How the Union Budget 2021 will solve funding problem for Indian startups?


Photo by Pixabay on Pexels.com

The main problem in Indian economy is higher interest rates. Very difficult for any business to sustain and run with profitability with current interest rates. Banks are charging 12 to 16 percentage of interest on loans. For startup business it’s very difficult to establish and pay the amount with these higher interent rates.

For growth of Indian economy and growth of startups, the main factor is availability of funds at moderate interest rates. These funds seeking startups wish for the loans at lowest rates and government must provide enough funds at low interest rates.

Advertisements

Indian startups need some relief from government on fund raising plan. These will help these startups to establish their business.

Policymakers could incentivise banks and lenders to provide, predominantly, collateral-free loan to tech startups, up to Rs5 core. As collateral or security, lenders can accept source code of technology platform or software developed by B2B/ B2C or enterprise software start-ups

To begin with, accessing venture debt (or any debt) has remained the Achilles’ heel for Indian startups in more ways than one. The domestic venture debt industry is in formative years and lends mostly to startups having raised meaningful institutional (reputed VCs) funding rounds while startup founders use it to defer equity dilution, aiming for future higher valuation.

Advertisements

It is here that policymakers–in the upcoming budget or outside–can intervene to create gigantic snowballing impact on debt resources for Indian startups. As Indian lenders operate on only collateral-based lending, tech startup founders are forced to mortgage homes and family assets to procure capital for their businesses they lack assets, except fast-depreciating hardware/ software.

Believe you me, any worthy tech startup would fight tooth and nail to preserve proprietary IP driven source code developed, and therefore will honour debt obligations. The receivables could be another collateral, with a functional TReDS platform gaining momentum. Arguably, these collaterals may sell faster and at better value as against arduous process of selling primary residence or family assets mortgaged by founders, mostly long drawn out and unsuccessful).

Let’s now deliberate equity for Indian tech startups. Firstly, it seems to be a full circle – from requiring them to list on Indian bourses before listing outside, to current thinking of facilitating such entities to “directly” list outside India. Secondly, a debate on “offshoring” of Indian startups is an additional agenda, with foreign capital persuading them to migrate value via moving holding structure outside India. Also, a recent white paper by Securities and Exchange Board of India has sought comments on Innovators Growth.

Advertisements

Platform (IGP) sounds like a good initiative to infuse life in an inactive platform for Indian startups. But the question is whether such measures are holistic or a more congruent approach is desirable?

The US has marquee innovators listed on NASDAQ like Tesla, Apple, Amazon, Google, Alphabet, Facebook, Netflix, Cisco, etc. As a proud Indian, would you not wish Indian equivalents of US startups to be available for investment to Indians! Will it not become inaccessible (with LRS) investments for Indian investors if these startups were to list only outside India? Just imagine the top 20 unicorns of domestic startup ecosystem listed on Indian bourses! An addition to India’s market cap, cumulatively, exceeding $200 billion at entry point / post-listing, a significant 10% share of Indian market cap for these 20! Inclusion of five-six of these listed 20 unicorns in Nifty 50!

Indulge me further. This is the narrative only for top 20 Indian startups; let your imagination fly with inclusion of the rest of the 99%. Why should we not create framework to target listing of top 20 startups in 24 months, by March 2023?

Advertisements

A compact list of stakeholders who would include start-up founders, regulators (SEBI, RBI), rupee investors (AMFI, IRDA), dollar investors, exchanges (NSE, BSE), I-Banks, Tax (CBDT), etc. could reflect upon and recommend most critical policy interventions.

Indian startup ecosystem is now improving with technology and many B2B ai-based startups have potential to grow their business.

India wants 5 to 10 unicorn startups in nifty 50, these tech startups will provide space for the innovative business models.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s