By
Mr. Ishan Singh,
CEO & MD RevStart ;
Member, Mumbai Angels Network
As
an entrepreneur turned angel investor, who runs RevStart, where we offer
co-working, incubation and acceleration services, I meet startups and
entrepreneurs daily. Startups in India have varied needs that need to be
addressed by the government with an open mind & financial eye.
Mr.
Modi had ignited a billion minds with Start-up India and Make in India. With
large number of unemployed youth, this is the need of the hour. The current
government has done a lot to help the startup ecosystem, however the Modi
government's mantra of minimum government and maximum governance seems
contradictory when one looks at the Angel tax or the recent news where the
Income Tax department has asked ecommerce sites to reclassify discounts as
capital expenditure.
For any budding entrepreneur, access to
capital is the most critical factor to success. The government needs to have a
broad-based program to ease the flow of equity capital and credit to
entrepreneurs and start-ups.
A good idea would be to look at incentives
being given in other countries – most programs involve grants, access to credit
and tax credits to investors.
The
Israeli prime minister had recently visited India and I hope the government
learns from Israeli programs that promote entrepreneurship. It would be
interesting for readers to know that in Israel, the Angels Law is an incentive
to invest in start-ups by deducting the investment amount, up to NIS 5 million
(approximately $1.5 million), out of their taxable income, produced from any
source for up to 3 years. Now compare that to our Angel Tax! Israel also has an
excellent grants and tax incentive program to promote entrepreneurship, spur
R&D, tourism and even a special fund called the ‘Nitzan Fund’ to
incentivise agri-research.
The US government too, has several programs
that encourage business to create and retain jobs, make capital investments,
promote development in rural areas and promote innovation. The US Small
Business Administration has been established to fund entrepreneurs and small
business where private banks may not be inclined to. There are also a host of
other grants, like the Small Business Innovative Research Grant program that
provides $2.5 billion of annual grants.
The
Indian government has done great work with the Atal Innovation Mission and Atal
Tinkering labs which have focussed on grants to educational institutions,
however, to accelerate commercialization, they need to partner with private
for-profit incubators and accelerators.
My
budget wish list includes the following 3 major reforms that will ease the flow
of capital to start-ups, these are :
1.
Tax Incentives
Countries like
Israel, China and the UK provide incentives for money to be invested in
start-ups by making some or all the invested capital tax deductible to a
certain limit.
Along the same
lines, the government can encourage broader equity participation by removing
capital gains on exercising ESOP’s.
The Angel tax must
go or should only be applicable to start-ups over a certain valuation (say $10
million) - investing in start-ups is not like real estate where there is a
circle rate!
2.
Allow Equity
Crowdfunding
I am sure all of
us have heard of Kickstarter which since 2009 has seen 14 million people
contribute $3.5 billion to 130,000 projects. However, equity crowdfunding is
banned in India. In a press release issued on August 30, 2016, SEBI found that:
“ The electronic platforms are allegedly facilitating investment in the form of
private placement with companies, as the offer is open to all the investors
registered with the platform amounting to a contravention of the provisions of
Securities Contract (Regulation) Act, 1956 (SCRA) and the Companies Act, 2013.”
We can learn by
the example of the US or Italy, which was one of the first jurisdictions to
pass a comprehensive regulation on equity crowdfunding. Italy specifically
allows for crowdfunding to support the development of “innovative start-up
companies”.
SEBI has issued
draft guidelines in April 2017 and I hope that is passed into law this budget.
3.
Establish a Small
Business Bank
Any entrepreneur
will tell you that it is impossible to get credit for working capital. If you
are working without a salary, you can’t get a personal loan. If an entrepreneur
turns to a microfinance organization, the real interest rates can be as high as
24%. On the other side of the spectrum, venture debt providers look for large
ticket sizes.
The problem is -
Who is giving a small start-up 25 lakhs for working capital today? That is the
unserved market.
The government has
announced a loan program, but unlike the US where the loan process takes a
week, the implementation is a challenge. It would be great if the government
looked at the US, which has established the SBA. The Small Business
Administration ( SBA ) is a United States government agency that provides
support to entrepreneurs and small businesses by making loans through banks,
credit unions and other lenders who partner with the SBA. They have an
excellent microloan program where loans less than $25,000 require no collateral
and they offer credit guarantee for loans up to $5 million.
I can go on and
write a long wish list of demands that various startups and entrepreneurs want.
If the government can waive off 100,000 crores of farmers’ loans, why not contribute
10,000 cr to an SBA type program? If the government is listening, just
implementing the broad points above will go a long way in providing capital to
fuel a billion dreams!
** Disclaimer: Views expressed are in personal capacity, not the official stance of Mumbai Angels Network
** Disclaimer: Views expressed are in personal capacity, not the official stance of Mumbai Angels Network
