Start-Up India: Can the next wave succeed?
The rhetoric has been tremendous but the results of the first wave of Start-Up India have fallen short of expectations. Many companies lured by the attraction of B2C commerce have fallen by the wayside and the success stories of entrepreneurial ventures in other consumer and business sectors have been few and far between. It may have been rather romantic to believe that India can see hundreds of millions of entrepreneurs start and flourish but it would be heartening if we can “do an Israel” and get a hundred thousand new companies to start with adequate funding, scale to a crore of revenue in two years and aspire to be million-dollar profitable companies in 2022.
The recent Budget also fell short when it came to any real proposals for easing the pain of angel investors as well as creating an environment of comfort for entrepreneurs. It was heartening to hear the Finance Minister say that venture capital funds and angel investors need an innovative, special development and regulatory regime for their growth. But the entrepreneurial community waits to see action! The reluctance of young folks looking at employment in start-ups because the compensation is largely through stock options can be addressed if the taxation of stock options is not on the difference between exercise price and fair market value but is deferred to when the employee actually sells the share and generates profits. The current window of no tax for the first three years is of little value since most well-funded start-ups do not even attempt to make profits in the first two or three years. A longer tax holiday and a rejig of the dreaded angel tax will ensure that start-ups are able to access early stage funding and grow profitably to a stage where they can attract the first serious round of funding.
Our company Kalzoom Advisors has been in the thick of this entrepreneurial dream, investing in companies with digital promise and helping large firms on the one hand with their digital transformation strategies and also smaller firms with a scaling plan for digital innovation, analytics and artificial intelligence value propositions. In every case, we have found that start-ups as well as small firms which have found their place in the sun have been those that have carefully chosen their theaters of operation, invested in skills and technologies that place them ahead of the curve and developed the capability to compete on equal terms with large incumbents in global corporations. The problem, however, with the vast majority of tech start-ups has been that they have not defined one core product, platform or solution that is truly disruptive and hence quickly degenerate into “me-too”services providers. In the non-tech space too, the need for clear differentiation in product or service and the ability to create and market a superior value story has been missing in most new entrepreneurial financial services, health care, retail and logistics firms.
Originally Published in Business Standard on Wed, February 07 2018