Indian budget for FY 2014-15 finally took its first steps favouring startups. As an investor into early stage companies, it is heartening to hear about the much needed impetus on setting a friendlier pitch to the entrepreneurs of the country pitted to be having the youngest population by 2020.
The announcement of Rs 10,000 Cr fund to provide equity and soft loans for startups can create a hugely positive impact on the entrepreneurial outlook. Assuming that even a quarter of this goes into equity, the Govt could be a potential stakeholder in over 1000 enterprises. This implies that the policy making in future would be driven by the potential opportunity creators in the country. The soft loans are equally a welcome step, especially for that large number of firms needing working capital support, something the current investor ecosystem is not very enthused about providing. This would give rise to disruptive manufacturing startups and accelerate their smoother proliferation. With this amount adding to the already buoyant private investments, Indian early stage investments would surpass those in China (in terms of magnitude as well as activity) to be only second to those in the Silicon Valley
India has a huge product potential. There is also a clear crunch of funds in the early stages of product conceptualization, validation and prototyping. Allocation of Rs 100 Cr fund for Technology development could play a significant role in nurturing the early stage product development and enhancing the emergence of more IP/innovation led startups. Similar approach of seed stage investing adopted at Ventureast Tenet Fund, has resulted in a whole portfolio of product startups with disruptive potential like OneBreath, Little Eye Labs, Vortex Engineering, Seclore Technologies and SmartRx. The proposed nationwide infrastructure for incubation and acceleration should potentially see a couple of game changing startups emerge from India in the next couple of years.
The entrepreneurial investments today are highly concentrated into the four metro regions of the country. The 100 Cr fund for rural entrepreneurship and the 500 Cr fund proposed to enhance rural internet connectivity should help in bridging the gap. It should also fuel technology and innovation into agriculture and allied areas, manufacturing and other sectors of rural ecosystem. We have seen Israel trail blazing in the direction and their agricultural process has undergone a transformation. It could drive the ecosystem to expand its horizon towards the rural sphere of the country, that’s where the majority of burning problems exist and so does the untapped opportunity.
Another aspect that used to scare the entrepreneurs in the previous setup was the painful documentation required to shut down a non performing startup. We all expect the entrepreneurs to make pragmatic choices and discard an idea that is not working and adopt another without wasting their time and resources. The announcement to have an easier framework to file for bankruptcy has been a much awaited reform.
While celebrating the first step, we would all look forward for the much needed execution. Singapore govt (throught National Research Foundation, NRF) implements the same through the Early Stage Venture Fund (ESVF) scheme where NRF would invest an amount of $10 M-$15 M in each, in a list of approved partner venture funds. The partner funds would in turn match this investment by raising funds from private investors. Currently, Venture Capital firms of global repute compete to be recognized as partners in this scheme. Such a partnership if implemented in India, would attracts investments from global funds and ensure a more collaborative and meaningful impact.
A catalytic regulatory environment (relaxed winding down process), sufficient capital flows (in the form of grants, soft loans and equity), availability of appropriate talent and mentoring support (nationwide incubation infrastructure and skill development initiatives) should certainly provide a more conducive environment for India’s entrepreneurial health.
(Sateesh Andra is a managing partner at Ventureast, primarily overseeing theVentureast Tenet Fund, a seed-stage VC Fund. Views expressed are personal.)
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