Startup India – How Fair Is The Game?
During his 2015 Independence Day speech from Red Fort
Narendra Modi pushed through his plans for something called ‘Startup India’. As
per his own words from that speech, his idea of SI was – This initiative is mainly focused on to restrict
role of States in policy domain and to get rid of "License Raj"
and hindrances like in land permissions, foreign investment proposal,
environmental clearances. Now this line itself is a giveaway that the
said initiative would have its secondary list of action items as well. Though
the idea wasn’t clearly spelt out, his initial speech was good enough for many
upcoming startups to drool to their death. Immediate conclusion that was
deduced was – the government of the day is interested in helping the startups
in many ways to get established; primary of being the financial patronage that
most startups badly need. Almost all who were in the business of startups
thought it to be an open invitation to come and get funded. No questions asked
and no accountability outlined. Was this a convenient one side reading of the
idea and the initiative? Has the idea been blurred, right at the source, for
such confusion and expectations to creep in? Let’s see.
I have a friend from
my engineering days, who is a friend of a person who was doing his research on
an idea revolving around automobiles for quite some time. He finally was successful with
his research work and the same got well acclaimed, both at national and international
level. He also won few national and international awards for his innovation. He
got his patent as well. Now the journey of a startup must not end at the successful
invention. It has to go till the point where the efforts are cashed upon
through some means of business model. Now from here, the role of my friend
comes into picture. The innovator, along with my friend and few others formed a
company and planned to mass produce their innovation for public use. Here the
SI announcement of the PM came as a blessing. Like most, the idea of my friend
and his team was to sail through it easily and get that much needed moolah to
kick start their production line. One year down-the-line and after the
proverbial running from pillar-to-post, my friend today is one annoyed human
being. He in fact has resorted to name calling. As per him, Modi’s claim of
this Startup India initiative is bogus. Till date, again as per him, not a
single startup that seems to have been funded by this initiative. I had an
argument with him in our Whats-app group that things may not be as bad as he portraits.
Was it only the funding part that was annoying my friend or is there some truth to
his avowals? Or was there a feel of entitlement with my friend that the GOI
should have rolled out the RED carpet for them, bypassing every guideline, just
because they have won few awards to their credit? To be honest, I never had any
substantial proof to counter him of his dissatisfaction. But getting
information in today’s world isn’t that tough anymore. A little search would
settle much of your queries and I did precisely that.
The
first thing that struck me is the manner in which most of these startup
dreamers, not just my friend, misunderstood the whole concept of SI. And I don’t
blame them entirely for this. The guidelines laid out by this initiative, with
all honesty, are far from being ‘Black & White’. That said it certainly isn’t at all about getting easy money from the government without any accountability. In
fact the free money is nowhere in the picture. A deep reading would make it clear
that the government is not in the business of banking. They shouldn’t be even. Government’s
job is to stand there as an efficient felicitator and they pretty much have
announced it in as many words in their action plan. The initiative largerly rounds up to as listed below.
- Single Window Clearance even with the help of a mobile application
- 10,000 crore fund of funds
- 80% reduction in patent registration fee
- Modified and more friendly Bankruptcy Code to ensure 90-day exit window
- Freedom from mystifying inspections for 3 years
- Freedom from Capital Gain Tax for 3 years
- Freedom from tax in profits for 3 years
- Eliminating red tape
- Self-certification compliance
- Innovation hub under Atal Innovation Mission
- Starting with 5 lakh schools to target 10 lakh children for innovation programme
- New schemes to provide IPR protection to start-ups and new firms
- Encourage entrepreneurship.
- Stand India across the world as a start-up hub
I don’t see the action items talking much about
money except may be in point number 2. There even the phrase ‘Fund Of Funds’ reads
little different from the word ‘Fund’ that many like my friend were salivating
at. I am sure most of the budding entrepreneurs
would have missed it. So here it is what the government means by this ‘Fund Of
Funds’. First thing, the government will not invest in any startup. Government
isn’t a venture fund and they want to remain that way. Government’s only
participation would be limited to contributing to the SEBI registered venture
funds. Even the management of this said fund isn’t the lookout of the
government. There will be a board with private professionals drawn from
industry bodies, academia, and successful Startups. This board is
entirely responsible for both shortlisting and funding, not the government. LIC
would be a co-investor in this fund and that too to the tune of 50%. My dear
friend must be reminded here that, at least 50% of the said money is public
money. For the rest 50%, private players would be encouraged to fill in.
Companies like Softbank and Google have already invested through the above mentioned
bracket. There is also a guideline on the amount that can be funded for a
particular startup. The maximum that can be funded is limited to 50% of the
project plan. The rest 50% has to be arranged by the proposers and due proof of
the same need to be given to the board before applying for fund. So when my
friend blasts the government’s initiative as bogus just because they are yet to
be funded, it begs him to look at reasons for their failure in getting the
confidence of the said board. Narendra Modi possibly isn’t the guy who is
ticking beside the company names that get funded.
That said the government isn’t leaving the
startups to arrange their part of 50% on their own. They have issued ‘Credit Guarantee
Fund For Startups’, which too is part of the action plan. The idea is to
encourage banks to finance the innovators. In layman’s words – the government
stands by as guarantee for these startups in case of a failure. This gives a
much needed comfort for the banks and other private venture funds to invest in
these startups. Though the responsibility of the repayment for the loan
procured remains solely with the proposer, government stands there as a fell
over support. SIDBI is one such example which acts as a nodal point for fund
distribution under this SI initiative. The website of SI lists SIDBI as some
kind of channel partner and the picture here depicts the exact role SIDBI had
played and will continue to play in this initiative. SIDBI too had its own
guidelines which are separate from the guidelines laid out by SI. But the
inherent notion is that, the proposals that have passed the guidelines of SI
automatically cleared for the consideration of SIDBI. The caveat here with
SIDBI is similar to any other financial institution. The loan still remains at
the sole discretion of SDBI. If one thought to get the money for fun without
being monitored or evaluation, they may have misread the idea behind the SI initiative.
There never was free lunch and there never would be. So to my friend again –
the fund that you claimed to have received from SIDBI is from this SI initiative,
which you are too adamant to agree.
The definition of a startup was also made very
simple through this initiative. The flowchart here describes how the whole
system works quite efficiently. Though most of the blocks here are self-explanatory,
the ‘Block D’ should be much of an interest for all those startup aspirants. It
should be commercially viable, it mentions. The commercial viability should be
a leaf in your presentation to the funding board. If some award makes you
believe your presentation would be taken on its face value without being
pondered upon then it is a different thing but things doesn’t work that way.
The board on its own wisdom would study the market viability of the proposal
and then decide on their conclusion. A simple search would show, more than 80%
of the proposals that are been rejected are because the board felt the idea,
though good, is simply not commercially viable. And I am sure; awards not
necessarily authenticate the business practicability of the idea. For an
innovator his/her idea still remains the best, both uniqueness wise as well as
business wise but that is not what the board is supposed to agree on. They have
their own way of evaluating and looking at the panel, I am sure, their
expertise and experience can easily be banked upon to come to the correct
conclusion on any given day. After all people like Anand Mahindra can’t be too wrong with their assessment
of the business sustainability of a particular idea. The core notion here is
that the government is here to invest and encourage startups, not to waste
public money for fun, which many startup aspirants, along with my friend,
thought to be.
So to everyone who is ranting against the
government on this – either your idea is not commercially viable or you haven’t
presented your case as it should have been. Little point in conceiving the idea
that the mere mention of startup would result in people lining up at your
doorstep to give you money and that too public money. It has never worked that
way and it never will. There is no entitlement here and the least that counts here
is how many awards you have won. The median for prize distribution and the
median for VC funding are entirely two different things with no correlation whatsoever.
Didn’t get the money at the first attempt? Stop whining and start preparing for a
better presentation. And by the way, let me reiterate – there is no free lunch
and of course the government is the last one to give that.
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