The Indian start-up ecosystem is still in its nascence unlike the Silicon Valley where the ecosystem is mature. Yet this in itself has not stopped the entry of multiple accelerators into the ecosystem. Innovation being one of the keys to succeed, major corporations across the world cutting across sectors are planning to set up accelerators. Recently, Target, a retail giant, announced its plans to start an accelerator in India. Not to mention the existing accelerators such as Microsoft Ventures, Tlabs, GSF, etc. While technology companies like Intel, SAP, Qualcomm, etc, have invested in Indian start-ups, non-tech companies such as Target and Coca Cola have also proposed to venture into the accelerator space.
The tax and regulatory environment around the start-up ecosystem is still evolving and the considerations which an accelerator will have to consider are two-fold—that of its own and that of the investee companies. These considerations span across the life-cycle of the accelerators from start to finish.
Setting up an accelerator involves traversing through multiple decisions points such as:
*Whether the accelerator should be set up in India or abroad?
*If abroad, then in which jurisdiction?
*Whether the accelerator should be registered in India with Sebi or not?
Each of these decisions could have a bearing on the regulatory and tax status of the accelerators. Where accelerators are backed by large corporations or where they pool money from investors abroad, the decision points would revolve around the jurisdiction where the accelerator should be set up. Setting up in jurisdictions like Mauritius or Singapore, which have historically been the jurisdictions that funds have chosen, is no longer the obvious choice with the increasing chorus against treaty-shopping and need for business purpose.
On the other side, domestic accelerators set up in India which pool money from various investors will have to consider the need for registration as an Alternative Investment Fund under the Sebi regulations. Sebi has prescribed high thresholds in terms of corpus and investment size for funds to qualify as Alternative Investment Fund. Given that accelerators typically pick up a 2% to 10% equity stake in start-ups for contributions ranging from $25,000-100,000, most accelerators may not fall within the requirements laid out by Sebi. Failure to satisfy the investment conditions laid down by Sebi could result in prohibition from pooling money and operating as a fund.
Another important aspect to consider while setting up an accelerator is