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VC related legislative changes being considered

The government will also soon announce a package to enable the software and hardware sectors to meet the $50-billion target set for 2010, said the commerce secretary.

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The new package should also help India get a greater share of the $1-trillion international software business, said P P Prabhu.

At present, India's share is only 0.2 per cent of the electronic trade conducted worldwide.

He was speaking at the recently held 'First National Seminar on Venture Capital Funding for Software Industry'.

Union Minister for Agriculture Sompal, in his address, said India has the potential to export software worth $500 billion against the target of $50 billion by 2010.

Prabhu acknowledged the specific needs of the software industry which, he admitted, could not be met through a system of traditional finance or banking.

Other speakers at the seminar highlighted the need for venture capital, which they said, had contributed like the computer chip to the success of the Silicon Valley.

As software companies can offer very little as collateral, financiers, both venture and traditional financiers, need to evolve different evaluation criteria for such projects, they said, adding that the only assets in the software sector are the intellectual capital of manpower.

Gupta, secretary, Department of Electronics, cited the obsession with security for capital as being the reason for a dearth in finance for the software sector.

He advocated a framework to finance software projects through venture finance, including an amendment in the Companies Law Act to allow for 'sweat equity', differential pricing and buyback of shares to allow the venture financier an easy exit from the company.

Sweat equity is common in the US, where technocrats can buy a cent's worth of share in a partnership and still have a say in the company.

Gupta also spoke of amendments to allow means other than equity to finance a company and to let mutual funds operate as venture capital funds.

An amendment in the Partnership Act was also proposed to facilitate venture capital. Gupta said a team which made these recommendations, had also suggested that for the purpose of income tax assessment, the operations of venture capital companies should be considered as one even if one of its operations is making a profit and the other a loss.

It was also announced at the meeting that the Second Labour Commission would look to finally give the industry the competitive advantage of cheap labour.

Speakers at the meeting said later in an informal gathering that as per the plan, labour would get paid only after completion of work.

Sailendra Narain, managing director, Small Industrial Development Bank of India, said that the institution is keen to involve NRIs and international players in enabling the software companies to access finance according to what he called the ATM concept.

He said this sector needs most of its money for working capital. As traditional financiers will not finance without collateral, it is fair to expect the beneficiaries to pool in for the needs of the sector, he added.

He clarified that the ATM concept meant quick access to finance.

Small and medium enterprises were also present at the seminar. They narrated their experiences with venture finance. The speakers addressed most of their grievances and the seminar ended with a resolution to convene again in December and hopefully make the meeting an annual event.

- Compiled from the Indian media

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