Indian retail investors and wealthy citizens have largely stayed away from investing in startups, resulting in heavy dependence on foreign venture capitalists and big investment houses. However, Nithin Kamath, CEO of Zerodha, suggests incentivizing them with tax relief and capital gains exemption for startup investments, similar to the UK, to utilize local wealth stuck in fixed assets. Kamath believes wealth creation must be captured by a vast number of Indians to spread wealth inclusively and not just the elite, which can only happen when retail investors move assets to back Indian entrepreneurs.
Investments in Indian startups are still dominated by big VCs and foreign investors as retail investors and wealthy countrymen largely stay away from this arena. But how does India ensure that these funds relocate to startups? Kamath suggests going the UK way or UK-like way.
The UK offers 50% tax relief and capital gains exemption for startup investments. This seems a great way to incentivize the wealthy to invest in startups, Kamath said. We maybe need similar schemes to reduce our dependence on foreign VCs and better use our local wealth stuck in gold, real estate and fixed deposits.
According to Kamath, the wealth in India has to be trickled down inclusively and not just to the elite. The biggest problem to solve in India is to spread wealth inclusively & not just in the top 1%, the co-founder and CEO of Zerodha said. This can only be done when Indian businesses do well and such wealth creation is captured by a vast number of Indians. This is possible only when wealth creation can be captured by a large subset of Indians when Indian businesses do well. Today, most wealth gets captured outside India, he said.
Kamath further said Indian retail investors have to be nudged to move some of their assets from FDs, gold, and real estate to back Indian entrepreneurs and maybe help the country grow inclusively. This is what excites us at Zerodha and even at Rainmatter, Kamath said.
India is home to hundreds of startups, with the ecosystem taking off lately, but most of them are dependent on VCs and big investment houses for funding. Such heavy dependency meant that they had to endure severe funding crunches in phases, like the one currently going on.
Indian startups managed to raise just $1.06 billion in May, according to Tracxn, with the flow from funding taps thinning down to a trickle. The funding activity saw a 69% decline year-on-year from the $3.42 billion raised by startups in May 2022.
