Prime Minister Narendra Modi launched the ambitious ‘Startup India’ Movement to boost digital entrepreneurship at the grassroots level in India. Leaders from Silicon Valley to Japan participated in this grand event to foster entrepreneurship.
Japanese Telecom Soft Bank’s Founder and Chief Executive Masayoshi Son said that “India’s economy might surpass the US and China to become the world’s largest in the next three decades”.
TIE President Ram Reddy, Travis Kalanick Founder of Uber, WeWork’s Founder, Adam Neumann and several technology leaders witnessed the launch of this global movement.
Here are the highlights of the government's plan for startups:
· Credit guarantee scheme worth $1.5 Billion for startups in the next four years.
· Atal Innovation Mission to give impetus to innovation and encourage the talent among people
· Profit from start-ups established after April 1, 2016, to be exempted from Income Tax for three years
· No government inspection for start-ups for three years
· A regime promoting self-certification based compliance, including environmental regulation.
· Startup India Hub to be developed as a single point of contact.
· A mobile App to be launched to facilitate beginning a startup in one day. The App will have a small application form that can be easily filled for registration.
· Easier patent filing norms in the offing.
· Free patent filing planned. Patent fee reduced by 80 per cent.
· Relaxed norms of public procurement for startups.
· Faster exits to be facilitated for startups. Bankruptcy Bill to be introduced in parliament.
· Increased participation of women in startups.
· Tax exemption on investments above fair market value.
· Core innovation programmes in 500k schools.
At Startup Commons we are happy to see initiatives whose objectives are to help startups grow faster, create further job opportunities and attract investment. Most of these policies are pointed in the right direction. Nevertheless, we are intrigued to see how all of them are applied and through which policies or specific steps.
Taking into account the current maturity level in India’s startup ecosystem (early stage), one key objective would be to get the fundamentals right. This involves focusing on the beginning stages of the ecosystem, which are phases -2 to 0 range in the startup key development phases, and on how to improve the quality and volume of the committed founding teams with an aligned vision and high potential for innovation. In order to do that, the real challenge is to work closely with different cities and regions that have various dimensions —culture, environment, funding, innovation, talent, etc.— that have a strong impact on the pipeline.
Another important challenge is to find correlations between the pillars of the ecosystem (innovation, talent, entrepreneurship, support, money, growth) and dimensions (volume, quality, velocity, ROI) to maximize the number of innovative startups and future successes.
There are also specific questions that come to mind, which are directly related with the government’s proposal; for example, how is India going to increase participation of women in startups? Other points seem shadier, such as the “no government inspections in startups for three years”. Will that mean that basic labor rights will be overlooked? There could be many negative implications in that sense.
One single point of contact for the whole of India has positives. For instance, matching stakeholders (startups with investors, teams with entrepreneurs, research with innovation, etc.) would be easier and more efficient. In a country as big and diverse as India it might damage certain regions that were starting to develop their ecosystem in favor of others that are already more advanced and have better resources, but it would certainly foster healthy competition between cities and regions as well.
Therefore, DIPP’s vision for developing infrastructure for the startup ecosystem to connect all knowledge hubs, startups, investors and mentors for collaboration and growth is a positive advance, as network connectivity within and between the ecosystems is the single most important contributor to growth. However, time will tell how all aspects of the ambitious initiative pan out and if the infrastructure will be able to collect, produce and analyze data to introduce transparency and improvements to the whole ecosystem, as well as optimize the allocation of resources, revenue generation and benchmarking.
Connecting the dots always helps in nurturing talents, creating job opportunities and empowering economy. We look forward to see booming startup ecosystems in developing nations across Asia and how they create unique opportunities for the global economy. Are they going to get the fundamentals right? Will they be able to effectively connect their ecosystems and how will they measure it? All of these questions are part of measuring innovation and developing a high maturity level that can help in the effective use of resources.
Countries in Asia are now ambitiously competing amongst each other to develop their startup ecosystems and attract international investors. The implementation of the AEC is the ASEAN's most ambitious undertaking, and will boost the region's GDP by 5 percent by 2030, with Singapore benefitting the most as a percentage of GDP growth, said HSBC Global Research.
It will offer opportunities in the form of a huge market of US$2.6 trillion and over 622 million people. Southeast Asia is buzzing with global investors and has gathered attention around the globe, with most technology companies having a regional HQ in Singapore to take care of their entire Asian market.
In addition, assets managed by private equity and venture capital fund managers in Singapore are valued at around $28.3 billion, with venture capital being US$1.8 billion of that total for 2014.
Governments across Asia, then, are working on promoting entrepreneurship, skill enhancement, job creation and boosting their economies. The implementation of startup portals for mapping talents, investors and startup community members will surely play a crucial role, because connectivity is fundamental, as mentioned earlier.
At the end of the day, there is fierce global competition to attract talented people and international resources, and many regions are missing opportunities while others are accelerating the process by enabling smart startup ecosystem development strategies. It will be exciting to see how other government organizations react to India’s policies and implement their plans on a grass-root level and come up with strategies to become the next startup hub.
One best way to accelerate the growth of the economy is to help SME’s to get capital for growth. European Financial Forum’s panel just highlighted that a better access to capital for SMEs is a key question for the European economy. Business angels and VC’s are an answer to some companies, but most of SMEs are not suitable or relevant for the risk capital equity finance. It has become harder to get bank loans and banks typically want to get some collateral. How to really help all kind of SMEs to get finance?
Young companies have no credit scores, no financial history and if they are, for example, software or service companies, they have no tangible assets. Some of their can target angel or VC funding, but it is suitable only for companies that look for significant scalable growth, at least 90% of young companies doesn’t belong to that category, but they are still important for the local economy and employ people. Crowdfunding and p2p lending offers more flexibility, but also investors in those services want to see evidences the company can survive and grow.
The bank lending became much harder to get after the finance crisis in 2008. Also the banking regulation and capital requirements limits banks to lend to companies without solid risk analysis. At least, banks like to have collaterals or someone (for example, entrepreneurs) to guarantee the loan. Sometimes also some 3rd parties, like government, export finance agency, or other SME loan guarantee programs, can guarantee loans. But they also need some criteria to select companies for those guarantee programs.
The fundamental problem with the finance decision is, how to evaluate a new business that has no real history, no real revenue, and only nice promises in a business plan. Finance decisions are normally based on data (even the human aspect is also relevant e.g. with business angels), and these young companies have no data. Can we improve this?
It is not totally true, there is data from those companies and entrepreneurs, but it has been difficult to get the data and use it. For example, the entrepreneurs might have had earlier businesses or participated in their university or college to a program to start their own business, they have used e.g. local city’s or region’s entrepreneurship support services and made business plans for those, maybe they have applied grants to start a company, they can have some advisors or participated in an accelerator, and they have participated in events to pitch and market their business. All that have created data to know their plans, but also see, how they have performed since first plans and what is the performance of the entrepreneurs. This data can already create a timeline, what the team has done, what they have achieved, and have they kept they promises, or learned from failures. Also the history of other similar companies is relevant.
The problem has been this kind of data is in many places, complex to combine and maybe no way to get and analyze it in one place. Startup Commons is operating especially in this area. It offers tools and databases that all relevant organizations that work with SMEs can share information and also companies can get a better service. It is a digital infrastructure for governments, entrepreneur services, accelerators, investors and others to connect, measure and benchmark SME ecosystems for progress tracking, service flow management, financing and international benchmarking.
Of course, this data is different from traditional credit scores or many years audited accounts. But it is much more than a one-page business plan or marketing slide deck. And it offers concrete data to develop new metrics and tools to evaluate companies and how financeable they are. And now it is interest of all parties from governments and banks to entrepreneurs to better collect that data and develop metrics to improve the access to finance.
Startup Commons is now working with many SME ecosystems around the world, and one part to develop is the access to capital. At the same time we want to involve more parties to work together with this. Data, metrics and financing criteria requires cooperation from many parties, from government and regional programs to banks, accelerators and private investors. We invite all parties to participate in this work.
Data is the key to develop the future finance services, as e.g. McKinsey emphasizes in its report. For new and young companies we need new solutions to collect and analyze data. Digital SME infrastructures offer a solution for this and it is also the best interest of entrepreneurs and SMEs to get this data to effective use. By developing this infrastructure, data collection and new metrics, we all can make the SME financing work better.
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