The Start-up Ecosystem Needs Certain Repairs

Source | Entrepreneur : By 

Over the past decade both good and bad things have happened in the third largest start-up ecosystem of the world. Good in terms of creating 5,000-6,000 startups and entrepreneurship becoming preferred career choice. So there has been value creation and employment generation etc. On the bad side, most start-ups have been unable to scale up; many of them shutting down and failing to return the investors’ money. This has scared away potential investors including angel investors because they doesn’t know now where to invest. But this is an evolution with two sides to it, on one side we see investors getting multiple returns in as less as two-year time and on the other side; we have investors who have lost money in all the companies they invested in.


For good things to become great, several things need to be done by the industry and the society. Primarily the problem is that we still don’t talks about failure. Unlike in Silicon Valley, we have still not recognized the learning of failed entrepreneurs. While Uber’s Travis Kalanick was sacked by the board earlier this year but it was his fourth start-up. So this repetitive aspect of entrepreneurship means maturity of the ecosystem which would happen and it is irreversible. The other focus area is that the start-ups don’t talk to customers. They focus on doing things investors’ way and when it comes to solutions for customers, the story is half baked. Start-ups should explain to the customers what they tell to investors about the technology and product.


Another point I feel completely missing is government’s interaction with start-ups. It has a lot more to do than just making noises like ‘Startup India’, while it is a step in the right direction. There has to be a continuous dialogue much like governments of Israel and Singapore. For instance, regulations like angel tax must be addressed. Around 20 per cent of my investee companies have got tax notice. In fact our law entrusts the income tax officer to determine the value of a company. Hence, start-ups end up circling tax offices. When it comes to capital, I think it is totally insufficient. I am told that every month in the domestic market around Rs 5,000 crore come in for investment instruments like Systematic Investment Plan etc. So money is available and stock markets are robust but for start-ups it ain’t. Another development I see is the B2B business growth as investors’ romance with B2C models is tapering off. There haven’t been many B2C companies which have returned disproportionate returns to their investors.

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