Doraswamy downplayed the concerns that the rule may act as a deterrent to future fund-raising plans. “Ensure the employees benefit when the company does well and the venture capitalists
(VCs) automatically make money,” he said.
Apoorva Ranjan Sharma, co-founder of start-up incubator Venture Catalysts and VC accelerator 9Unicorns, said: “The employees will also have a sense of ownership and can reap benefits as the valuation of the company increases.”
“Most of the start-ups usually take over 3-5 years to raise funding in bigger rounds. And, many a time, the top talent is known to quit after encashing the equity (in the early stages),” said Sharma.
Legal experts who worked closely with start-ups also welcomed the change. “It is a positive step, with reduced cash flow in the ongoing pandemic situation. This amendment will help the start-ups that are in operation for more than five years also to issue sweat equity to its employees,” said N Raja Sujith, partner - head (South India), Majmudar & Partners.
The amendment will also help start-ups attract fresh talent from the market. Also, VCs and PEs, typically, favour start-ups with such equity schemes as the employees have “skin in the game” and they perform better to increase the valuation of the company, according to Shalini Jain, partner, people advisory services, EY India.
The MCA also dropped a provision that required listed companies
with privately placed debentures to mandatorily set aside the reserves for every year.