Securities and Exchange Board of India (SEBI) registered Foreign Venture Capital Investor (FVCI) can now contribute upto 100 per cent of the capital of an Indian start-ups irrespective of the sector in which it is engaged under the automatic route, states the newly released consolidated FDI policy document.

Ministry of Commerce and Industry released the consolidated FDI policy document on August 28 and in a first, it has included start-ups. FDI Circular 2017 incorporates all FDI policy amendments carried out since the release of last circular i.e. since June 07, 2016.

100% #FDI is allowed through automatic route and there are no #FDI-linked performance conditions 2/2

— DIPP India (@DIPPGOI) August 28, 2017

As per the document, start-ups can issue equity or equity linked instruments or debt instruments to FVCI against receipt of foreign remittance, as per the FEMA Regulation. In addition, start-ups can issue convertible notes to person resident outside India (NRI).

NRIs (other than an individual who is citizen of Pakistan or Bangladesh or an entity which is registered / incorporated in Pakistan or Bangladesh), may purchase convertible notes issued by an Indian start-ups for an amount of Rs 25 lakh or more in a single tranche, the document read.

“Start-ups engaged in a sector where foreign investment requires Government approval may issue convertible notes to a non-resident only with approval of the Government. The start-up company issuing convertible notes shall be required to furnish reports as prescribed by Reserve Bank of India,” the policy documented.

Convertible note means an instrument issued by a start-up evidencing receipt of money initially as debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of the start-up, within a period not exceeding five years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument.