Do you know, how to invest in start-ups?

The one-person company is eligible to avail benefits under start-up India initiative?
Yes, one Person Companies are eligible to avail benefits under the Start-up India initiative.

Are partnerships eligible for a start-up?
Yes, a partnership firm is eligible for all the benefits except tax incentives which are provided to a recognized start-up

Steps required for funding if a start-up recognized with DIPP?
A start-up can approach SIDBI for funding in the following two cases:

1. Equity Funding and 2. Debt Funding

Case 1: Equity funding for early and growth stage start-ups:

SIDBI invests in funds of fund format and invests in daughter funds which invest in Start-up.
The list of funds of funds, focus sector, e-mail ID and company website can be checked on the link: http://venturefund.sidbi.in/?q=content/contact-vcfs-0
Kindly send an e-mail to the given email IDs of the said funds.

Case 2: Debt funding for mature stage start-ups (proven revenue model, market traction):

Approach the nearest SIDBI office.
Submit a business presentation and the pitch to the SIDBI office.
Once the information has been submitted, SIDBI would scrutinize the application and the shortlisted applications are directed to SIDBI, Mumbai for financial evaluation.
As per the decision of SIDBI Mumbai, the debt may be sanctioned.

Additionally, you can send an email Start-up India Hub (dipp-start-ups@nic.in) with a business presentation. The following aspects need to be covered:

About the idea/company
Background of the founders
How is the idea/product/service innovative?
Fund Requirement (Detailed segregation)
End usage of the funds

Can foreigner enter into this?
Yes, a foreign national can enter into a partnership under LLP Act.

What are the aspects that need to be reviewed before issuing a recommendation/ support/ endorsement letter?
A funding agency is required to validate if the entity under review is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property if it aims to develop and commercialize:

a) A new product or service or process; OR
b) A significantly improved existing product or service or process that will create or add value for customers or workflow

The following activities are not considered as a valid case for issuing a recommendation/support/endorsement letter.

a) Products or services or processes which do not have a potential for commercialization; OR
b) Undifferentiated products or services or processes; OR
c) Products or services or processes with no or limited incremental value for customers or workflow

Registered with SEBI will be eligible for providing recommendation/support/endorsement letter to entities in which not less than 20 percent equity is taken up by such funds.

What is DIPP?
DIPP stands for Department of Industrial Policy & Promotion.
Start-up is a flagship initiative to build strong eco-system for innovation and to drive sustainable economic growth, employment opportunities by the government of India. To promote industrial handling DIPP action plans is to accelerate spreading of the start-up movement and divided into categories such as Simplification and Handholding, Funding Support and Incentives, Industry-Academia partnership and Incubation, Coverage and Eligibility, Physical progress, Monitoring, and review mechanism, Implementing agency, etc.,

What is SIDBI?
SIDBI stands for Small Industries Development Bank of India.
To promote promotions, Financing and development of the MSME sector as well as for coordination of functions of institutions engaged in similar activities. Efforts in pioneering that have manifested in the creation of economic wealth, ecological wealth, mentoring facilities on behalf of MSME, introducing venture capital, risk capital, reverse factoring and other innovative facilities. SIDBI has undertaken a series of structural initiatives and strategic interventions that will help make the MSME sector a strong and vibrant sector.

Factors to consider to get funded or before investing?

Market capture within stipulated period must consider because no business can be successful without customers.
Provide a Unique Value Proposition.
Experience and track record of promoters and Directors.
Raise subsequent rounds of financings.
Overview of Product /service, stage of development and anticipated milestones
Demonstrated traction (e.g. revenue, pre-sales, purchase orders, signed contracts, media coverage, awards, etc.)
Investment overview (including determination of key terms, uses of funds, and current and previous investors)
Growth strategy
Return on Investment
Employees and advisors (including ownership structure)
Market Capture (e.g. size, growth, penetration, etc.)
Strategies for competition.
Intellectual property
Financial projections (including error-checking, evaluation of key assumptions and reconciliation to stated growth plan)
Exit opportunities

What are the tax benefits for start-ups?
3-year tax holiday in a block of seven years: 100% tax rebate on profit for a period of 3 years, but profit should not exceed INR. 25 Cr limit in a financial year.

Exemption from tax on long-term capital gains: As per Sec 54EE under the Income Tax Act for the eligible start-ups to exempt their tax on an LTCG if such an LTCG or a part thereof is invested in a fund notified by Central Government within a period of 6 months from the date of transfer of the asset. The maximum amount that can be invested in the long-term specified asset is Rs 50 lakh. Such amount shall be remaining invested in the specified fund for a period of 3 years. If withdrawn before 3 years, then the exemption will be revoked in the year in which money is withdrawn.

Tax exemption on investments above the fair market value: The government has exempted the tax being levied on investments above the fair market value in eligible start-ups. Such investments include investments made by resident angel investors, family or funds which are not registered as venture capital funds. Also, the investments made by incubators above fair market value are exempt.

Tax exemption to Individual/HUF on investment of long-term capital gain in equity shares of Eligible Start-ups u/s 54GB: U/s 54GB allows the exemption from tax on LTCG on the sale of a residential property if such gains are invested in the small or medium enterprises as defined under the Micro, Small and Medium Enterprises Act, 2006. But this section has now been amended to include an exemption on capital gains invested in eligible start-ups also. Thus, if an individual or HUF sells a residential property and invests the capital gains to subscribe the 50% or more equity shares of the eligible start-ups, then tax on long-term capital will be exempt provided that such shares are not sold or transferred within 5 years from the date of its acquisition. The start-ups shall also use the amount invested to purchase assets and should not transfer asset purchased within 5 years from the date of its purchase.
This exemption will boost the investment in eligible start-ups and will promote their growth and expansion.

Set off of carrying forward losses and capital gains allowed in case of a change in Shareholding pattern.
The carry forward of losses in respect of eligible start-ups is allowed if all the shareholders of such company who held shares carrying voting power on the previous year in which such loss is to be carried forward. The restriction on holding of 51 percent of voting rights to be remaining unchanged u/s 79 has been relaxed in the case of eligible start-ups.

Minimum Alternate Tax (MAT) @18.5%:
Shall be levied along with surcharges and cess on start-ups. The Finance Minister has assured to provide MAT exemptions for the first 5 years in case the start-ups fail to make any profit.

What are the pre-establishment, No Objection Certificates (NOCs), Licenses, Registrations and other mandatory State approvals required for setting up of a business?

Reform 1: Develop and make publicly available a comprehensive checklist of all required pre-establishment
No Objection Certificates (NOCs), Licenses, Registrations and other mandatory State approvals required for setting up of a business

Andhra Pradesh

https://www.apindustries.gov.in/APIndus/UserInterface/RawMaterials/Comprehensive_Approvals.aspx

Gujarat

http://ifpgujarat.gov.in/portal/index.jsp#heading_onestop

Bihar

http://industries.bih.nic.in/Notices/NB-01-15-07-2015.pdf

Chhattisgarh

http://industries.cg.gov.in/SIPB/Comprehensive_Clearance.aspx

Jharkhand

http://advantage.jharkhand.gov.in/SingleWindow/app/webroot/pdf/services/approvals_for_setting_up_business.pdf

Karnataka

http://ebizkarnataka.gov.in/GuidLines.htm

Madhya Pradesh

http://www.invest.mp.gov.in/easeofdoingbusiness.action?APPROVAL_FLAG=1&OWASP_IFAMS=7HH0-3GM2-KDAB-XD1S-NAXP-J46U-TG5J-QX59

Odisha

http://eodb.dipp.gov.in/WriteReadData/StateRespose/21_Letter%20for%20Comprehensive%20list%20of%20Approvalsbc8bfcb7-f37e-4aac-8382-2a3e8b14d285.pdf

Punjab

http://investpunjab.gov.in/Static/ComprehensiveListofTheStatutoryClearances

Rajasthan

http://swcs.rajasthan.gov.in/ApprovalsList.aspx

Telangana

https://ipass.telangana.gov.in/docs/CFE%20and%20CFO%20Clearances_Revised.pdf

Uttarakhand

http://investuttarakhand.com/pre-establishment

West Bengal

http://www.wbidc.com/images/pdf/Comprehensive_list_of_clearances_required_at_Pre_establishment.pdf

Reform 2: Develop and make publicly available a comprehensive checklist of all required pre-operation No
Objection Certificates (NOCs), Licenses, Registrations and other mandatory State approvals required for starting business operations.

Andhra Pradesh

https://www.apindustries.gov.in/APIndus/UserInterface/RawMaterials/Comprehensive_Approvals.aspx

Gujarat

http://ifpgujarat.gov.in/portal/index.jsp#heading_onestop

Bihar

http://industries.bih.nic.in/Notices/NB-01-15-07-2015.pdf

Chhattisgarh

http://industries.cg.gov.in/SIPB/Comprehensive_Clearance.aspx

Jharkhand

http://advantage.jharkhand.gov.in/SingleWindow/app/webroot/pdf/services/approvals_for_starting_operations.pdf

Karnataka

http://www.ebizkarnataka.gov.in/GuidLines.htm

Madhya Pradesh

http://www.invest.mp.gov.in/easeofdoingbusiness.action?APPROVAL_FLAG=2&OWASP_IFAMS=7HH0-3GM2-KDAB-XD1S-NAXP-J46U-TG5J-QX59

Odisha

http://eodb.dipp.gov.in/WriteReadData/StateRespose/21_Letter%20for%20Comprehensive%20list%20of%20Approvals7dd872ce-87c2-4736-9f71-b3b6ffcb134b.pdf

Punjab

http://investpunjab.gov.in/Static/ComprehensiveListofTheStatutoryClearances

Telangana

http://eodb.dipp.gov.in/WriteReadData/StateRespose/4297_36_Point%20No%202a2940cd2-63f9-495c-bbc0-6033a0cb9218.pdf

Uttarakhand

http://investuttarakhand.com/pre-operations

West Bengal

http://www.wbidc.com/images/pdf/Comprehensive_list_of_clearances_Pre_operation.pdf

Maharashtra

https://maitri.mahaonline.gov.in/ListofApprovals/Approvals

Reform 3: Design and implement an online system where an investor can key in specific details (such as a type of industry, number of employees, location etc.) and obtain information regarding all State approvals applicable to establishing her/his business/industrial unit.

UTTARAKHAND

http://investuttarakhand.com/

PUNJAB

http://www.investpunjab.gov.in/InvestmentWizard/IntroductoryQuestions

UTTAR PRADESH

http://nm.udyogbandhu.com/IndustryWiseClearance.aspx

JHARKHAND

http://advantage.jharkhand.gov.in/SingleWindow/industry_questions/index/YTgwMzY=

ODISHA

http://investodisha.org/info-wizard

CHHATTISGARH

http://industries.cg.gov.in/sipb/Questionaire/Questionaire_Clearances.aspx

GUJARAT

http://www.ifpgujarat.gov.in/portal/index.jsp

MADHYA PRADESH

http://www.invest.mp.gov.in/home.action

TELANGANA

https://ipass.telangana.gov.in/

Reform 4: Design and implement an online system where an investor can key in specific details (such as a type of industry, number of employees, location etc.) and obtain information regarding all State approvals applicable to starting operations of her/his business/industrial unit