Relaxations Will Create More Unicorns : Rajan

In a move to help the fledgling breed of Indian entrepreneurs, RBI today said it plans to smoothen flow of funds to start-ups by allowing them to get foreign venture capital without any curbs and enable easier transfer of shares between residents or non-resident investors.

Announcing the plans, RBI Governor Raghuram Rajan said the aim is to simplify movement of capital and do away with regulatory impediments hampering their growth, to create more ‘unicorns’ or companies with billion-dollar valuations.

“What we are doing is making it easier for Indian unicorns and also the wannabe unicorns to raise money,” Rajan said during an interaction with news agency reporters.

The announcement follows an ambitious Start-up India programme unveiled by Prime Minister Narendra Modi.

In the sixth bi-monthly policy statement of this fiscal, the RBI announced simplification of rules and regulations to ensure that an entrepreneur does not have to run from “pillar to post”.

“What we have tried is to create an enabling framework to allow them to receive funds in a variety of forms with appropriate contracts,” Rajan said.

He cited the difficulties faced by entrepreneurs, starting right from the complicated contracts for fund raising, which are not allowed under the Foreign Exchange Management Act (FEMA).

“Can we make it possible for those contracts to actually be undertaken? There have been a variety of cases when the entrepreneurs have come to us and told us that they want some relaxations,” Rajan said, adding that the changes will be incorporated into policy making.

After promising to work for the startup community in the policy statement, the RBI followed it up with a detailed document enlisting the changes which it proposes to bring.

The Governor cited difficulties entrepreneurs face in case of a sell-off of the business, and the need to stretch the validity of the time for which the amount is held in an escrow account, and mooted for it to be stretched to 18 months.

“Lot of venture capital funds like to write contracts, so that they preserve control and get greater control if things go sour. Plain vanilla equity contracts do not work. What we want to do is that enable the range of such contracts that are possible so that our home-grown start-ups don’t find doing these kind of things difficult or onerous,” he said.

He also added that the liberalisation of norms will not create any problems for the Indian banks as they have a small exposure to the start-ups.