Expectations Of Startups

I hope that the upcoming budget helps accelerate entrepreneurship in the country. It is clear by now that entrepreneurship is great for the country. It brings innovation and investment into the country, improves the life of consumers and generates great value and wealth. More importantly, it inspires more entrepreneurs, creating a virtuous cycle that keeps repeating with increasing returns.

However, Indian startups experience too much friction that inhibits growth and sometimes even kills startups. These are barriers that the government can and should knock down.

Some regulations treat companies as guilty until proven innocent -this imposes a significant burden on startups. For example, startups that get venture investments at a substantial premium are asked to prove that their funding is a valid investment rather than laundered money. Sometimes, they’re asked to deposit the potential income tax pending resolution of the issue - which can seriously hit the cashflow of a startup. This is an acute problem for startups since startup valuations at early stages involve substantial premiums from earlier rounds in a very short time period.

Some regulations are ambiguous generating a lot of wasted cycles on the part of startups and bureaucrats debating interpretations of the regulations. It’s critical to develop clarity on taxation policies including direct and indirect taxes, employee stock option plans, tax relations and ease of doing business. Rollout of GST and clarity on long term capital gains would be invaluable. Starting up and shutting down companies should be simplified.

Some regulations are like old cobwebs - relics of a bygone era that are no longer relevant in a digital age. Killing regulation that have passed their expiry date also drives improved productivity and efficiency.

Prime Minister Modi announced a series of initiatives at the Startup India event last month. That revealed a great appreciation of the value of startups to the country. It is time to convert that vision into practical steps through the budget. Once the government creates a fertile ground for startups, the resulting bloom of tech companies will radically transform the economy and culture of the country.