Giving Angel Investors Their Wings: R&D Investment Tax Credits

This is a guest post from Susan K Finston, President of Finston Consulting. Do you have a response to Susan’s post? Respond in the comments section below.

Susan Kling Finston

Nascent life sciences start-ups in the BRICS and other emerging markets face continuing fundraising hurdles, as discussed here and more recently here. So while there have been increasing calls for India’s small-scale entrepreneurs to move from ‘jugaad’ to more Israeli-style start-ups, access to capital has not kept pace with India’s appetite for innovation. Understanding just how limited India’s public funding is for biotech start-ups may help to explain the importance of this issue.

The Indian Department of Biotechnology (DBT) provides the lion’s share of domestic funding for R&D-Intensive Micro-Small & Medium Enterprises (MSMEs). Not taking into account limitations in actual disbursement of budgeted funds, the DBT’s stated funding for the SBIRI, BIPP and other R&D programs amounted to less than $15 million annually in recent years: “For 2013-14, the allocations are merely 90 crores,” (p. 44). Of this total, the lion’s share historically has aided established pharmaceutical / biotech companies.  

Accordingly, the Modi Government should look beyond public sectors funding schemes for biotech startups, where tax incentives to energize Angel Investors may play an important role in dramatically increasing funding for innovative start-ups. Both Israel and the US provide R&D Investment tax credits that serve as effective incentives for funding ‘high risk-high reward’ ventures, with immediate benefits to Angels who traditionally provide seed funding to start-ups at earlier stages than VCs. 

Issues relating to broader tax reforms and the need for tax incentives for high net worth individuals (HNWI) to create a broad class of Angel Investors surfaced over the course of the April 15th CSIS program: Deepening the U.S.-India Commercial Partnership: The First Year of the Modi Government, co-organized by the Wadhwani Foundation and the Ananta Aspen Centre. India’s private sector represents a huge, untapped source of capital to support job creation through funding of R&D-intensive MSMEs.  With a total of 14,800 multimillionaires and 2,700 multimillionaires in Mumbai alone, India ranks in 8th place globally in terms of the number of multimillionaires and is home to the 4th largest number of billionaires around the world.

India ranks in 8th place globally in terms of the number of multimillionaires and is home to the 4th largest number of billionaires around the world

With the right tax incentives, these High Net Worth Individuals (HNWIs) may take flight as a new Angel Investor class, easily surpassing limited public funds available to India’s R&D intensive MSMEs. Giving Angel Investors their wings could help an unprecedented number of MSME innovators, leading to a virtuous circle of job creation and development of new pharmaceutical and biotechnology products that are ‘made in India.’

More information on investment tax credits and how India may benefit through selective adaptation of Israeli and US policies for R&D intensive MSMEs may be found in the Wadhwani Foundation’s Innovation Blueprint Study, available for download here.

 

About the author:
President of Finston Consulting LLC since 2005, Susan works with innovative biotechnology and other clients ranging from start-up to Fortune-100, providing support for legal, transactional, policy and “doing business” issues. Susan has extensive background and special expertise relating to intellectual property and knowledge-economy issues in advanced developing countries including India and South Asia, Latin America and the Middle East North Africa (MENA) region. She also works with governments, and NGOs on capacity building and related educational programs through BayhDole25. Together with biotechnology pioneer Ananda Chakrabarty, she also is co-founder of Amrita Therapeutics Ltd., an emerging biopharmaceutical company based in India with cancer peptide drugs entering in vivo research. Previous experience includes 11 years in the U.S Foreign Service with overseas tours in London, Tel Aviv, and Manila and at the Department of State in Washington DC. For more information on latest presentations and publications please visit finstonconsulting.com.

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