Whalesbook
Startup Funding Faces Delays in India's Deal Approval Process
India's thriving startup sector, a key driver of its economy, is currently facing a significant obstacle in deal approvals. The Competition Commission of India (CCI) requires pre-deal approval for transactions above certain values. This review process, typically lasting two to three months, often forces investors to give up essential rights, such as board seats or key voting powers, simply to speed up funding. This creates a conflict: investors may have to weaken their rights to get capital faster, which can harm long-term company oversight and investor protections.
This delay is a major issue because investors, often called financial sponsors, are central to India's startup funding, making up almost half of merger control filings recently. A rule called the 'inter-connection' principle requires all linked steps of a deal to be filed together. While meant to stop companies from splitting deals to avoid review, it ends up pushing responsible investors into tough decisions. The proposed fix involves adjusting this rule to allow faster funding without weakening the CCI's ability to check for competition problems.
India Adapts Global Rules to Speed Up Startup Investment
The 'inter-connection' principle, requiring notification of all linked deal steps, is common globally, seen in places like the EU and UK. India has been updating its competition law with measures like a Deal Value Threshold (DVT) and shorter review times. The Competition (Amendment) Act of 2023 and 2024 rules now require notification for deals over INR 20 billion (about $240 million) if the target has significant operations in India. These updates aim to improve oversight, especially for digital companies.
The current proposal would temporarily set aside the 'inter-connection' rule for deals where a financial investor buys into a single company. This would allow investors to complete parts of a deal that don't need CCI approval right away, while waiting for approval on parts that do. This could speed up funding without risking penalties for starting deals too early. This change comes as global regulators look more closely at digital markets and acquisitions that might harm competition. India is also keen to boost its 'ease of doing business.' Despite PE-VC investments reaching about $43 billion in 2024, late-stage funding fell 27% in the first half of 2025, highlighting the need for faster ways to get capital to companies.
Potential Risks in the Proposed Rule Changes
Forcing investors to give up key rights creates a fundamental problem that could weaken company oversight and investor protection. While the proposed rule change could speed up funding, it has risks. The main concern is whether the CCI will still be able to see the full picture of how a deal affects competition, even if parts are completed early. Smart investors might try to use these separate approvals to their advantage, creating tough enforcement issues for the regulator. India's regulatory system can also be complex and bureaucratic, potentially hindering startups despite government efforts. Any solution needs to be strong enough to prevent companies from finding loopholes in the rules and must keep clear lines of responsibility. Fines for breaking rules, like starting deals before approval, can be as high as 1% of the deal value or turnover.
Balancing Speed and Oversight for Startup Growth
This proposed change to India's merger review process could be important for balancing the need for fast funding with strong competition law enforcement and company oversight. By letting investors move forward with parts of a deal that don't need full approval, India could become a more attractive place for investment. This adjustment aims to make business easier and boost the flow of capital into fast-growing startups. It's a practical way to update rules, aligning with global trends that watch digital markets and big acquisitions closely, while still supporting economic growth and innovation.