Strong call to address critical funding gap for start-ups
financing from sources like angel funds and venture capital (VC), capping in liquidity events such as IPOs or acquisitions within 5 to 12 years. Notable successes from our portfolio include exits like nCinga and Roar, as well as listings like InsureME. Our current fund faced taxes on profits from exits in the year they arose, despite later losses from closures and write-offs of invested start-ups, which is why, armed with this experience, we are calling for a tax pass-through structure. The problem with existing start-up companies is the lack of capital, and in the last 15-20 years of Angel investing and venture capital funding, this is the biggest lesson we have learned,” Prajeeth Balasubramaniam, Managing Partner of BOV Capital, said, discussing the challenges faced by the start-up funding cycle in the country.
This structure is globally available, he said, helping to attract potential investors. He also noted that along with such structures, Sri Lanka needs to have more start-up incentives. “This will help set up new venture fans in the country and stop start-ups from relocating elsewhere.”
Mr. Balasubramaniam highlighted that the absence of such a strong critical structure is delaying their next funding round, which already has US $ 2 million soft local commitment.
He pointed out to the Indian start-up ecosystem, which has a highly advanced policy on this, which the country can borrow from. “India enables venture capital funds to have pass-through treatment for start-up investments, exempting fund level income tax until distributions happen post the capital return because taxes are directly paid by the investors, it is revenue-neutral for the government.”
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