Venture capitalists (VCs) play a crucial role in shaping the tech industry, acting as key indicators of its future direction. Their investment choices and strategic decisions often signal the health and trajectory of the technology sector.

As VCs channel funds into emerging technologies and startups, they not only provide crucial financial support but also influence industry trends and innovations. By examining their actions and preferences, we gain insights into which technologies are gaining momentum and what the future landscape might look like.

We take a look at what some of the top venture capital firms in India think of the upcoming 2024 Union Budget, and how they read the upcoming budget.

VC Industry’s Call for Tax Reforms
Anil Joshi, Managing Partner at Unicorn India Ventures, emphasizes the urgent need for tax reforms to support the venture capital industry. “The venture capital sector is still relatively young and has specific expectations from the Finance Minister. A major concern is the Angel Tax, which has been a longstanding issue. Early-stage investments often go to young companies with limited resources. The complexities and potential tax scrutiny discourage many investors. We hope the Finance Minister addresses this in the upcoming Budget, as resolving this issue could encourage more investments in this asset class.”

Joshi also highlights other pressing demands, including favourable GST treatment on management fees and adjustments in the calculation of income or gains. “The industry also seeks alignment of long-term gains with those of listed entities and faster approvals for overseas investments. Addressing these issues would help streamline the investment process and boost confidence in the sector.”

Supporting Deep Tech Startups
Manoj Agarwal, Co-founder and Managing Partner at Seafund, advocates for enhanced support for deep tech startups in the upcoming budget. “I am optimistic that the budget will strengthen India’s deep tech ecosystem. The government has shown interest in supporting this sector, but more backing is needed at the seed stage. Deep tech ventures often require extensive R&D, which may not attract early-stage investments. A dedicated fund of funds to back investors in deep tech would be crucial.”

Agarwal also calls for a simplified taxation framework for startups, ESOPs, and investors. “In Europe, investors benefit from tax incentives for investing in startups. Implementing similar provisions in India could encourage more domestic investments. Additionally, addressing the issue of ‘reverse flipping’—where businesses established in India but headquartered abroad seek to return—could enhance our economy and government revenue.”

Streamlining Investment Processes
Agarwal further underscores the need for reforms to simplify the GST tax regime for funds and eliminate the Angel Tax. “These changes would free up domestic capital for early-stage funding, which is critical as we slowly emerge from the funding winter. By removing these barriers, we can better support startups and foster a more vibrant investment environment.”

Venture capitalists are vital barometers for the tech industry, providing insights into emerging trends and future directions through their investment choices. Addressing key issues such as tax reforms, support for deep tech, and streamlined investment processes will be essential in shaping the future of technology in India. As the sector continues to evolve, responding to these needs will ensure a more dynamic and competitive tech landscape.