How Can Australian Residents/Angel Investors Invest in Indian Startups?

An angel investor is an individual who provides funding for a startup, often in exchange for an ownership stake within the company. Typically, angel investors invest around $25,000-500,000 to help a company get started. Angel investors for startups are also known as private investors, seed investors, angel funders, informal investors, or business angels. Angel investments are mostly one time and aim at assisting the take-off of a startup. In many cases, angel investments are the last option for startups that don’t qualify for bank financing and may be too small to interest a venture capital (VC) firm.

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The investments made by private investors are different from angel investors in various ways. Some of them are:

• The risk involved – The angel investors invest their funds in the company at a time when revenue is uncertain and hence it involves much more risk than private investors. 

• Quality leads – It is tough for angel investors to choose an investment since they don’t know how the business will turn out whereas for private investors it is much easier to select a company from the pool of companies. 

• Stages of investment – Generally, angel investors have to invest at early levels but private investors tend to invest at maturity level. 

• Focus – The main focus of private investors are profit-oriented while angel investors are more focused on returns.

Over the last few years, India has witnessed remarkable growth in the startup ecosystem, especially after the launch of the government initiative of ‘Startup India’. 

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The rise of digitalization after the coronavirus pandemic has encouraged this growth. It has also been observed that there is a sudden shift in the number of startups from Tier 1 metro cities to Tier 2 cities, suggesting that innovation is now taking a pan – India vision. Even after the demonetization, India continues to attract investors (including non – resident Indians). To support the growing number of startups in the country, there are a number of angel investors and platforms that are a part of Angel Investors India Network. The investments made by NRIs are generally treated as ‘foreign investment’ from the Indian foreign exchange regulations perspective. {The Article briefs us on - angel investors, angel investors for startups, angel investors india, Australian investors} 

A few of the popular investment options generally opted by foreign angel investors are:

1. Bank deposit – There are three forms of bank accounts that are predominately opened by NRIs in India. These are:

• Non-Resident (External) Rupee Account Scheme (NRE Account) – These are the accounts that are operated by the NRIs with an intent to park their foreign earnings/savings in Indian rupees. The account is maintained in the form of savings, current, recurring, or fixed deposit account, and designated as Non-Resident Rupee Account.

• Non-Resident Ordinary Rupee Account (NRO Account) – These accounts are preferred in cases where NRIs intend to park only the Indian-sourced income such as rent, pension, dividend, etc. earned and received in India.

• Foreign Currency (Non-Resident) Account (Banks) Scheme (FCNR Account) – These accounts provide ease of repatriation of funds as they are maintained in the designated foreign currencies, and protect from foreign exchange rate fluctuations.

2. Equity investment – The economy is growing at a very fast pace which invests in equity shares of Indian companies an attractive opportunity for investors. NRIs are allowed to invest in equity shares of both listed and unlisted companies but subject to certain conditions.

3. Mutual funds – The NRIs are also permitted to purchase units of mutual funds without restrictions irrespective of the type of Mutual fund i.e. whether equity-oriented or debt-oriented.

4. Convertible debentures – This type of security is issued by a company in form of debt against investment and is convertible into ordinary stock at a specified time (no later than 10 years from the date of issuance) either fully or partly.

5. Convertible preferred stocks – This can be optionally convertible (except in the case of non-NRI foreign investors) or compulsorily convertible preferred stock. Compulsorily convertible stocks are, as the name suggests, required to be converted into ordinary stock on completion of a term or the happening of an event.

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The opportunities for Australian investment in India are very significant. Based on a survey, out to 2035, India's policy framework on foreign investment will continue to open, its business environment will continue to improve and its growth story will provide an active diversification strategy for investors. However, India will need to further liberalize investment frameworks and be willing to offer greater certainty to investors if it is to attract the capital required to boost productivity, create employment opportunities, and deliver real improvements to living standards. In recent years India has cancelled and sought to renegotiate its Bilateral Investment Treaties. {The Article briefs us on - angel investors, angel investors for startups, angel investors india, Australian investors}