Venture Capital Firms are Flocking to GIFT City for Global Investment Opportunities

News Source: economictimes.indiatimes.com

More Indian venture capital firms are opening offices in Gujarat International Finance Tec-City (GIFT City) to simplify overseas startup investments and provide a solid alternative to offshore hubs like Mauritius, several investors told ET.

Many VCs have either already established a presence in GIFT City or are considering it, especially as more Indian startup founders move to the US. Firms like Blume Ventures, 3one4 Capital, Stellaris Venture Partners, A91 Partners, and Z47 (which recently opened its first office there) are among those setting up operations. Private equity firms like Kedaara Capital and Multiples have also entered the region.

Vinod Shankar, Managing Partner at Java Capital, said they are exploring GIFT City as a base for increasing their third fund from overseas investors.

According to the International Financial Services Center Authority (IFSCA), which oversees GIFT City, nearly 255 alternative investment funds (AIFs) are registered there. However, this number may include multiple registrations under the same AIF.

Interest in GIFT City is growing as more Indian startup founders move to San Francisco — the center of AI innovation — to stay close to their customers and the latest technologies. Many investors are following this trend, focusing more on the India-US investment corridor. For them, GIFT City serves as a viable alternative to traditional offshore locations such as Mauritius.

Why GIFT City Is Gaining Popularity?

Earlier, most Alternative Investment Funds (AIFs) were established offshore because SEBI (Securities and Exchange Board of India) regulations limited foreign investment.

Ashitha Bhagwan, Managing Partner at Inventus Technology Partners, explained that SEBI-regulated funds are required to invest in Indian Rupees by default. Converting this to other currencies involves extensive paperwork and SEBI approvals, followed by coordination with authorized dealers (bankers).

GIFT City helps overcome these hurdles. A report by Grant Thornton highlights that funds in GIFT City are not restricted by SEBI's overseas investment limits and can also enjoy tax exemptions under its framework.

Alok Goyal, Partner at Stellaris Venture Partners, said GIFT City provides a business-friendly environment and an easy process for establishing foreign currency funds.

Moving to GIFT

Ashish Fafadia, Partner at Blume Ventures, said they have successfully convinced their LPs to explore GIFT City. “When it comes to tax stability, it’s at least on par with Mauritius. We believe things will only get better, and setting up in India is a wiser choice—even if it takes some time,” he said.

Bhagwan also noted a rise in interest from investors wanting to fund startups in the US and other global markets. “GIFT City simplifies investing in foreign currencies like USD or GBP, unlike the lengthy procedures required under SEBI-regulated AIFs,” she said.

Challenges

Bhagwan highlighted that although GIFT City streamlines several processes, improvements are still needed. “While assisting a fund setup in GIFT City, we experienced delays — it took nearly 3 to 6 months to convert INR to USD through banks,” she said.

Another investor added that, unlike Mauritius, where tax rules are well-established, GIFT City is still relatively new and lacks clarity on tax implications. He also raised concerns about the requirement to maintain a physical office to operate a fund.

Blume’s Fafadia said, “The reality is, IFSC regulations are better than critics expected, though not yet ideal. These rules aren't meant to be overly easy, especially for emerging sectors like alternative investments. But regulators at GIFT City are open to change. Things can be resolved in 3–4 rounds instead of 20 presentations, which is fairly efficient.”