Stemming the flow of tech start ups

Stemming the flow of tech start ups???

With new government in town, industry associations and clubs are vigorously raising the ante on many issues of significance to technology start ups. The most recent one being that of Indian origin tech start up’s of Indian origin registering in USA or Singapore or other markets. Are Indian start ups reaching out to these countries because they are endowed with quality research-intensive universities and institutes and availability of highly skilled manpower?. Or it the “country of origin” effect that tilts the scale in favour of developed countries, especially in enterprise application space?. Or is it the special tax exemptions, tax holidays, export and import based incentives, losses against future profits and accelerated capital depreciation as claimed by VC clubs and industry associations?. Is it the exuberating wait of two weeks to register a firm (which is a very insignificant activity considering the host of activities and challenges the start up has to face later) compared to two hours that tilts the decision?. Are these good enough reasons for a product start up to move lock stock and barrel from India and move to these far away shores. Proponents of global trade and one with knowledge of how VC’s cohorts work recognize this has got nothing to do the efficiencies of these regional market but more with how perception of valuation and network work in their favour.
Industry groups and clubs have are recommending government to create a large corpus and invest along with VC’s in the start up, a very laudable “Le Las Vegas Model”. Sherlock would have wanted industry leaders and association representatives who probably had a ring side view of the lacunae and lopsided policies seek more elementary logic. What do Indian technology start ups suffer from, access to high quality infrastructure or access to funds or access to scale up?.
Infrastructure policies including SEZ (often in far flung areas from CBD) can be great vehicle to attract service companies, they have seldom looked at access to high quality infrastructure meeting the requirements of small teams. In many national level institutes, while there is large tracts of space available, ease of access for not so well connected entrepreneur is a challenge. Unscientific spread of costly tax payer money into duplicate incubation facilities has impacted scale of available infrastructure. As often many successful start up’s find their relative flats in Residency Road or small office in Basavanagudi coming to their rescue. Fortunately, infrastructure is a surmountable problem and does not limit the innovative output of technology start up’s, at least not the software products.
On the access to funds front, there are many prizes and awards available for technology start ups, a back of the envelope calculations indicate close to 1400 Crores across several Central and state government schemes. Many are lost in the myriad of departmental allocations and silos, and thus unable to support world class interdisciplinary technology start ups. There are also collateral free schemes like CGSTME which are supposed to fill in the viability gap for an early start up without encumbering the entrepreneur. Unfortunately, most CGSTME loans in reality require collateral and the limit of Rs 1 Crore may not be enough to support the start up beyond 9 months. Another reality check, most bankers would be happy to allocate CGSTME loans only if a VC has already blessed the start up with some investment!. Financial additionality (FA) referring to availability of funds to start ups that would not have been available in the absence of the scheme needs a relook. Many of member lending institutions (MLI) of the scheme including SBI, Canara Bank or RRB have disbursed less that 40% of their budgeted allocations. Over 50% of the disbursement of the funds is for less than 2 lakhs!. Imagine building world class software products with such a large sum. Fortunately, most find raising money from wife, extended family or friends easier to start and hope they waddle trough service revenues to sustain their technology product dream.
Even when technology start ups survive the harsh infrastructure and funding conditions, what really breaks the bone of these businesses is the limits to scale. In most of these “start up destinations”, a major push for domestic technology companies comes from their respective government. E-governance, defence and education sectors are where their respective government not only set-aside markets for their domestic technology start ups, but actively protect this turf from any encroachment. The generous act of their governments helps these companies to assiduously gain scale and build robust products. These government also extensively use their export-import mechanisms including lending institutions to actively promote these technologies in other countries. Many such generous acts carry Singapore or USA products into Middle East or African markets. Imagine what would happen if there are 10-15 domestic technology products that could be used in accelerated power programme or public health or government distribution, all enjoying an adoption of 3 -20 million users per year. That scale is sure to salivate whichever coast VC. Imagine if 5-10 Tally’s could be taught at the government colleges and the exalted institutes of excellence, all gaining a user base of 5 Million per year. If Microsoft has found more enthusiastic raiders in India, it is not for any other reason, but its marketing muscle and reach. Do you wish the stems of technology start ups grow stronger and emerge as trunks, then Watson, it is very elementary support them to grow. Give them space, nurture them and prune them to spread. Very elementary.

Dr TR Madan Mohan

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