Can Budget 2019 be used to create the next set of Indian ‘Unicorns’
By Sanjay Nath. Blume Ventures
Elections may have passed, but as slogans go it is ‘India Shining’…for entrepreneurs surely. While Indian entrepreneurs have it good, if we are to leverage our entrepreneurial dividend (and consequently our demographic dividend) then more is needed.
What has helped popularize entrepreneurship?
Focus: Policy makers belated realized that supporting India’s entrepreneurs will be a game-changer for innovation, employment, and wealth creation. A number of recent initiatives reflect this belief: SIDBI’s fund of funds, Niti Aayog’s creation, the Invest India office, Startup India, Standup India, and Atal Tinkering Labs.
Jiofication: For context on ‘Jiofication’, readers may refer to the widely followed annual Mary Meeker Report covering internet trends.
The term ‘Uberization’ entered lexicons referring to the ‘Gig Economy’. The more recent ‘Jiofication’ refers to various business models by the spread of cheap and fast internet. The fact that Mary devoted two slides to the advent of Jiofication and its implications for India’s internet economy indicates the trend’s importance. And if anyone thought this was only an urban phenomenon then it’s laughable; the reach extends into tier 2/3 cities and rural India.
This has brought within reach not just a hitherto untapped population and market, but also unexplored business models for new products and platforms from local content, gaming, online education to fin-tech, agri-tech, healthcare and many core sectors. This is helping societal transformation, besides technology and data driven problem solving.
Inspiration: Successful entrepreneurs in their 30s grace the covers of business magazines eager to showcase success stories. Bhavish (Ola), Naveen (InMobi), Ritesh (Oyo), the Bansal duo (Flipkart), and many other entrepreneurs are positive role models. Visibility, approachability, modest backgrounds, impact, and reward for effort are aspects people see in their stories.
The needs of startups
Four key factors that matter to the Indian startup ecosystem are:
What can help?
India can look to emulate the US startup ecosystem, which is the gold standard but is light-years ahead, or learn from China where startups are considered an integral part of making the country an economic powerhouse. Conditions here though are unique and India will do well to chart its own agenda and not just copy other models.
Diversification: We need to move beyond the consumer internet and media (including content) startup models that have been offered by deeply funded Indian startups and large foreign players like Amazon, Uber, etc. Core sectors like agriculture, natural resources management, mining, construction, environment are ripe for disruption by startups.
Innovation: Much more needs to and can be done on innovation, especially in emergent areas. Companies like Grey Orange Robotics have won international acclaim for their innovations and the entire ecosystem needs to develop to be considered a hotbed for innovation. In other countries, grant funding is a key source of risk capital for startups looking at innovative solutions. More government grants for supporting innovation, extending tax incentives, and creating platforms that can link innovators with grant-making institutions will go a long way.
Government: Commendable as the initiatives listed above are, some of these suffer from implementation gaps, inadequate reach, and loose regulatory integration. Sharpening these useful tools will make them more potent. Government should even go as far as creating a Department of startups to build greater focus.
Secondly, simplicity is a virtue always, even and especially when it comes to supporting entrepreneurship. The Angel Tax has been a thorn in the sides of startups since long and an over-zealous tax department is stifling early stage investment. This is not a concession startups demand but merely a conducive and non-confrontational environment to grow in.
Atal Innovation Centers at universities have proven valuable and this network should be extended and made deeper through integration with relevant industry bodies and ministries. This will help us emulate rival tech and innovation hubs. Also, every government-led initiative should be oriented towards making starting up simpler, easier and more attractive with corresponding benefits accruing to risk-bearing investors ranging from earliest angels to institutional VCs.
Lastly, the onus for developing physical infrastructure falls on the government due to the large investment needs.
While the wish-list to the government is long, I would like to commend the Rajat Tandon-led IVCA and its executive members for being the leading advocacy voice for VCs and PEs. This earnest group has helped bring about much-needed changes in tax treatment and other regulatory aspects.
Domestic FIs: In more developed countries, the PE & VC industry is supported by banks and FIs through active investment/co-investment and provision of leverage. Stronger participation from domestic FIs including banks, and insurance firms to support VCs and startups will go a long way in expanding the risk capital pool, thus furthering investment and innovation. This will also help India reduce its dependence on FDI for startup finance.
Corporate India: Startups and large corporates never saw eye-to-eye for the longest time. With their experience and deep pockets corporates assumed they could innovate better than startups. Startups with proprietary solutions or technologies cribbed about corporates not assigning a proper fair value to them in acquisitions.
Things are better now and one indication is institutional family groups, family offices, and business owners either co-investing with VCs or turning into direct providers of early-stage capital. In their 2nd innings, retired executives have turned towards setting up VC funds of their own, which utilize their deep connect and mentorship capacity. While this is encouraging, a tighter ecosystem wherein nimble startups collaborate with established corporates to speed up innovations through genuine partnerships will go a long way.
There’s a growing interest from overseas investors – most notably Chinese, Japanese and SE Asian- spanning hedge funds and growth/late stage investors in the Indian startup scene. It is time for Indians to match the enthusiasm of overseas investors and the enthusiasm of our entrepreneurs, which rivals that of anyone anywhere. The need is to create sustainable businesses that scale and live up to the test of time offering products and services that enhance lives and lifestyles, while creating jobs and wealth.
Let’s collectively seize the initiative and use this opportunity to its fullest potential to create dozens of Indian Unicorns.
(The writer is the co-founder and Managing Partner at Blume Ventures. Views expressed above are his own)
Source: ET Tech