Towards an Egalitarian Ecosystem: Rejuvenating VC-SPAC Regulations for Women

[Simran Lunagariya and Priyanshi Jain are fourth-year B.Com LL.B. (Hons.) students at Nirma University, Ahmedabad (Gujarat)]

India suffers from a dearth of female entrepreneurs, as seen by the country’s poor placement of 52 out of 57 countries on the Index of Women Entrepreneurs. A recent study by Mastercard indicated that a significant challenge for women entrepreneurs in India is a lack of access to financial resources and capital. At the same time, the government has shown strong intent to encourage women’s entrepreneurialism. This can be observed in various initiatives such as  Udhyam Shakti Portal for women entrepreneurs, MUDRA Yojana for women, Mahila Udhyam Nidhi Scheme, Start-up India Scheme, and NITI Aayog’s women entrepreneurship platform. However, the numbers have a different story to tell. Women-led startups were funded less than 5% in 2018 and 2020. Currently, more than 70% of the total finance requirements of ambitious women entrepreneurs are unserved in India.

As per the World Bank Enterprise Survey, only 16% of women entrepreneurs are seen in countries with poor rule of law. The purpose of this article is to discuss the relevance of the rule of law in improving access to finance for women-led businesses and promoting entrepreneurship. It calls for comprehensive review of the venture capital (“VC”) and special purpose acquisition companies (“SPAC”) regimes in India with a gendered perspective.

Magnifying VC Mechanism to Justify Promotion of Women Entrepreneurship

A study revealed that the percentage of female founders in growth-stage fundraising rounds is less than 1%, which means that investors tend to overlook women-led start-ups when it comes to larger and more subsequent capital rounds. Indirectly, this can be attributed to the gender gap in startup funding in India. On the other hand, the MUDRA loans (which assist banks, MFIs, and NBFCs in refinancing loans to micro-enterprises with loan requirements of up to INR 10 lakh) initiative by the government makes up around 78% of women. They are accompanied by NITI Aayog’s Women Entrepreneurship Platform and Catalyst for Women Entrepreneurship, which provides specific assistance to aspiring women entrepreneurs. Having said that, these schemes fail because they don’t offer sufficient finance that can help launch a startup and maintain employees. Moreover, the government loans under MUDRA create a huge ratio of bad loans.

In the US, there is the Women’s Entrepreneurship and Economic Empowerment Act, 2019 (“WEEE Act”). One of the aims of this legislation is to improve women’s access to credit, financial services, resources, contemporary financial literacy tools. Notably, the WEEE Act emphasizes the critical role of women’s entrepreneurship in achieving the US’s worldwide development objectives and public policy motives.

To boost institutional funding to women entrepreneurs at par with government support, it is pertinent to note that VC funding is one of the most efficient startup funding options. Owing to its comprehensive assistance mechanism, including market research, expertise, infrastructure, networking and much more. Moreover, the Indian Budget 2022-23 provided special attention to VCs by establishing a panel that offers a much-needed forum for formulating strategies aimed at not just accelerating startup development but also levelling the playing field for female entrepreneurs. In order to capture more critical issues, the main aspects that can be acknowledged through the entrepreneurship law for women are:

First, it is critical to increase the investments in women-led businesses from government-sponsored funds and VC funds. To that end, a framework needs to be created which rewards these investors. This can be done through sustainable investments in women-led businesses similar to impact investing for environmental protection.

Secondly, bringing gender diversity in investors is crucial because female investors reflect three times more determination to invest in the female run businesses. Additionally, female VCs depict a better rate of portfolio business investment success, greater fund returns of 1.5%, and 9.7% more lucrative exits than male-led companies, according to research. Following aspects can be covered in the legal framework to promote women-led VCs:

  1. reduction of income tax liability for women-led VCs;
  2. government to help women-led VCs to develop proper research and development infrastructure and teams;
  3. incentivize micro-finance institutions and private sector banks to invest in women-led VC funds.

SPAC: A Possible Alternative

Generally, profitable disinvestment alternative for VCs is crucial to incentivize them to invest in startups. Hundreds of unicorn startups go public every year, but only a fraction of them is led by women. The scaling up required by startups can be achieved through SPACs or traditional Initial Public Offerings (“IPO”). SPACs have gained momentum since 2020.

A women-driven SPAC could perhaps be an alternative option for women-led businesses in the male-dominated primary market considering that recent trends have shown women investors are more likely to promote or fund women as an entrepreneur.

Athena, an all women-led SPAC, is a classic example of women driven SPAC Moreover, women aren’t missing-in-action for the recent SPACs rage in the USA. This can be owed to the State law passed in California in 2018; the law aims to ensure that every company will have a minimum number of women directors on board.

To promote the SPAC bandwagon, Indian regulators may follow the footsteps of the Securities and Exchange Commission (SEC) of the USA. Recently, SPACs have gained much traction by listing 603 SPACs on Wall Street. This has been possible because of the lower SEC requirements and shorter timelines to raise capital than IPOs. As an initiative to promote global capital and unicorn startups in India, the Government of India, through International Financial Service Centre Authority (Issuance and Listing of Securities, Regulations,) 2021 has developed a proposed draft framework to facilitate listing of SPACs on their recognized stock exchange. While the regulation is indeed a welcome step, it lacks a proper regulatory framework and tying down SPACs listings to only IFSCs stock exchanges will limit its growth in India. While these issues are worked out, the benefits of SPACS to women entrepreneurship should also be considered.  


The lower rate of female entrepreneurship is part of a more significant gender disparity in economic inclusion and opportunity.  The legal framework of the startup ecosystem should consider these issues. VC and SPAC regulations for empowering women businesses offer a way forward.

– Simran Lunagariya & Priyanshi Jain

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