A ray of hope for entrepreneurs

Easy financing, including grant of tax exemption, being considered to provide early stage funding

Students and entrepreneurs can take it easy now. A group of 20 people representing the Ministry of Finance, Ministry of Micro Small and Medium Enterprises, Ministry of Agriculture, Department of Information Technology and banks like Small Industries Development Bank of India are devising methods to support their business plans.

“A special group has been formed to promote angel investment and early funding to startups and entrepreneurs. The group is looking at the availability of angel investment and venture capital funding, and will give recommendations on how to encourage investments from the government and  the private sector and how to build that ecosystem,” said a member of the group. The group has already met four times, and by April-end a final report is expected, he added.

“We want to make it easy for people to make investments. While banks, venture capital funds and financial institutions make it easier for people to set up ventures, we are considering if we can grant tax exemption (for a fixed limit) to people providing funding to startups,” the official added.

While it largely depends on what idea an entrepreneur has, any fresh startup will be entertained. The funding would be done through the normal channels. There are various venture capitalists, and the government is also contemplating to create some funds.

Sushanto Mitra, CEO of Society of Innovation and Entrepreneurship at IIT Bombay, says the entire entrepreneurship ecosystem is just forming. Corporates have started to invest in venture capital for entrepreneurs within their corporations. Though he explained that the fund situation is better than what it was five years ago, they would be happy to get more participation. The group is also looking at policy issues with startups.

Entrepreneurs in India largely set up technology-based startups. The ‘First Status Report on Technology Business Incubation’ in India, conducted in 2009 by the Department of Science and Technology (DST), says 20 to 30 per cent of incubated companies in India make it big. The success rate is 60-70 per cent, which is comparable to that in America.

A successful business, says DST, is one which has managed to survive at least five years. Those 20-30 per cent that manage to make it big are the ones that have a turnover in excess of Rs 100 crore.

Romesh Wadhwani, founder of Symphony Technology Group and chairman of Wadhwani Foundation, which promotes the National Entrepreneurship Network,  says, “Apart from bureaucratic problems, early stage funding is hard to come by in India. Venture capitalists here behave like private equity and private equity behaves like industrial groups. Angel funding is non-existent.”

As Wadhwani puts it, “Entreprenuers need some kind of small business and loan guarantee programme which is efficient and easy to get. Venture capital is difficult to find in India even when a product or service is ready for the market. “Unless you are a proven entrepreneur or you come from a business family or have hard assets like land and machinery, it is difficult to find ways to fund your venture,” adds Wadhwani.

Deep Kalra, Founder & CEO of MakeMyTrip, is of the view that over the years, the funding situation for startups has improved. Already there are a 100 plus venture capitalists and private equity players. “When I started 11 years ago, the situation was bleak, but now it is quite the opposite. If you have a good idea, there are several channels available for funding it,” said Kalra.