Panel on VC, PE funding to ensure regulations: TVS Capital Funds CMD Gopal Srinivasan

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The government’s decision to set up an expert committee to address regulatory issues and encourage the scaling up of venture capital (VC) and private equity (PE) investments will ensure a system-wide, all-encompassing approach to regulations and help accelerate investments, according to TVS Capital Funds Chairman and Managing Director Gopal Srinivasan.

On September 9, the government set up a six-member expert committee to be headed by former Securities and Exchange Board of India (SEBI) Chairman M Damodaran. The circular stated that the committee will "comprehensively study, using a systems approach, the end-to-end frictions and potential accelerants from regulatory policy and taxation to facilitate ease of investing, as well as to encourage investments in India”.

The panel will also review issues, compliances and suggest simplifications and changes for further accelerating the growth of alternative capital to participate in the VC and PE industry.

“We had made a request to the government that this industry has been regulated only in bits and pieces by different regulators and norms. We need an end-to-end approach to remove friction and grow investments in the country. We welcome the move of setting up the committee in that direction,” Srinivasan, who is also a senior board member of the Indian Private Equity and Venture Capital Association (IVCA), said.

The IVCA's broader representative body of domestic and global funds will consolidate and formally submit to the panel a representation on how India could be a fund management hub, which should help formulate policies to ease investing and encourage investment in the country.

“When it comes to taxation, we believe there should be no exceptions and everyone should be taxed equally. There should be no differences in taxation for investments in public markets versus private,” he said.

“Second, a lot of practices of Alternative Investment Funds (AIFs) are not baked into tax laws. So, we are asking for simplification and standardisation as far as tax laws are concerned.”

TVS Capital Funds has invested in startups and companies, including Vivriti Capital, Yubi (formerly CredAvenue), IPO-bound Digit Insurance, Nykaa, RBL Bank and MedPlus.

The formation of the expert committee was first announced by Finance Minister Nirmala Sitharaman in the Union Budget for FY23 after India saw record investments in 2021, followed by a slowdown caused by a global downturn. According to IVCA and EY data, Indian companies attracted $77 billion in PE and VC investments in 2021, a 62 percent increase over 2020.

In contrast, investments in August 2022 fell to just $2.2 billion, the lowest level in 19 months, as per data by IVCA and EY.

The past few months have been a period of reflection after startup values skyrocketed last year as a result of many rounds of financing and intense investor interest. More investors are paying attention to the requirement for established unit economics and a clear route to profitability for companies in 2022 as a result of businesses failing to live up to their valuations after going public.

According to a report, Sebi has also requested information on the valuation procedures of PEs and VCs, along with details on investments and any modifications to valuation methodologies over the past few years. ​