000, New Delhi, the Finance Minister said that both the clauses have been dropped.

The clauses have been deemed to be detrimental to the venture capital environment in the country. The first clause will make it difficult for mergers and acquisitions to take place, which is so crucial for growth in the sector. While the second clause is perceived to be dangerous since it can make the share prices of the listed company fall drastically with the exit of the VC. It is deemed best to leave it to the VC and the company to decide mutually when to exit. 

Speaking at the sidelines of the TIEcon Summit, Dewang Mehta, President, Nasscom said, "We are happy that the Finance Minister has made the announcements, that will ensure a level playing field for the domestic VCs." The Finance Minister also announced that VCs will have the privilege of tax pass, which means that the taxation will be at the source of the investor. Earlier only those VCs registered with SEBI were allowed tax pass through.

Mehta also said that contrary to the perception that VC funds are drying up, the country expects VC investment in the country to the tune of Rs 3,200 crore during this year (2000-01) and Rs 6,200 crore during the next year. However he said there has been a shift in the investment segment from dotcoms to software and technology-based companies.

Other speakers at the Summit included Kanwal Reiki, Co-Founder of TIE, who urged Indian entrepreneurs to emphasize on manpower productivity to usher in the entrepreneurial revolution. Pawan Nigam, the founder and head of US-based $5 billion Healtheon spoke on how to avoid the pitfalls in setting up a new enterprise. Based on his personal experiences and his acquaintances he outlined several myths and realities. Suhas Patil, founder of semiconductor company, Cirrus Logic, spoke on how to set up a successful product company, wherein he mentioned that choosing an expanding market segment is important and to build products which are not state-of-the art but state-of-the-market. In other words it is important to identify the needs of users and build products that will be applicable and not simply research-oriented.