Start-ups in new FDI policy

According to the document released by the Department of Industrial Policy and Promotion (DIPP), start-ups can raise up to 100 per cent of funds from Foreign Venture Capital Investors (FVCIs). 

Start-ups can issue equity or equity-linked instruments or debt instruments to FVCIs against the receipt of foreign remittance. The new document incorporates in simplified form all the changes made over the past year further liberalising foreign investment rules in over a dozen sectors, including defence, civil aviation, construction and development, private security agencies and news broadcasting.  

Start-ups, moreover, can issue convertible notes to residents outside India under certain conditions. 

“Startups can issue convertible notes to resident outside India (subject to certain conditions),” the document said. 

“A start-up company engaged in a sector where foreign investment requires government approval may issue convertible notes to a non-resident only with approval of the government,” it said. 

A convertible note is issued by a start-up firm to establish that it has received money as a debt, which will be repaid at the discretion of the holder, or will be converted into specified number of the start-up’s shares. Convertible notes to non-resident investors will have to be issued with government’s permission in sectors where government approval is required for foreign investment, the FDI policy said. 

A person resident outside India will be permitted to buy convertible notes issued by an Indian start-up for an amount of Rs 25 lakh or more in a single tranche. 

This, however, does not apply to citizens or entities of Pakistan and Bangladesh, who are allowed to invest in India only under the government route.