Ravi Kiran

I am happy that the government wants to play an active part in the start-up ecosystem. But it needs to understand its role as an enabler rather than try to be the driver. Prime Minister Narendra Modi spoke eloquently in what I call an “Evening of Exuberance”, and asked the audience to tell the government what NOT to do. I hope the government machinery takes that question and its underlying commitment seriously, and not as stagecraft.

What the government needs to do is to take care of three fundamental fault lines:

1. Entrepreneurship, Innovation and Start-up are three different phrases: Do not use Entrepreneurship, Innovation and Start-up interchangeably. Each is a powerful concept, each can overlap with the others and all three are useful to our economy. But they are not the same. This confusion spreads into how we use our R&D labs, what we expect from our incubators and how we use public resources in encouraging each.

Implication: Hold government supported incubators accountable and don’t waste public money on those that have not produced high-quality start-ups. PPP is a model you can try out, but be careful about the goals, else you will create a minor scam. Don’t believe Section 25 of the Companies Act is necessarily good, when it comes to the start-up ecosystem. If your goal is to build world class start-ups, support anyone who is committed to doing that, not just Section 25 companies and government-funded college incubators.

2. Every business that has just started is not a start-up: Traditionally, our government used a phrase called Small Scale Industries to refer to businesses that needed handholding by the State. Then in 2007, two ministries, the SSI Ministry and the Agro and Rural Industries Ministry were merged to form the Ministry of Micro, Small and Medium Enterprises (MSME). Because about 90 per cent of our 50 million-odd MSMEs would fall in the ‘micro’ bracket, I feel there are many in the government who feel MSMEs and start-ups are essentially the same thing.

The government needs to understand that there is something fundamentally different about what we call start-ups today. They are disrupting the old order in ways previously unthinkable and if we want more such start-ups to benefit our country, we need to go beyond ministries, nodal bodies, schemes, policies, subsidies and exemptions.

Start-ups are very high risk endeavours and many die searching for a scalable model. Start-ups are not usually handed over to the next generation of the promoter, unlike small businesses. Start-ups don’t make a profit for a long, long time, unlike regular businesses. The VUCA [Volatile-Uncertain-Complex-Ambiguous] world we live in encourages start-ups to fail and looks for successes in failure. It’s Madness versus Method, and it’s not easy to grasp.

See how folks within the ecosystem define start-ups:

Steve Blank: A startup is a temporary organization used to search for a repeatable and scalable business model.

Dave McClure: A ‘startup’ is a company that is confused about —
1. What its product is.
2. Who its customers are.
3. How to make money.

Some of these may sound funny, but are real, everyday definitions.

Implication: Don’t believe three-year tax holidays will help any start-up, unless you apply it to three years from making profit versus from incorporation. Selling personal property to invest in your own start-up isn’t going to work, because most 27-year-olds don’t have personal property. So please remove ‘own’ as a condition.

3. Don’t believe Money builds Start-ups: This is the single biggest illusion many start-up founders and venture investors already have. We don’t want the government to fall into the same well, do we?

Start-ups need a risk supportive infrastructure, solid amounts of direction, lot of connections and oh, some money from the right people at the right time. Even as we speak, about 1,000 individuals called angel investors are cutting small cheques in favour of young start-ups on the basis of a few hours of interaction. They take extremely high risks with their hard earned money and, more importantly, nurture the start-ups. How do we grow that number to a 100,000? If 100,000 individuals are willing to invest an average Rs 10 lakh a year and 100 companies are willing to invest an average of Rs 10 crore a year, because of favourable tax rules, you have a budget higher than the government’s Fund of Funds.

Implication: The current capital gains exemption tax proposals are too meek. See what the UK and Singapore are doing. Make angel investments tax deductible in the same year, whether the investment came out of capital gains or not. Develop a few simple criteria to qualify an angel investor and expand the angel base, not restrict it. Incentivise mentoring, either financially or otherwise. Treat mentoring equity in a way that people see that as a benefit not a burden. Don’t waste public money on awards, recognition and festivals. Keep up the momentum on ease of doing business and patent filing etc.

I believe having started well, the Government can itself behave like a start-up, follow the START-STAY-BUILD-SCALE path and save an excited start-up and venture community from turning cynical and its Action Plan from turning into a series of trivialities.

Disclaimer:The views expressed above are the author’sown