Jun 13,2021 | 5 min read

How Can Canadian Residents/Angel Investors Invest in Indian startups?

How Can Canadian Residents/Angel Investors Invest in Indian startups?

In recent times Startups have received heavy attention in many parts of the world. Similarly, the Indian startup ecosystem has evolved on a larger scale dynamically. Startups don't subsist in a vacuum instead they bloom if provided an environment and opportunities. 

Start-up is an innovation process that begins from generating ideas to value and business models that are backed by strong and committed founding members as the company struggles for existence initially. The basic fundamental that helps a start-up to grow is “Money saved is money earned.” A start-up needs all hardships to travel through the well-established competing markets and all goes in vain when the monetary tab gets heavier. Hence, a start-ups profitability increases by saving on the income taxes they pay. 

The study and the market reveal the struggle of start-up, set about from the time of investment to manage the initial funding for the “jumpstart.” Once the business model is set, the execution of a plan backed by the presentation of the idea is what will attract the investors and raise the funds. 

It may be hard to build a mousetrap but harder is to find an investor. Financial investment acts as profit orientation as it ensures that capital is invested correctly. The start-ups need to know the correct way to attract investors and more importantly, provide them with a term of security with their money invested that involves a legal process to be sorted in the first place as it sets the belief of the investors. If we speak about attracting any Canadian Investor, certain rules are governing Foreign Direct Investment (“FDI”) in India depending upon the structure of the business and the sector that it operates in. These FDI norms are governed by the FDI Policy issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India. The most advanced policy was circulated back in 2017 i.e. Consolidated FDI Policy 2017.

Conditions for receiving Foreign Investments:

Taking a broad look into the Foreign Direct Investment Policy of the year 2017, Startups are bestowed and permitted to rise 100 per cent funds from the regulatory body of India, that is, Security Exchange Board of India (SEBI) registered Foreign Venture Capital Investors (FVCI) under the Automatic Route. The automatic route elaborates that any Indian company or an Investor who is not from India does not require any Government approval for any sort of Investment under the automatic route. For instance, the sector of agriculture and animal husbandry falls under a complete automatic route.  

Did you know that startup companies can issue equity or debt instruments to FVCI against foreign remittance receipt, backed by the regulations under the Foreign Exchange Management Act (FEMA)!? Not only that, but the startup can also issue convertible notes to people resident outside India. But then what is a convertible note? Convertible Note denotes an instrument that can later be converted into different security. For example, compulsorily convertible debenture (CCD).

The startup company issuing convertible notes is also required to furnish reports as prescribed by the Reserve Bank of India (RBI).

It is important to know that the above-mentioned escrow account shall not be permitted to continue beyond a period of six months. Prior consent from the Government shall be obtained concerning transfers in case the startup company is engaged in a sector where Government consent is needed.

Finding investors is not always a flowery path. Especially when you are looking for investors overseas. FDI is one mechanism but the process is overwhelming and tedious. It is said to have concerns stifling domestic competition. Now here comes Angel investors who provide crucial financial support and especially turn out to be the fairy mother for all the startups. 

What does the fancy term “Angel Investor” mean?

Angel Investors act as one of the largest sources of funding for high-growth small businesses. They are individuals who make use of their disposable finance and perform their due diligence on the companies they invest in. They are the wealthy individuals who invest their funds into early-stage firms. Appreciation to funding, they serve to provide industry and managerial expertise to the entrepreneur. They make individual investments directly to the firms and act as mentors or consultants. 

Canadian investors in India:

Canadian angel investors are playing an active and important role in financing early-stage firms, especially in the high-tech sector. The level of their activities can be considerably enhanced if specific market barriers are removed. These involve inadequate networking amid investors, substantial taxes, unfavourable defence regulations and a deficit of quality start-ups who are also willing to give up equity and management rights in exchange for angel funds. 

The startups to meet the angel investors cross the wall between hell and heaven and in the end all the struggle is worth it. There are a lot of risks investing in it but the returns to the angel investors are marked high. Angel Investors for startups are less formal than Governmental investing mechanisms.


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Lawyered Team

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