Jun 10,2021 | 8 min read

"How can Singapore residents/angel-investors invest in the Indian startups?"

Angel investors are usually individuals with high net worth who invest in startups or independent entrepreneurs in order to provide financial backing to them. This is prima facie done in exchange for ownership equity or convertible debt. These angel investors most of the time invest in these startups when they are on the verge of failing or in the starting when capital is needed in order to kick start the company or keep it running, this is mostly a one-time investment. Their modus operandi of investment is usually through equity crowdfunding and through sharing investment capital by putting themselves into angel groups or networks and also by giving advice to their portfolio companies. The number of angel investors has increased over the years especially in India. According to research on the Indian Angel Network which s the country’s largest angel network, it has come to light that more than 20% of their total investors reside in abroad. Foreigners are aware of the fact that India is a developing country that is growing at a high rate and therefore is a very vibrant place for investment and similarly startups are the ‘avant-garde’ of this new India and therefore has a scope of innovation, experimentation and accommodation.

These angel investors may belong to any country and India receives investments from countries all over the world but Singaporeans are very actively investing in India. They have access to many deals in accordance with angel groups like ‘Lets Venture’ and ‘IAN’ these are the major platforms used by them in order to invest in Indian startups.

The process of angel investments start from:

  1. researching about the potential angel investors- researching happens from both ends, startups search for the potential angel investors who want to invest in their area of growth and angel- investors usually search for startups how are trying to venture into a new arena because startups are the major source of experimentation and innovation and therefore they look for new interesting opportunities to invest in.

  2. making you pitch- this pitch is called the ‘elevator pitch, it is a presentation done by the entrepreneur/ startup for the networking company in order to propose their plan of action or idea. This pitch is then reviewed by the secretariat. This presentation or elevator pitch is the most important phenomenon because it brings forward the plan of action and this is the basis for the investors to select a particular startup for investment. This pitch should include in a detailed summary of the business plan and other aspects like the objective and area of a startup, its value proposition, funding requirement, details of a team etc.

  3. funds in exchange of equity- the funds provided by the investor is usually in exchange for ownership equity or convertible debt and the terms of exchange are then discussed at this stage.

There also goes through a legal process in order to the angel- invest in India:

  1. NDA- Non-Disclosure Agreement- both the parties have to sign an NDA in order to maintain the exclusivity of the pitch.

  2. Company Valuation by CA- it should be ensured that the company’s valuation has been done by a certified charted accountant company in order to ascertain the true equity value of that company which will help decided the price per share of the company. 

  3. Due Diligence- it is n investigative step in order to review all documents pertaining to the company for investment which is done to evaluate the future potential of the company in the market.

  4. Subscription or Loan Agreement

  • Subscription Agreement

  • Loan Agreement

  1. Shareholder’s agreement

  2. Investment Terms & Negotiations in the Term sheet

  • Liquidation Preferences

  • Warrants Coverage

  • Conversion Rights

  • Automatic Conversion

  • Anti-Dilution Rights

  • Redemption Rights

  • Voting Rights

  • Dividends

  • Board Participation

  • D&O Insurance

  • Pre-emptive/pro-rata rights

  • Information Rights

  • Expiration of Letter

It is beneficial for Singapore companies to invest in India because they receive some additional benefits laid down by the prime minister of India under the Make in India scheme. This includes tax exemption clauses on foreign-sourced income for Singaporean companies given by the section 13 (7A) and 13 (11) of Singapore’s income tax act. These companies can also benefit from the foreign-sourced income exemption scheme which is applicable to foreign-sourced dividend, foreign branch profits and foreign-sourced service income. But this is applicable only in the case when the headline corp. the tax rate in the country from which the income is derived is a minimum of 15% and that particular income has already been subjected to that tax.

The Singapore government also realizes that startups are the future of the nation and that Singapore is the home to a high number of angel- investors which invest a high amount of money in promising startups and they have also launched a tax exemption scheme for angel investors. Joint efforts like these help startups flourish and in end the country.

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Lawyered Team

Lawyered Team