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Unlocking Foreign Investment for Indian Start-ups

February 15, 2023

Unlocking Foreign Investment for Indian Start-ups
Startups are a huge part of India’s growth story – not just in material terms, but also aspirational ones. Each time we hear of another Indian startup breaking into the Unicorn club, it chips away at the ‘safe’ middle class mindset that most of us grew up with. Today’s Indian wants to be an entrepreneur, a provider of jobs rather than a job seeker, a creator of value, a problem solver.

The Government of India  has been quick to both spot, and enable this mood. Through numerous programs, the government has been working to improve the business ecosystem overall. In particular, the startup ecosystem through a number of initiatives and policy drivers that are encapsulated under the Startup India umbrella.

Despite the government’s efforts, there is one area where startups continue to struggle – a lack of investment from banks. Since banks categorise startups as ‘high risk’, they cannot risk investing depositors’ funds in them.

This is where venture capital (VC) funding comes in as the solution. Startups in India can now turn to both domestic and international VC funding for support. To further enable this, the Indian government has relaxed the Foreign Direct Investment (FDI) norms to boost VC funding and foreign investment in startups.

Before a startup can receive FDI in India, it must comply with several regulations set forth by the Reserve Bank of India (RBI). The first step is to register with the Department for Promotion of Industry and Internal Trade (DPIIT) in order to avail of the benefits granted to startups under Indian law.

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