Promoting start-ups in India

Fri, 8 Jun Pre-Open

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India has grown at a tremendous pace over the last decade, but if the country wants to improve its growth, it must unleash a new generation of start-up entrepreneurs and innovators with much better access to entrepreneurial education and finance.

Although leading global private equity (PE) and venture capital (VC) giants striving to catch a piece of action in emerging India have entered India, there is still a lack of infrastructure and support available for young startups or enterprises that might need funding of less than Rs 10 m, as well as intense mentoring to take them from being just an idea to an actual, sustainable business. There is also non availability of venture capital for small innovators and a platform for innovators, investors and their potential supporters to find each other and create collaborative enterprises.

There are also regulatory and structural challenges. Any 'VC' activity in India needs approval from the Securities and Exchange Board of India (SEBI). A bigger challenge comes from structural issues and funding operational expenses. Normally, any VC fund charges its investors a 'Fund Management Fee', which can be around 2% per annum of the total investment commitment. Since these VC funds normally mobilize huge amounts of money, the management fees are able to cover operational expenses. But they cannot invest a small amount and manage such investments; that would mean spreading their resources too thin. And if they have to support startups, the overall fund size cannot be very large to effectively take out the requisite management and running expenses.

It would, however, be incorrect to say that the country totally lacks such an infrastructure. Bold initiatives have been made by organizations like TiE (The Indus Entrepreneurs, promoted by Silicon Valley champions), the Indian Angel Network (IAN) and the National Entrepreneur Network (NEN). But all these organizations suffer from certain shortcomings. All these organizations are based on the premise of rich, established, individual investors coming together and employing their money and support to nurture selected startups.

A potential solution for developing robust infrastructure for entrepreneurs to thrive on is to develop incubators. Incubators are promoted by leading educational institutes and supported by government initiatives. They are the major reason why the Silicon Valley in the Unites States has such a vibrant entrepreneurial ecosystem. In India they are only now gaining early traction. But again, their services, too, are largely limited to the alumni or passing students of their own alma mater. For example- incubators have been started by state-run educational institutions such as the IITs and IIMs. Finally, the country needs to take entrepreneur support infrastructure to the grassroots, to the 'real' startups.