Indian prime minister Narendra Modi made several promises in his speech to an audience of startups and venture investors on Saturday. That has instilled hope that the country might become a more attractive destination for investment, at a time when funding activity has ebbed from the highs of mid-2015.
Banks might step in to fill the gap if the proposals are implemented, feels Vinod Murali, Managing Director, InnoVen Capital. But he also cautions that past attempts have not been very successful when it comes to increasing credit availability. “The government already has a credit guarantee scheme under CGTMSE which has been operational but start-ups have struggled to get through the due process with different state-owned banks to avail funds,” said Murali in an interaction with DealStreetAsia.
Part of the reason for past disappointments was that banks and the government’s proposals were not always in sync. “The key here is to educate banks well enough to support the prime minister’s vision. Start-ups require capital for growth and it is important to find appropriate partners who understand their lifecycle and aspirations,” Murali said.
InnoVen had invested in 13 startups in 2015, including participation in online grocery seller Peppertap‘s $36 million series B round. It also invested in edtech startup Toppr, food delivery player Faasos and medical tech startup Practo.
Modi promised a less complicated environment for compliance issues, which has been a major hassle for startups. That has understandably been welcomed. “The ease of opening a start-up has been simplified, can be done through a mobile app and will take a day. A shorter form shall be applicable. Earlier setting up a company required various registrations will all requiring the same set of documents such as address proof, PAN, TAN etc. This will help start-ups focus on their work and avoid unnecessary delays,” said Archit Gupta, CEO & Founder, ClearTax, a Y Combinator-backed online tax filing portal.
“Easing of the financial and labour norms is a fantastic initiative. It encourages new entrepreneurs and start-ups to focus on innovation without having to struggle with additional taxes,” said Anurag Avula, CEO and founder, Shopmatic, a Singapore-based site that helps offline businesses set up shop online. It started India operations last year.
The government’s stalled Good and Services Tax (GST) Bill might actually help startups which are older, and generating significant cashflow, than the proposal to not tax them for the first three years. “Most of the new age startups which are on the growth path will seldom be able to generate profits in the first three years,” said Ajith Karimpana, CEO and founder, Furlenco, a furniture rental startup that raised $6 million in series A funding last year from Lightbox Ventures. “Startups, like other companies, would benefit more with the GST since that has a larger impact on the bottomline and cashflow companies,” he said.
As with other promises of the government, which has been slow in the past in implementing proposals, much depends on how quickly they are put into effect this time. “The startup action plan looks promising. Now we need to wait and see how it is executed,” said Karimpana.