Centre should consider a new policy backing startups

The start-up ecosystem in India has developed tremendously in the last two to three years.

By TV Mohandas Pai 

Today there are around 1,500-1800 technology start-ups every year all over India with 45-50% of them based in Bangalore alone. The seed capital for the start-ups is coming from founders who start companies by self funding and money collected from their networks.

We are also seeing angel networks developing in Delhi, Mumbai and Bangalore. They are investing to the extent of R200-300 crore a year. We are seeing money coming from overseas VC funds and capital being raised within India. I would reckon the entire start-up ecosystem including venture capital for growth will be $3-4 billion a year.

A very important development that is taking place is that funds have started to come up in India itself. Examples of such funds are Exfinity and Orios Venture Partners. This is an important development because large number of the start-up companies should be funded from money raised in India. Added to this, high networth
individuals are also looking to invest in the Indian ecosystem.

The boom in capital markets today gives hope that some of the start-ups will be able to exit through buy outs from large firms or through IPOs. One can see that valuation of internet and technology companies listed on the exchanges like Just Dial, Info Edge are going up.

The reasons for improvement in the start-up ecosystem and the fund flow are many. The most prominent reason is that a large number of young people from colleges feel that it is important to be entrepreneurs and start their own companies leveraging technology rather than going for employment. Secondly, many senior people in technology companies are leaving and starting their own enterprises either as venture capitalists or as founders.

They are also able to get teams together, networks, technology and management bandwidth. This combination is attracting more capital. Thirdly, the phenomenon of consumer internet companies or e-commerce like Flipkart, Snapdeal raising huge amounts of capital has also demonstrated that start-up ecosystem is able to get good valuation specially when it is centred around the internet.

A new area which has developed in the last three years is mobile commerce. The growth of smartphones and devices is showing the way ahead. The cost of bandwidth is also coming down as also the cost of smartphones.

The government of India needs to come out with a policy for fostering these technology product companies and start-ups. The software product companies think tank, iSPIRT has made a series of recommendations to the government. In 1999, the NDA government had come out with a 108 point programme for the development of IT services industry.

The result of these decisions are here to be seen. Today there are possibly around 15,000 companies in India—big and small and total exports will be $100 billion this fiscal with about 3.5 million people directly employed. No other programme has shown so much success as the 108 point programme and the cost of this in terms of tax breaks has been incredibly low.

Now the time has come for the new NDA government to come out with a policy, version 2.0, and iSPIRT has give a representation with the following objectives: Creation of 100,000 start ups in the next 10 years, a minimum $500 billion market value in ten years (it could be an underestimate), three million young people being employed in start-ups.

To make this happen, iSPIRT has asked the government to set up angel fund/venture capital fund of R10,000 crore to co-invest with other other similar ventures so that capital is more easily available. This will also enable greater risk taking. This is a small amount considering the requirement. iSPIRT has also asked for setting up of incubators in 500 engineering colleges and also the creation of a mechanism whereby start-ups can work with the government.

The government system is very demanding on start-ups and iSPIRT has also asked for certain tax concessions for smaller start-up companies so that they do not feel the heavy hand of tax authorities and be at the mercy of a compliance based regime that is choking India today.

TV Mohandas Pai is chairman, Manipal Global Education and Express IT Awards jury member

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