In 2016, our Prime Minister, Narendra Modi, declared 16th January as National Startup Day. In the 7 years since this day was coined, India’s startup ecosystem attracted over $100 billion in investments and is home to over 100 unicorns. If a primary objective of this day-naming exercise was to catapult India from a rank outsider to becoming the 3rd largest startup ecosystem in the world, then kudos because that objective has been achieved.
Therefore, credit is due where it is deserved, and PM Modi and his team of ministers must get appreciated for the efforts that they’ve put in to get our ecosystem to the heights that it enjoy today. However, this fantastic progress in attracting global capital could go to zilch if certain key structural changes aren’t urgently implemented.
My primary concern when building a startup isn’t whether it can achieve scale but managing the complexities and the enormous pressure that its scaling brings upon the internal framework of the startup. Scaling is exciting but can obliterate an organisation that isn’t prepared for the tsunami of customers coming its way.
Similarly, I am concerned with the complex and myriad of agencies and laws that govern India’s startup ecosystem because the enormous attention that India has attracted is steadily becoming the flashpoint between the ambition of founders and the objectives of India’s administrators.
Here are 3 flash points that the government must address immediately
1. Single window clearance for fundraising.
Despite the government’s efforts, it still takes 3-6 months for a startup to close an investment round. There are unnecessary, time-consuming and expensive processes that startups must endure to complete a funding round. The process does not benefit anyone, including the very professionals involved in the process. Meanwhile, the founders lose precious time and momentum at their most critical juncture – sustaining growth while waiting for funds to flow into the startup.
Since investors spend precious time and resources conducting legal, financial, and secretarial due diligence, closing the funding round right from taking in money to issuing shares should get reduced to 7 working days through a single window clearance. In addition, the founder should not be made to run from pillar to post to close funding rounds; the agencies should be coming together to support the founder. Finally, getting money into one’s company is so complicated that founders are again exploring overseas locations for clarity and peace of mind.
As a country, we have lost several of our brightest minds over several decades to the peace of mind provided by the west. We cannot let that happen with our most brilliant founders.
2. Removal of 3rd party valuers from fundraising and exit processes.
The government has put SEBI in charge of approving the credentials of fund managers and their investment strategies before giving them a licence to invest in complex and risky financial instruments to invest in startups. Startups are asked to take DPIIT registration to receive amnesty from complex laws in return for growth.
Despite that, specific laws require these licensed investment professionals that have spent years (if not decades) to get their entry and exit valuations certified by an unrelated 3rd party, aka valuers, so they can invest and divest in a company – a job for which they have gotten a licence from the stringent eyes of SEBI.
These processes extend investment timelines, delay the disbursal of exit proceeds, and generally cast a dark shadow on India’s already bleak image as a complex country to invest in. The nation pays for the scam perpetrated over a decade ago, but instead of punishing the offenders, the entire ecosystem pays heavily.
The government should look at today’s business scenario and plan for where it sees India in 2030 – the land of opportunity and scale.
3. Reduce the timeline of shutting down a company to 6 months.
Nine out of ten startups will fail. That fact will bring a chill down the spine of Indian founders because shutting down their failed startup is torture that the founder must endure after failing. An unfortunate double whammy that keeps punishing founders for starting up in India.
Founders and their funders need to be released from their failed businesses to move on to their next venture and lives. The simpler and faster it is for stakeholders to get released from a failed venture, the better encouragement it provides for more founders to enter the entrepreneurial fray. On the contrary, the more horror stories they hear about how their badge of failure sticks to them for years (if not decades), the more fearful the everyday individual is about taking the plunge.
I began my journey as a founder in the US, where the entire ecosystem is created for aiding, promoting, and amplifying the entrepreneurial spirit. However, I got a rude awakening to Indian entrepreneurship in 2011, a complete 180 to my US experience. As a country, we have come a long way from where we started, but the world has not stagnated until we break the remnants of socialism and licence-raj. The GCC, South East Asian, European, and North American ecosystems are opening their doors to Indian founders.
Therefore, we will continue to find ourselves as the diametric opposite of the western world until we make radical forward-thinking and structural changes. Because whether India will dominate the next decade or the century will not get affected by external factors. It will get determined by the actions we take today. Because the only people who can screw up these 7 years of progress are none other than Indians themselves.
— The author, Anirudh A Damani, is Managing Partner, Artha Venture Fund. The views expressed are personal
(Edited by : C H Unnikrishnan)
First Published: Jan 16, 2023 1:38 PM IST
