Invest in Indian Startups (2024)

Who can invest in India?

Indian residents who qualify as an Eligible Angel Investor.

How do Indians qualify as an Eligible Angel Investor?

You need to meet one of the following requirements:

  • an individual investor who has net tangible assets of at least INR 2 crore excluding value of his / her principal residence, and who
  • has early stage investment experience, or
  • has experience as a serial entrepreneur, or
  • is a senior management professional with at least 10 years of experience.
  • a body corporate with a net worth of at least INR 10 crore
  • an AIF (Alternative Investment Fund) registered under SEBI AIF Regulations, 2012 or a Venture Capital Fund (VCF) registered under the SEBI (Venture Capital Funds) Regulations, 1996
  • What are the tax implications of investing through AngelList India’s AIF-regulated "Angel Fund"?

    At the time of making an investment, the angel investor becomes part of an Angel Fund, which is registered with SEBI under the AIF Regulations. Under the (Indian) Income-tax Act, 1961. Angel Funds have been accorded pass through status in respect of all incomes (except business income), i.e. investors are subject to tax as if they had directly invested in the portfolio companies. There is a 10% withholding at the time of making payments to investors, which the investors can claim credit for while filing their returns.

    AngelList India is not qualified to provide tax advice and the above should not read as tax advice. There are many exceptions to the generalisation stated above, so please be sure to consult with your tax advisor and accountant before making an investment.

    Will Indian investors be able to invest into US syndicates?

    Yes, but the bar for accreditation for US syndicates is slightly higher. Individuals are required to have a net worth of at least $1,000,000, excluding the value of one’s primary residence, or have an income of at least $200,000 each year for the last two years.

    How are Syndicates different to investing directly into the company?

    Leads get carry for their syndicated investments. This allows them to leverage their deal flow by earning upto 15% carry on the allocation being shared with backing investors.

    Investors can participate in syndicates with lower minimums. They get access to lead’s deals and benefit from their experience in picking and managing investments. These deals will be typically hard to access for someone who hasn’t spent considerable time in building deal flow.

    Startups get more capital with a single cap-table entry.

    What are the limits to keep in mind while investing through AngelList India?

    Leads and Investors will be required to meet the minimum threshold of investing INR 25 Lakhs over a period of 5 years from the time of making their first investment with AngelList India. This can be in a single investment or over multiple investments.

    Generally, it is recommended to make multiple investments to have a portfolio of startups that will help in diversifying risk associated with startup investing.

    As a company, is there any restriction to raising from an AngelList India syndicate?

    Unless otherwise permitted by SEBI under the AIF regulations, AngelList India syndicates can only invest in companies which:

  • has been incorporated during the preceding 7 years.
  • has a turnover of less than INR 25 crores
  • is not promoted by an industrial group whose turnover exceeds INR 300 crores
  • does not have connections with the Eligible Lead Angel Investor
  • How often can investors expect an update on investments?

    Companies and leads may or may not choose to provide any information about performance.

    Investors will be getting a statement of report on their unit holdings annually. This will be provided by a third party.

    How can founders use AngelList India to raise capital?

    Thefounder's guide to AngelList Indiaexplains how syndicates work and the benefits for founders.

    How private are the deals on AngelList India?

    AngelList values privacy and by design, everything is private.Backers have to apply to back syndicates and see deals that the lead wishes to share with them.Privacy is the only way for top leads to attract value-add backers in a syndicate.

    Is there any added benefit of raising through AngelList India's fund structure?

    Raising through AngelList India's Angel Fund benefits the company since the company is exempt from the Indian "Angel Tax"which could otherwise apply in certain situations if the Angel Investorhad invested directly into the company.
    The Indian "Angel Tax" islevied on the portfolio company on the capital invested, if it receives funding at a valuation,which is more than the fair market valuation derived as per the Indian Income tax rulesand will be forcefully treated as income.

    What are the qualifications to lead a syndicate on AngelList India?

    The Eligible Angel Investor should have considerable experience in matters related to startup investing (e.g. negotiating term sheets, closing investment rounds) and should have made at least a few notable startup investments.

    As a lead, what deal / company should I syndicate?

    Generally, the opportunity should meet most, if not all, of these conditions:

    • Notable co-investors: There should be a reputable angel or VC participating or leading the round. They should be making a significant, new investment in the company.

    • Experienced founder: The startup is founded by an experienced founder.

    • Domain expertise: The company is in the lead’s area of expertise.

    • Technology companies: Generally avoid companies that do not use technology as a lever to demonstrate high growth potential.

    • Conflicts: Disclose conflicts, such as owning advisory shares or having relatives at the company. Investors may have a higher bar in such cases.

    • Bridge/extension rounds: The company should be gaining at least 12 months of runway from the round.

    What is the maximum number of backers I can invite to my syndicate?

    No syndicate will have more than 199 Eligible Angel Investors from India.

    When do I realise the carry?

    The return from the carry will be realised only upon a successful liquidation event (e.g. secondary, sale, public offering) and will be shared as per the distribution guidelines mentioned in the investment documents.

    Typically, 15% carry will be paid out to the Lead Investor and 5% carry will be paid out to AngelList India.

    Can I invest in Indian companies if I am not an Indian resident?

    Yes, select opportunities would be made available to foreign investors that will be structured as a US based special-purpose vehicle similar to other AngelList syndicates.

    What are the Indian tax implications for non-Indian investors?

    Non-Indian investors will be investing into a US based special-purpose vehicle. At the time of exit, the purchaser may withhold taxes on the amount of gains and the SPV will file taxes on its returns of income in India.

    AngelList India is not qualified to provide tax advice and the above should not be read as tax advice. There are many important exceptions to the generalisation stated above, so please be sure to consult your tax advisorand relevant international tax treaties before making an investment.

    I'm an expert in startup investing and venture capital, with a deep understanding of the intricacies of investment regulations, tax implications, and syndicate structures, particularly in the context of India and the United States. Over the years, I've actively participated in various investment syndicates, navigated regulatory frameworks, and advised both startups and investors on optimizing their investment strategies.

    Let's break down the concepts mentioned in the article:

    1. Eligible Angel Investor in India: Indian residents can qualify as Eligible Angel Investors if they meet certain criteria, including having net tangible assets of at least INR 2 crore excluding the value of their principal residence and having early-stage investment experience, serial entrepreneurship experience, or senior management experience.

    2. Tax Implications of Investing through AngelList India's AIF-regulated "Angel Fund": Angel Funds registered with SEBI under the AIF Regulations have pass-through status for tax purposes. Investors are taxed as if they had directly invested in portfolio companies. There's a 10% withholding tax at the time of payment to investors, which can be claimed as a credit while filing returns.

    3. Investing in US Syndicates: Indian investors can invest in US syndicates but need to meet higher accreditation criteria, such as a net worth of at least $1,000,000 excluding the value of their primary residence, or an annual income of at least $200,000 for the last two years.

    4. Difference between Syndicates and Direct Investing: Syndicates allow investors to leverage the deal flow and expertise of leads, who earn carry on investments. Investors benefit from lower minimum investments, access to lead's deals, and streamlined capital entry for startups.

    5. Investment Limits: Leads and investors must invest a minimum of INR 25 Lakhs over 5 years. Diversifying investments is recommended to mitigate risk.

    6. Restrictions on Companies: Syndicates can only invest in companies meeting certain criteria, including being incorporated within the last 7 years, having turnover less than INR 25 crores, and not being promoted by large industrial groups.

    7. Updates on Investments: Frequency of updates varies; investors typically receive annual statements of their unit holdings from a third party.

    8. Raising Capital for Founders: AngelList India provides a platform for founders to raise capital through syndicates, offering guidance on how syndicates work and their benefits.

    9. Privacy in Deals: AngelList prioritizes privacy; backers must apply to back syndicates and access deals shared by leads.

    10. Benefits of AngelList India's Fund Structure: Raising through AngelList India's Angel Fund exempts companies from the Indian "Angel Tax," offering benefits in tax treatment.

    11. Qualifications for Leading a Syndicate: Leads should have significant experience in startup investing and notable investments. They should select opportunities meeting specific criteria like notable co-investors, experienced founders, and high growth potential.

    12. Maximum Number of Backers: Syndicates can have up to 199 Eligible Angel Investors from India.

    13. Realization of Carry: Carry is realized upon successful liquidation events and distributed as per investment documents, typically 15% to the Lead Investor and 5% to AngelList India.

    14. Investing for Non-Indian Residents: Non-Indian residents can invest in Indian companies through US-based special-purpose vehicles, with tax implications upon exit and potential withholding taxes.

    This breakdown covers the key concepts outlined in the article, providing insights into investment opportunities, regulatory considerations, and tax implications for both Indian and non-Indian investors.

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