Source: Business World
2014 was a defining year for the Indian startup ecosystem. Compared to the rest of the decade, a number of significant events and activities have changed the very nature of the startup world in India. Companies like Flipkart, Snapdeal, Paytm, Zomato, etc have redefined ‘scale’ and investors are placing big bets on them. These startups demonstrated the potential and the competence to build world-scale companies and created new goalposts for entrepreneurs to aspire for.
Faster move to Series A funding: Recognising the potential of e-commerce in India, the Union Budget 2014-15 last year announced the setting up of a Rs 10,000 crore fund to boost capital flow to startups and small and medium enterprises (SMEs) in the country.Also, in December last year, the Indian government announced an Rs 10,000-crore electronics development fund (a different fund) for enthusiast IT start-ups to attain the next level. With this corpus and accessibility to multiple sources such as banks, pension funds, high networth individuals, etc., the government can definitely provide financial support at seed and angel level to startups. This upcoming budget the government should announce frameworks where they can even partner with global VCs who can invest in Series A funding rounds as well as provide guidance to startups. This can go a long way in giving much-needed impetus to the startup ecosystem in India.
Tax exemption for investors: The present regime of Angel tax has proved to be very harmful for the country as a number of startups have shifted base to countries like Singapore, the US and the UK. There is an urgent need to tweak Section 56 of the Income Tax Act to keep startups and the investing community out of this law. Tax exemption for seed and angel investors will be a huge boost for the startup ecosystem. In the UK, for example, the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) have been very successful in encouraging investors to support startups as they give huge tax reliefs (up to £1 million), Capital Gains Deferral Relief and Capital Loss Relief. Through these tax efficiencies EIS investors have a downside loss protection of 65p for every £1 invested. I believe a scheme like this will go a long way in encouraging investors and demonstrating the government’s commitment to building the startup ecosystem.
“Unless we are able to provide a reasonable number of opportunities for Series A capital to startups, the entire acceleration programme and angel funding would not achieve fruition. There is sufficient interest and capital available in the market today, and a number of high-potential startups, ready for angel and Series A investments, are likely to double from last year. But for that to happen, Government needs to pave the way for global investors to offer their knowledge to Indian startups.”
Boost connectivity: Creating digital infrastructure should be prime agenda in the upcoming budget. The broader industry heavily depends on reliable and fast Internet, which remains a distant dream. Even large Tier II and Tier III cities in India don’t have decent broadband. In this budget, the government should take active steps to enhance connectivity in the country.
To conclude, we’re hoping that the Union Budget 2015 will address these fundamental problems that the startup industry in India is facing, paving the way for growth and making of a true startup nation.