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Redefining Startups under Startup India

It goes without saying that there are several inadequacies in the current definition of startups under the recent Startup India Action Plan.

First, let’s have a closer look:

Department of Industrial Policy and Promotion
NOTIFICATION: New Delhi, the 17″‘February, 2016

G.S.R. 180(E) -The government of India has announced ‘Startup India’ initiative for creating a conducive environment for startups in India. The various Ministries of the Government of India have initiated
a number of activities for the purpose.To bring uniformity in the identified enterprises, an entity shall be considered as a ‘startup’-
a) Up to five years from the date of its incorporation/registration,
b) If its turnover for any of the financial years has not exceeded Rupees 25 crore, and
c) It is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property;
Provided that any such entity formed by splitting up or reconstruction of a business already in existence shall not be considered a ‘startup’;

Various industry experts and startup entrepreneurs are of the view that subjectivity in the definition of startups hamstrings their ability to claim incentives under the “Startup India” initiative. For instance, the prevailing revenue margin is too steep and may end up eliminating several unprofitable high-growth startups, which help in job creation.

Let’s look at other relevant excerpts too:

Provided that the mere act of developing:
a. products or services or processes which do not have a potential for commercialization or
b. undifferentiated products or services or processes, or
c. products or services or processes with no or limited incremental value for customers or workflow would not be covered under this definition.

4. An entity is considered to be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property if it aims to develop and commercialise:

a. A new product or service or process, or
b. A significantly improved existing product or service or process, that will create or add value to customers or workflow.

The current yardstick for a startup to be ‘new’ may rule out various startups with similar product/service offerings. For example, GoDoctor will not fall under the scope of this definition because of Practo. In addition, phrases and terms such as “potential for commercialization” and “differentiation” respectively, are hard to establish given their subjective nature. In other words, they are incapable of going through an objective assessment.

There is a need to have a broader definition of start-ups to encourage the spirit of self-employment in India. The Government needs to:

  • Establish univocal eligibility criteria in identifying eligible startups under the “Startup India” scheme.
  • Inclusion of profitability threshold or higher annual turnover to canvas a wide range of startups under the “Startup India” scheme.

 


Author: Ananya Singh

Disclaimer:THE STATEMENTS HEREIN REPRESENT THE CURRENT OPINION AND BELIEFS OF THE AUTHOR ONLY AND NOT START-UP INDIA ASSOCIATION (SIA). UNDER NO CIRCUMSTANCES SHOULD ANYTHING IN THIS POST BE CONSTRUED AS INVESTMENT, LEGAL, TAX, REGULATORY, FINANCIAL, ACCOUNTING OR OTHER ADVICE.

The reluctant juggernaut: Growing pains of the Indian Start-Up eco-system

The economic reforms of 1991 and the high-tech boom that followed was an overture to a new era in India. Overnight, new avenues for prosperity and social mobility opened up to the common man. “License raj” gave way to a more open economy and foreign investment encouraged by economic growth and consumerism became one of the key drivers of the Indian economy.
The turn of the century also marked the rise of the Indian entrepreneur, often portrayed as young, scrappy, with fire in their bellies; yearning for full participation in the global economy. With nearly 5000 tech startups in 2016 and an average of 800 new start-ups being set up annually, there is no doubt that India is among the fastest growing start-up ecosystem in the world. NASSCOM estimates that there will be approximately 11,500 startups employing over 250,000 people in India by 2020.
However, it’s not all sunshine and butterflies in the world of Indian start-ups. Start-up ecosystem in India leaves a lot to be desired in terms of breakthrough innovation. With uncertainty in early stage funding, valuations and devaluations, and emergence of new sectors, India is at a very crucial juncture, chalking out its own growth trajectory.
For investors and accelerators, evaluating startups remains one of the biggest challenges. With all the excitement surrounding the election of a new business friendly administration, 2014 and 2015 witnessed heavy flow of big ticket investments. It didn’t take long before investors started realizing that betting on just hope wasn’t particularly healthy.
Consequently, 2016 was the year of introspection and calibration as venture capital investors started seeing significant corrections in the valuations of their portfolio companies. Mismatch in expectations versus execution, difficulties in incorporation, immature regulatory framework coupled with poor market conditions led to major investors that include New York’s Tiger Global Management and Japan’s soft bank scaling back in India.
For startups to graduate to scale-ups, there is a very clear need for the establishment of a robust support mechanism to minimize such bottlenecks; and such a mechanism can only be facilitated by a proactive policy environment distinct from the ad hoc and reactive approach that continues to prevail across the country. The time is ripe for all the stakeholders in the Indian start-up ecosystem to come together, to make their voice heard and to ensure evidence-based solutions to address bottlenecks translates into policy.


Author: Mathew John Ambolil

Disclaimer: THE STATEMENTS HEREIN REPRESENT THE CURRENT OPINION AND BELIEFS OF THE AUTHOR ONLY AND NOT START-UP INDIA ASSOCIATION (SIA). UNDER NO CIRCUMSTANCES SHOULD ANYTHING IN THIS POST BE CONSTRUED AS INVESTMENT, LEGAL, TAX, REGULATORY, FINANCIAL, ACCOUNTING OR OTHER ADVICE.

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