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IRDAI gives Green Signal to Insurance Companies to Invest in Indian Startups

India’s burgeoning startup industry is certainly witnessing a honeymoon phase and this one probably has to be the best honeymoon phase it has ever witnessed. After a unicorn spree this week, this fledging yet ambitious industry has another reason to cheer. India’s insurance regulator, IRDAI, has relaxed the investment rules for insurance companies investing in domestic fund of funds, including those that backup startups.

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IRDA’s latest decision will offer much-needed respite to the capital-starved Indian startups, which are saddled by the sheer lack of alternatives for raising capital. They traditionally have been depending on Vcs and private equity funds to quench their need for capital.

But Indian insurance regulator’s latest order comes with few caveats, the most important being that the insurance companies cannot invest in fund of funds that invest in overseas companies. By doing so it has modified the regulations for insurance firms investing in alternative investment funds (AIFs) that was earlier approved by SEBI.

Furthermore, Insurance companies are allowed to make investment only in AIFs where they already have an exposure. Companies will also have to secure report from existing auditor to verify their compliance with these rules and eventually file it with the IRDAI.

If one thinks discerningly then IRDAI’s decision will facilitate the growth of Indian domestic funds in the startup Industry. Off late, the ‘made-in-India’ funds have started gaining lot of tractions with two major Vc firms, Blume Ventures and Alteria capital, raising funding corpus that saw participation only of the Indian limited partners and HNIs.

The slowly yet steadily rising stake of domestic funds in the Indian startup is certainly a good sign. It reflects that the industry is fast maturing and has reached an infliction point where the domestic investors have started taking the ecosystem a bit more seriously. Above all, this  positive attitude will help in coping with the negative perception that Indian startups are piggybacking on foreign funds.

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