SPACs vs RBI

Good morning,

One of the hottest trends among dealmakers in Silicon Valley is SPACs, or special purpose acquisition companies (read our explainer here), which can spare startups the hassle of a traditional IPO. At least three Indian companies are looking at going public in the US through SPACs but may not be able to because of an old RBI rule.

Elsewhere in today’s letter:

• ✍️ The rise of the summarisers
• 📲 Big Tech & Taxation in India
• ₿ Adios, Crypto?

Startups’ SPAC dreams hit RBI wall

Startup promoters' new favourite way to list on the Nasdaq has come up against the Reserve Bank of India’s old rule limiting how much money Indians can remit abroad.

Driving the news: Many unicorn promoters in India are looking at SPACs for a Nasdaq listing. But since the deal will involve allotment of a foreign company’s (the SPAC’s) shares to the startup’s promoters, RBI’s $250,000 limit on outward remittances under the Liberalised Remittance Scheme (LRS) may become a hindrance.

This is because allotment of a foreign entity’s shares to Indians falls under LRS ambit and the market value of a unicorn promoter’s holding can be far in excess of the quarter-million-dollar limit.

What are SPACs? Special Purpose Acquisition Companies (SPACs) are listed entities set up exclusively to acquire private companies. Post-acquisition, the private company, now part of SPAC, goes public, bypassing the more demanding IPO route to listing.

A SPAC acquisition is a two-stage process:

• First, the target company is merged into the SPAC and all current investors of the target company transfer their shares to SPAC.
• Second, these investors get shares of the SPAC in exchange for shares they transferred earlier. This swap of shares is where the problem lies.

According to legal experts, SPAC-like structures are not explicitly banned in regulations, but compliance requirements are very high and do not take into consideration the unique nature of the product.

“It would be interesting to see if RBI raises any objection,” said Tejesh Chitlangi, partner at IC Universal Legal said.

The rise of the summarisers


On February 1, 20-year-old Atharva Kharbade from Ballarpur, Maharashtra, put out a series of tweets summarising Tesla CEO Elon Musk's chat with Robinhood's Vlad Tenev on Clubhouse.

Since then, he has acquired an iPhone, a job and a shot at living his dream life.

What's happening? A bunch of online users have made a name for themselves—and some money— by summarising popular podcasts, live sessions and streams on Twitch, Clubhouse and Twitter Spaces in a Twitter thread. In the process, they are solving the problem of access and time for people with a growing interest in the knowledge economy.

How’s the pay? Rs 150-200 for per minute of content — at least that’s what was quoted to Pepper Content’s co-founder Anirudh Singla by some ‘summarisers’, who approached his company for a gig.

What’s the scope? According to Blume Ventures’ Sajith Pai, a niche media company or even a lifestyle startup can be built on top of “reporting” synchronous live conversations in asynchronous mode. But most summary writers want to become a brand in themselves, he says.

To be sure, the trend of ‘summarising’ transcends channels and media. So, you have Tanmay Bhat breaking down Balaji Srinivasan’s essay on why India should buy bitcoin, and Gen Z users talking about India’s socio-political issues on Twitch streams.

Crowdsourced journalism? The founders of @WeekinClubhouse, who chose to stay anonymous, said they “see a future where reporting is a shared responsibility and the collective people are arbiters of quality”.

• “People should have the power to report on something, share their findings, and be judged and rewarded for that,” they said.

Tweet of the Day


Big Tech’s tax


On March 11, we reported that Big Tech may have to pay significantly more tax in India as a result of the government’s new social media rules.

Turns out they are already exploring a workaround.

Driving the news: Big Tech firms, including Google, Facebook and Twitter are looking at outsourcing some of the compliance functions that are part of India’s new social media rules. This means they would not have to set up a permanent establishment and pay 40% income tax.

However, it is not clear whether the government will regard these entities as independent or not.

ETtech Done Deals

■ Credit card repayment platform Cred is in talks to mop up around $200 million in a round which will see participation from new investors like Falcon Edge’s Alpha Wave Incubation Fund, ascribing the two-and-a-half-year-old startup a valuation of nearly $2 billion.

■ Fintech platform YAP has raised $10 million (about Rs 73 crore) in Series B funding, co-led by Flourish Ventures and Omidyar Network India, at an undisclosed valuation.

■ Tech Mahindra will acquire a 70% stake in Dublin-based Perigord Asset Holdings for €21 million (Rs 182 crore). The Indian IT firm has committed to acquire the rest of the stake in the Irish BPO firm over the next four years at a valuation linked to the company’s financial performance.

Infographic Insight


Adios, crypto?

India will propose a law banning cryptocurrencies and will fine anyone trading, mining or even just holding these digital assets, a senior government official told Reuters. It is a huge potential blow to millions of investors piling into the red-hot asset class.

Details: The bill — one of the world's strictest policies against cryptocurrencies — would criminalise possession, issuance, mining, trading and transferring crypto-assets, the report said, quoting an unnamed official.

• If the ban becomes law, India would be the first major economy to make holding cryptocurrency illegal. Even China, which has banned mining and trading, does not penalise possession.
• It would give holders of cryptocurrencies up to six months to liquidate, after which penalties will be levied, said the official, who asked not to be named as the contents of the bill are not public.

Why it matters: The move is expected to hit millions of investors who’ve bet on crypto amid a record-breaking rally in the price of Bitcoin, the oldest and most popular cryptocurrency.

Cops book influencer in Zomato assault case


The Bengaluru police has registered an FIR against Instagram influencer Hitesha Chandrani on a complaint from a Zomato delivery executive for alleged assault, insult and criminal intimidation.

Zomato suspended Kamaraj, saying it was company policy, but said it would bear his legal expenses. The company said it is also in touch with Chandrani, covering her medical expenses, and helping her with the proceedings.

Other Stories We Are Covering

AMD sees a mega cycle of data centre demand pushing sales: US-based semiconductor maker AMD expects demand for chips to increase as the world heads for a mega cycle of high-performance computing, driven by a shift to the Cloud and the rollout of 5G networks.

Pimpri Chinchwad Smart City hit by Ransomware attack: Pimpri-Chinchwad Municipal Corporation Smart City said it had not suffered any data loss through a ransomware attack late last month and that it had also not paid ransom to the hackers. This is perhaps the first known instance of a cyberattack on a Smart City project.

Global Picks We Are Reading

■ Tinder will soon let you run a background check on a potential date (The Verge)

■ Live streaming, still niche, grows as a tool for retailers (NYT)

■ Elon Musk is Tesla’s ‘Technoking’ now because of course (Bloomberg)