Indian start-ups are ripe for investment by NRIs

Several start-ups such as Ola, Flipkart and Zomato have become a force to reckon with in a span of just 10 years or less

India is one of the global players riding the surge of a knowledge economy, fuelled by a boom in the Indian tech start-up ecosystem. Though in its infancy, with just over 3,000 tech/digital start-ups, projections by Nasscom and Zinnov indicate that the current pace of growth could take the number of start-ups up to 11,500 by 2020. This growth phase gives Indian entrepreneurs the advantage of learning from the experiences of their counterparts in the United States and other markets, allowing them to scale the learning curve and create better businesses in a shorter time span.

In just a few years of development, the start-up ecosystem in India has seen over 70 tech companies crossing valuations of $100 million. These businesses cater to both the Indian and global markets and are capitalising on the growing consumption of mobile Internet, enterprise software, hardware system design, robotics and artificial intelligence. Their potential to create value and scale rapidly has been grabbing the attention of global Indian high net worth investors who see them as a more valuable investment asset compared to the earlier preference for gold and real estate. This is an exciting time for non-resident Indian investors to be involved in the Indian start-up boom and play an important role in shaping the future of these companies. Here is a look at why.

Disruptive tech innovation
Many of the start-ups in India have been founded by top talent from renowned corporates and institutions. These talented and often experienced individuals have demonstrated a flair for creating disruptive businesses. Several start-ups such as Ola, Flipkart and Zomato have become a force to reckon with in a span of just 10 years or less. In fact, some of these start-ups have achieved 100 times valuation. This pace has quickened in the last four to six years, proving that the Indian start-up ecosystem is best positioned to replicate the success of the industry in the US and China.

With nearly 500 start-ups raising angel and early stage funding of over $1.25 billion every year, the start-up investment opportunity is gaining depth and width with multiple venture capital funds (VCFs).

The rate of growth in this space and the hunger for risk capital can be seen in the fact that VCFs like YourNest receive nearly 5,000 investment proposals a year while they plan to invest in only four to eight promising start-ups.

Pro-business economy
India is one of the fastest growing economies in the world. As per the World Bank reports, India's gross domestic product is projected to double to $4.5 trillion by 2025. With an annual growth rate of over 7.5 per cent, India adopted an inflation target of four per cent for the next five years under the monetary policy, in August 2016, which Moody's observed as a credit positive re-affirmation to keep inflation at moderate levels. Such macro-economic stability and monetary framework indicates a trend of limited risk of rupee depreciation.

In addition, new regulatory policies, backed by angel investments, have made Indian start-ups a favourable investment avenue for non-resident Indians. Investing in Indian start-ups has been eased for non-residents on a full repatriation basis for VCFs registered under SEBI Alternate Investment Fund (AIF) Regulations 2012. Investors can freely invest in VCFs, as well as freely repatriate funds received on sales of underlying portfolio companies by the VCF. Recently, a beneficial tax rate of 10 per cent on the long-term capital gain has been extended to non-residents, including Indian and foreign nationals.

India offers many advantages to global investors, including a highly skilled and talented young workforce, an edge in software skills, low production costs and globally viable products.

With the intention of capitalising on the flourishing opportunities in the Indian start-up ecosystem and building on the reigning momentum, VCFs have put together an investor-friendly fund structure, which is fully aligned to investors' interests and optimised for generating superior returns. The vibrancy and potential of Indian start-ups offers high net worth investors ample opportunity to step up their investments and get a ringside view of Indian innovation.

The writer is founder and CEO of YourNest. Views expressed are his own and do not reflect the newspaper's policy.