Budget 2019: India despite being the third largest startup ecosystem in the world, does not have a single world-class Indian product spawned out of India.
By Suresh Jayaraju
Budget 2019: While we have a huge base of startups progressing across sectors and technologies, a quick look at the ecosystem in 2019 points to arguably multiple detriments holding back the ecosystem including a virtual lack of early-stage funding and lack of world-class products from India. Here are a few areas in which the India budget can help nurture and support early-stage startups based on the feedback we obtained from more than 50 startups across 7 cities in India:
Virtual lack of funding: Funding for early-stage startups in India is one of the lowest in the world. What seems like yet another part of the overall construct of the startup evolution process, angel or early-Stage funding is probably the most important part of the entire ecosystem. Mistakes at this stage are liable to have more severe consequences as one goes up the proverbial value chain.
Taxation: Why should a fledgeling ecosystem like startups be taxed on multiple fronts? GST and SGST should be either charged at extremely low rates or be left out completely in the first 7 years after inception. To add, Income tax for employees at startups needs a relook, given that most startup founders and employees join these ventures taking a pay cut. Moreover, the threat of closure looms large as startups by their very definition function in a challenging environment. It is common knowledge now that 80% of startups fail in the first 3–5 years.
Angel tax, which came into effect 5 years back has experienced constant contention within the community. Investments in startups should not warrant tax, especially if they are related to longer-term gains in the capital. We need to handhold the supporting ecosystem of investors to get them to fire the ecosystem. Angel investments are fraught with the highest level of risks/failures in startups, so can we avoid taxing them? It’s a very small base which has managed to grow successfully, after all.
Obtaining grants: There’s an obvious anomaly in the availability of funds and the ease of obtaining the same including government grants. Unfortunately, the large sums on offer as grants haven’t been actually deployed to startups. It’s a typical case of over-regulation, lack of clear information and guidelines on how to obtain the grants and funds which have led to a very small fraction of the Fund of Funds getting disbursed.
World class ecosystem: India despite being the third largest startup ecosystem in the world, does not have a single world-class Indian product spawned out of India, even if they are setting out to solve India specific problems. The most successful startups in India including the ambitious aspirants want to be based out of Singapore, the US or even new-age startup destinations like Estonia and Canada.
It’s time to take a relook at the ecosystem. Despite being the third largest ecosystem, why do we lack world class products? It’s almost akin to our attitude during Olympics – being the second most populous country we rest heavy on the one gold, few silvers and bronzes. Unicorns, only reflect a single dimension of successful funding and valuation.
IP protection: It’s a pity that most of the successful startups in India or the ones which wish to be successful are uprooting from India and looking towards Singapore, Delaware and even new age destinations like Canada for registration, largely due to the IP/patent protection region in India. IP and innovation thrive in an environment of fairness created by strong patent and business/product/idea protection laws.
Patient capital: While VC money is pouring aplenty in mature stage startups, this is not necessarily the most optimal source of fund for a vast majority of next phase of startups. Startups especially focused on developing products in deeptech space need capital which is “not in a hurry”. It’s unlike the funding environment in e-commerce, which is driven by quick growth in GMV followed by successful additional rounds of funding. Product-based startups by their own volition have chosen the long-term game. They should be supported by the government via grants or funding for working capital which doesn’t come with the short term outcomes focused by venture capitalists.
Public procurement: State and central governments and public sector units are one of the largest spenders in technology and infra projects. Unfortunately, the government procurement and product/service integration process are driven by archaic tendering norms, which virtually renders all startups ineligible for the application. Shouldn’t the govt look at offering commercial projects to startups and can we have a certain percentage of the projects reserved for startups, especially in the technology space? This will give the much-needed revenue, recognition and the opportunity to scale to startups.
(Suresh Jayaraju is the senior director and head at Nasscom 10000 Startups. Views are the author’s own).