January 16, 2016 was the day dedicated by the Government to #StartupIndia. We, at YourNest, had been waiting for this day and I personally had a feeling that this shall be one of the finest days in our journey of angel investing and enabling start. By the time the day concluded, it was re-emphasised multiple times over that our government realizes that start-ups are really important in a young and emerging economy and that it is keenly listening to the needs of the ecosystem. Something magical is on its way for entrepreneurship to thrive.
The energy during the day was palpable, yet in-explicable. Cheers and applause were free flowing with every learning shared by the panellist or an initiative announced or an insightful question raised by the audience. So much applause at a business event must be a new record, at least at the Vigyan Bhawan.
Presence of our Cabinet Minister of Commerce & Industry Smt Nirmala Sitharaman along with each relevant Principal Secretary of Government of India was unprecedented and commendable. With this induction of officials to the needs of start-ups, they can speed-up facilitating easing of setting, operating and exiting a start-up. The government’s commitment to be the facilitator, service provider and enabler boosts the confidence of entrepreneurs, angel investors, venture capitalist that they are in the right place at the right time.
Let me here share YourNest take on select items of the action plan that are announced.
- Self Certification – It is a step towards building trust with business. This doesn’t mean that the start-up can be non-compliant with the select 9 laws across labour & environment. Our start-ups have to fully compliant but without the hassle of inspection. Saving say a day in a year of such an inspection, shall help them serve customers with free-mind. Start-up are competent to make it a success to win the trust of the officials, so that self-certification is allowed in many more areas in coming years.
- Relaxed norms for public procurement from start-ups in manufacturing sector – Currently only a handful of manufacturing start-ups shall be able to benefit this scheme. Most of angel/VC funded start-ups are in innovative areas of service delivery, data analytics, software solutions, software products and platform. They too need this relaxation so that they can serve public sector without the need to partner a big software giant.
- Fund of Funds (FoF) for investing in Venture Capital Funds – India needs access to domestic capital. Any investment by an angel investor in an Fund shall be supplimented by this FoF. This shall further supplement the India Aspiration Fund launched with Rs.2000 crore corpus in 2014. Start-ups that are solving local problems shall be the biggest beneficiaries. It’s implementation shall mean no more looking towards developed markets for ideas that are normally funded by foreign funds.
- Credit Guarantee Fund – Our start-ups need working capital facility from the banking channels even after they have been funded by Venture Capital Funds. This facilitation encourages banks and lenders to provide venture debt. To clarify, we hope this shall also cover the basic need of cash-credit limit or overdraft facility. Our start-ups have limited requirement of long-term venture debt but each of them require funding for receivables, inventory, TDS, payment of service tax on invoicing etc. On behalf of start-ups, we hope this Credit Guarantee shall cover overdraft facility, performance guarantee and so on.
- Tax exemption on Capital Gains – An exceptional initiative that shall make investors to invest in start-ups rather than capital gains bonds or house property. This exemption must allow capital gains to be invested in SEBI registered AIFs, Fund of Funds, and angel investments in the start-ups validated by Inter-Ministerial Board. A clarification in the notification on its scope is essential.
- Tax exemption for Start-ups for 3 years in a 5-year window - This shall give a huge relief on working capital blocked in TDS for the start-ups. In reality our start-up are loss-making in the initial 3-7 years as they are chasing growth, but we hope the notification shall clarify that the clients of start-ups shall be exempted from deduction of TDS on the invoices. A saving of cash flow that today gets blocked in TDS for 12-18 months shall enable them to run faster.
- Start-up Tax (Section 56(2)(vii b) – This is only an incremental step of exempting the incubation enters in addition to venture capital funds. The CBDT needs to exempt all angel investments for the start-ups to raise funds freely from angels.
Overall every initiative stated in the action plan is a bold step towards building a more vibrant startup ecosystem and promoting a culture of innovation. A great beginning for our young people to create productive jobs for themselves and others. It is a great feeling to be serving our investors as as venture capitalist in India at this juncture.