Significant Move From Indian Government To Increase Startup Fundraising Activity

Startup Fundraising: There is excellent news for all Indian entrepreneurs who are starting a business. According to a news release from the DPIIT, the Indian government has extended the deadline for companies to convert loan investments into equity shares by up to 10 years.

Earlier, Indian startups had up to five years from the day the original convertible note was issued to convert loan capital into equity shares.

This new decision shows the government’s goal to help early-stage startups raise capital and stimulate startup activity in India. Startups have not only provided jobs for millions of people in rural and urban India during the last ten years, but they have also increased the country’s economic productivity by introducing new technology, goods, and services.

The Reserve Bank of India (RBI) revised the International Exchange Management Regulations, 2000 on January 10, 2017, making it possible for startups to offer convertible notes to foreign investors. Convertible notes have gained favor since then as a viable financing tool for businesses in their early stages of development.

In January 2022, Udaan, a B2B e-commerce business, secured a $250 million debt funding round by selling convertible notes to five new investors.

Your-Space, a student housing company, secured $10 million (approximately Rs 75 crore) in Series-A fundraising in the same month through a mix of pure stock and convertible debentures.

This new schedule will provide solace to all fledgling Indian entrepreneurs who have lost money in their enterprises because of the Covid-19 outbreak and are now searching for new finance.

The Indian Startup Funding Scenario

Investors pumped an unprecedented amount of money into Indian businesses in 2021. Despite the Covid-19 outbreak, the startup ecosystem surpassed all prior financing milestones. The entire amount of money spent in Indian companies in 2021 was close to $38 billion, according to Fintrackr statistics. Surprisingly, that’s more than three times the total capital obtained by startups in 2020, which was $11.1 billion.

More businesses are anticipated to obtain funding using convertible notes now that the government has extended the time limit for converting loans into equity shares from 5 to 10 years.