Capital gain tax for venture capitalists is seen as a major obstacle to bring in investments into the biotechnology industry. Sectors like biotechnology have high risk in investments because the entire process of product research and development has a long gestation period and the returns are not immediate.
“It is high time that the government should look at capital gain tax waiver. It would encourage venture capitalists to invest into biotechnology, David Wetherell, president and COO, Burrill Healthcare Venture and Private Equity, Burrill & Company told Pharmabiz at the sidelines of the Bangalore India Bio 2013.
Presently, the national regulatory funding mechanism does not foster innovation. Capital is critical to stimulate business development. A capital gain tax cut for venture capitalists will see a lot more working capital which can be offered to early stage innovation for start-up companies.
“This is where the governments across the world including India will need to promote venture capitalists giving them a respite with capital gain tax exemption,” he added.
Now India has tremendous human and intellectual capital besides a large English speaking population. By incentivizing venture capitalists, India could leap frog in the areas of not just biotechnology but even in healthcare and lifesciences, he said.
“A decade of stimulus is required for a lot of innovation. There is also a need for combination of small and large grants. The problem is small grants are not sufficient to help a company take the product to market. There should also be an Evergreen Fund. Therefore, innovative polices are required to incentivize the venture capitalists,” he added.
Burrill & Company too invests in life science companies whose technologies and products are applicable across a wide range of life science sub-sectors.
Wetherell who is in India is also exploring possibilities to set up a small fund in India. He is now working to understand the government polices in the country, its exit rules, tax structures and Internal Rate Returns to measure the profitability of businesses.
There are immense opportunities across healthcare, lifesciences and biotechnology sectors which require funding badly. Much of innovation can be catalysed by attracting the required financial capital which is hard to raise. Good returns come in with a lot of funds which drives companies to faster growth. Therefore, Government should support venture capitalists with capital gains tax cut, he pointed out.