Startup Action Plan : A Start In The Right Direction

Bringing about change – in thinking and approach – is probably one of the most difficult tasks and I think that Mr. Modi’s attempt with the Startup Action Plan is to fundamentally change the way people, especially the bureaucracy regards startups. We do a lot of work with startups in the technology sector helping them raise capital and we have observed that startups are regarded by most as iconoclastic entities run by young inexperienced people who want to change the world without respecting the status-quo, and this is anathema to many. The process of putting the Action Plan means essentially getting concessions from the various departments, to pass on to the startups – let’s look at this as the first step, which hopefully will change the mindset towards startups and pave the way for more fundamental changes.

What I Like About The Startup Action Plan:

• Moving Governance Online – for example online company registration through a mobile app or portal
  Self-certification regime for compliance with various laws viz. labour and environmental laws, which will save startups the hassles of dealing with these departments
• Government Procurement – it has now removed minimum experience and minimum turnover requirement for startups which will help them take part in government tenders. The caveat though is that this is still restricted to the manufacturing sector and the benefits have not been extended to services sector, which hopefully they will do in future
• Intellectual Property – Startups will get legal help from government appointed facilitators in the patent filing process. They will also get 80% rebate on the patent filing fees. If the process is expedited and the startups get help from facilitators for not only domestic filing but in international domain as well, then it is an encouraging step
• Investment through fund of funds – Government will invest INR 10,000 crore (INR 2,500 crore for four years) into SEBI registered VC funds. The caveat is that the VC fund should already have raised an equivalent amount from other investors

Within The Current Action Plan, The Items To Iron Out In My Opinion:

• The definition of a startup and innovative business – I think it is at best ambiguous and subjective and needs more work; for instance my colleagues at Merisis are all for filing a patent for an algorithm that can instantaneously match a potential investor with a startup and claim exemption.
• The need to get an Inter-ministerial group certification – this immediately gives a sense of red tapism and self-defeating.
• Providing corporate tax holiday for the first three years – I haven’t come across many startups that make money in the first three years in any case.

There Are Three Fundamental Changes That I Would Look For In The Near Future:

• Extend the discussion to service tax, VAT, GST etc. – the indirect taxes affect startups more than the direct ones, and further the ambiguities that new business models create on the interpretation – as seen in the case of service tax and the arrest of an official of MakeMyTrip – has to be addressed at the earliest
• Recognize the angels as investors and provide them the benefit that is currently available for venture funds. Today any investment by them is taxable. This has its origin in the government’s approach to curb money laundering. I would suggest that recognizing angel as an entity would help. There could be the odd misuse but it is well worth it because I would argue that the angels are more valuable than the VCs as they come in with the highest risk
• Winding up – the Insolvency and Bankruptcy Bill will help the entrepreneurs, whose startups have simple or no debt structure, wind up their company in 90 days. This I know from my experience would be a boon for many failed entrepreneurs who will be encouraged to try again

I am quite hopeful that this is the first step of many and that the Action Plan will move from an approach of not just changing the rules for the startups but also looking at current regulations which may not be in sync with the current business models, and make changes at the fundamental level.

My colleague, Sumit Kumar, assisted me with this article.