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STARTUP CONNECTION-TECHNICALITY OF STARTUP: EVERYTHING YOU MUST KNOW ABOUT STARTUP

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Startups and the hoodoo surrounding it is quite a fascinating thing in our country recently. This new energy and enigma surrounding the Indian startups has all the entrepreneurs willing to take new risks and venture into different fields. But the question is how far the movement succeeded and how well has it done in various fields. Are the entrepreneurs willing to take more risks, no doubt they are but there is a sad part to this scenario, the startup sector is more involved into app, food, clothing, etc. It’s not they are bad or bound to fail, but they are not revolutionary. That’s when startups who are full with energy and come up with ideas that will try to change the scenario springs up , it’s a pleasant thing to see.

The main thing about entrepreneurship is, never give up and how well you can back your venture at times of failure. The entrepreneurs have faced a huge amount of problems to make something of their own. It’s time that the entrepreneurs start linking throughout the country. Events like Jagriti Yatra is a great platform for interlinking and networking. Don’t you think that people who are starting afresh, should come together? Yes, this sounds like I am asking to remove any competitions. That’s not what I am asking for, why not link the people with similar ideas. Instead of 10 different startups with the same idea, let’s have 5. Yes 50% reduction, sounds bizzare, isn’t it.  Well it might still stand a better chance of surviving compared to the 10 startups. This is no disrespect to the people who have worked their heart and soul for their own company, but it’s time for the entrepreneurs to understand what the bigger goal is, that’s to achieve the target and make an impact on the society. There has to be an understanding, this is no Silicon Valley of San Fransico Bay, can we make it better than that. Well yes, definitely. But for that a team has to come together of like mindedness and get the whole thing working.

 

STARTUP CONNECTION-Entrepreneurbench

First, let’s try to understand, what a startup is:

Start-up means:

  • An entity, incorporated or registered in India
  • Not older than five years,
  • Annual turnover does not exceeding INR 25 crore in any preceding financial year,
  • Working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
  • It is important to note following points:
    • Provided that such entity is not formed by splitting up, or reconstruction, of a business already in existence.
    • Provided also that an entity shall cease to be a Start-up if its turnover for the previous financial years has exceeded INR 25 crore or it has completed 5 years from the date of incorporation/ registration.
    • Provided further that a Start-up shall be eligible for tax benefits only after it has obtained certification from the Inter-Ministerial Board, setup for such purpose.A business is covered under the definition if it aims to develop and commercialize :
      • A new product or service or process; or
      • A significantly improved existing product or service or process that will create or add value for customers or workflow.
      • The mere act of developing products or services or processes which do not have potential for commercialization; or undifferentiated products or services or processes; or products or services or processes with no or limited incremental value for customers or workflow would not be covered under this definition.

In order for a “Startup” to be considered eligible, the Startup should

    • be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator established in a post-graduate college in India; or
    • be supported by an incubator which is funded (in relation to the project) from GoI as part of any specified scheme to promote innovation; or
    • be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator recognized by GoI; or
    • be funded by an Incubation Fund/Angel Fund/ Private Equity Fund/ Accelerator/Angel Network duly registered with SEBI* that endorses innovative nature of the business; or
    • be funded by GoI as part of any specified scheme to promote innovation; or
    • have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted.

Startup India, Standup India Scheme – Action Plan In Detail

 

Let’s look at the 19 items proposed in the Startup India action plan

STARTUP CONNECTION-Entrepreneurbench

 

 

1.Compliance Regime based on Self-Certification
Objective is to reduce the regulatory burden on Startups thereby allowing them to focus on their core business and keep compliance cost low.

Regulatory formalities requiring compliance with various labour and environment laws are time consuming and difficult in nature. Often, new and small firms are unaware of nuances of the issues and can be subjected to intrusive action by regulatory agencies. In order to make compliance for Startups friendly and flexible, simplifications are required in the regulatory regime.

Accordingly, the process of conducting inspections shall be made more meaningful and simple. Startups shall be allowed to self-certify compliance (through the Startup mobile app) with 9 labour and environment laws.

In case of the labour laws, no inspections will be conducted for a period of 3 years. Startups may be inspected on receipt of credible and verifiable complaint of violation, filed in writing and approved by at least one level senior to the inspecting officer. In case of environment laws, Startups which fall under the ‘white category’ (as defined by the Central Pollution Control Board (CPCB)) would be able to self-certify compliance and only random checks would be carried out in such cases

 

2.Startup India Hub
An all-India hub will be created as a single contact point for start-up foundations in India, which will help the entrepreneurs to exchange knowledge and access financial aid.

The Government of India has taken various measures to improve the ease of doing business and is also building an exciting and enabling environment for these Startups, with the launch of the “Startup India” movement.

The “Startup India Hub” will be a key stakeholder in this vibrant ecosystem and will:

– Work in a hub and spoke model and collaborate with Central & State governments, Indian and foreign VCs, angel networks, banks, incubators, legal partners, consultants, universities and R&D institutions
– Assist Startups through their lifecycle with specific focus on important aspects like obtaining financing, feasibility testing, business structuring advisory, enhancement of marketing skills, technology commercialization and management evaluation
– Organize mentorship programs in collaboration with government organizations, incubation centers, educational institutions and private organizations who aspire to foster innovation.

To all young Indians who have the courage to enter an environment of risk, the Startup India Hub will be their friend, mentor and guide to hold their hand and walk with them through this journey.

 

3.Rollout of Mobile App and Portal
An online portal, in the shape of a mobile application, will be launched on April 1 to serve as the single platform for Startups for interacting with Government and Regulatory Institutions for all business needs and information exchange among various stakeholders.

Startups often suffer from the uncertainty regarding the exact regulatory requirements to set up its operations. In order to ensure that such information is readily available, it is intended that a checklist of required licenses covering labour licensing, environmental clearances etc. be made available.

Towards these efforts, the Government will introduce a Mobile App to provide on-the-go accessibility for:
– Registering Startups with Ministry of Corporate Affairs and Registrar of Firms
– Tracking the status of the registration application. A digital version of the final registration certificate shall be made available for downloading through the Mobile App
– Filing for compliances and obtaining information on various clearances/ approvals/ registrations required
– Collaborating with various Startup ecosystem partners (venture funds, incubators, academia, mentors etc.)
– Applying for various schemes being undertaken under the Startup India Action Plan

 

4.Legal Support and Fast-tracking Patent Examination at Lower Costs
A fast-track system for patent examination at lower costs is being conceptualised by the central government. The system will promote awareness and adoption of the Intellectual Property Rights (IPRs) by the start-up foundations.

The scheme for Startup Intellectual Property Protection (SIPP) shall facilitate filing of Patents, Trademarks and Designs by innovative Startups. Various measures being taken in this regard include:

–  Fast-tracking of Startup patent application
– Panel of facilitators to assist in filing of IP applications.
– The Central Government shall bear the entire fees of the facilitators for any number of patents, trademarks or designs that a Startup may file, and the Startups shall bear the cost of only the statutory fees payable.
– Rebate on filing of application. Startups shall be provided an 80% rebate in filing of patents vis-a-vis other companies.

The scheme is being launched initially on a pilot basis for 1 year; based on the experience gained, further steps shall be taken.

 

5.Relaxed Norms of Public Procurement for Startups
Typically, whenever a tender is floated by a Government entity or by a PSU, very often the eligibility condition specifies either “prior experience” or “prior turnover”. Such a stipulation prohibits/ impedes Startups from participating in such tenders.

At present, effective April 1, 2015 Central Government, State Government and PSUs have to mandatorily procure at least 20% from the Micro Small and Medium Enterprise (MSME).

In order to promote Startups, Government shall exempt Startups (in the manufacturing sector) from the criteria of “prior experience/ turnover” without any relaxation in quality standards or technical parameters. The Startups will also have to demonstrate requisite capability to execute the project as per the requirements and should have their own manufacturing facility in India.

 

6.Faster Exit for Startups
In the event of a business failure, it is critical to reallocate capital and resources to more productive avenues and accordingly a swift and simple process has been proposed for Startups to wind-up operations. This will promote entrepreneurs to experiment with new and innovative ideas, without having the fear of facing a complex and long-drawn exit process where their capital remain interminably stuck.

The Insolvency and Bankruptcy Bill 2015 (“IBB”), tabled in the Lok Sabha in December 2015 has provisions for the fast track and / or voluntary closure of businesses. In terms of the IBB, Startups with simple debt structures or those meeting such criteria as may be specified may be wound up within a period of 90 days from making of an application for winding up on a fast track basis.

On appointment of the insolvency professional, the liquidator shall be responsible for the swift closure of the business, sale of assets and repayment of creditors in accordance with the distribution waterfall set out in the IBB.

 

7.Providing Funding Support through a ‘Fund of Funds’ with a Corpus of INR 10,000 crore
Government will set up a fund with an initial corpus of INR 2,500 crore and a total corpus of INR 10,000 crore over a period 4 years (i.e. INR 2,500 crore per year).

The Fund will be in the nature of Fund of Funds, which means that it will not invest directly into Startups, but shall participate in the capital of SEBI registered Venture Funds. Key features of the Fund of Funds are highlighted below:

– The Fund of Funds shall be managed by a Board with private professionals drawn from industry bodies, academia, and successful Startups
– Life Insurance Corporation (LIC) shall be a co-investor in the Fund of Funds
– The Fund of Funds shall contribute to a maximum of 50% of the stated daughter fund size. In order to be able to receive the contribution, the daughter fund should have already raised the balance 50% or more of the stated fund size as the case maybe.
– The Fund shall ensure support to a broad mix of sectors such as manufacturing, agriculture, health, education, etc.

 

8.Credit Guarantee Fund for Startups
In order to overcome traditional Indian stigma associated with failure of Startup enterprises in general and to encourage experimentation among Startup entrepreneurs through disruptive business models, credit guarantee comfort would help flow of Venture Debt from the formal Banking System. Debt funding to Startups is also perceived as high risk area and to encourage Banks and other Lenders to provide Venture Debts to Startups, Credit guarantee mechanism through National Credit Guarantee Trust Company (NCGTC)/ SIDBI is being envisaged with a budgetary Corpus of INR 500 crore per year for the next four years.

 

9.Tax Exemption on Capital Gains
Government wants to promote investments into Startups by mobilizing the capital gains arising from sale of capital assets. With this objective, exemption shall be given to persons who have capital gains during the year, if they have invested such capital gains in the Fund of Funds recognized by the Government.

This will augment the funds available to various VCs/AIFs for investment in Startups. In addition, existing capital gain tax exemption for investment in newly formed manufacturing MSMEs by individuals shall be extended to all Startups. Currently, such an entity needs to purchase “new assets” with the capital gain received to avail such an exemption.

Investment in ‘computer or computer software’ (as used in core business activity, like an accounting software) shall also be considered as purchase of ‘new assets’ in order to promote technology driven Startups.

 

10.Tax Exemption to Startups for 3 years
With a view to stimulate the development of Startups in India and provide them a competitive platform, it is imperative that the profits of Startup initiatives are exempted from income-tax for a period of 3 years. This fiscal exemption shall facilitate growth of business and meet the working capital requirements during the initial years of operations. The exemption shall be available subject to non-distribution of dividend by the Startup.

 

11.Tax Exemption on Investments above Fair Market Value
Under The Income Tax Act, 1961, where a Startup (company) receives any consideration for issue of shares which exceeds the Fair Market Value (FMV) of such shares, such excess consideration is taxable in the hands of recipient as Income from Other Sources.

In the context of Startups, where the idea is at a conceptualization or development stage, it is often difficult to determine the FMV of such shares. In majority of the cases, FMV is also significantly lower than the value at which the capital investment is made. This results into the tax being levied under section 56(2) (viib).

Currently, investment by venture capital funds in Startups is exempted from operations of this provision. The same shall be extended to investment made by incubators in the Startups.

 

12.Organizing Startup Fests for Showcasing Innovation and Providing a Collaboration Platform
To bolster the Startup ecosystem in India, the Government is proposing to introduce Startup fests at national and international stages. These fests would provide a platform to Startups in India to showcase their ideas and work with a larger audience comprising of potential investors, mentors and fellow Startups.

As part of “Make in India” initiative, Government proposes to:
– Hold one fest at the national level annually to enable all the stakeholders of Startup ecosystem to come together on one platform.
– Hold one fest at the international level annually in an international city known for its Startup ecosystem.

The fests shall have activities such as sessions to connect with investors, mentors, incubators and Startups, showcasing innovations, exhibitions and product launches, pitches by Startups, mentoring sessions, curated Startup walks, talks by disruptive innovators, competitions such as Hackathon, Makerspace, etc., announcements of rewards and recognitions, panels and conferences with industry leaders, etc.

 

13.Launch of Atal Innovation Mission (AIM) with Self-Employment and Talent Utilization (SETU) Program
The Atal Innovation Mission (AIM) shall have two core functions:
– Entrepreneurship promotion through Self-Employment and Talent Utilization (SETU), wherein innovators would be supported and mentored to become successful entrepreneurs
– Innovation promotion – to provide a platform where innovative ideas are generated

The main components proposed to be undertaken as part of the mission include:
Entrepreneurship promotion:
• Establishment of sector specific Incubators including in PPP mode (refer #14 of this Action Plan)
• Establishment of 500 Tinkering Labs
• Pre-incubation training to potential entrepreneurs in various technology areas in collaboration with various academic institutions having expertise in the field
• Strengthening of incubation facilities in existing incubators and mentoring of Startups
• Seed funding to potentially successful and high growth Startups

Innovation promotion:
• Institution of Innovation Awards (3 per state/UT) and 3 National level awards
• Providing support to State Innovation Councils for awareness creation and organizing state level workshops/conferences
• Launch of Grand Innovation Challenge Awards for finding ultra-low cost solutions to India’s pressing and intractable problems

 

14.Harnessing Private Sector Expertise for Incubator Setup
To ensure professional management of Government sponsored / funded incubators, Government will create a policy and framework for setting-up of incubators across the country in public private partnership.

Government shall encourage setting up of;
• 35 new incubators in existing institutions. Funding support of 40% (subject to a maximum of INR 10 crore) shall be provided by Central Government for establishment of new incubators for which 40% funding by the respective State Government and 20% funding by the private sector has been committed. The incubator shall be managed and operated by the private sector.
• 35 new private sector incubators. A grant of 50% (subject to a maximum of INR 10 crore) shall be provided by Central Government for incubators established by private sector in existing institutions. The incubator shall be managed and operated by the private sector.

The funding for setting up of the incubators shall be provided by NITI Aayog as part of Atal Innovation Mission (refer #13 of this Action Plan). Participating departments and agencies for setting up of new incubators shall be Department of Science and Technology, Department of Biotechnology, Department of Electronics and Information Technology, Ministry of Micro, Small and Medium Enterprises, Department of Higher Education, Department of Industrial Policy and Promotion and NITI Aayog.

 

15.Building Innovation Centres at National Institutes
In order to augment the incubation and R&D efforts in the country, the Government will set up/ scale up 31 centres (to provide facilities for over 1,200 new Startups) of innovation and entrepreneurship at national institutes, including:
• Setting-up 13 Startup centres: Annual funding support of INR 50 lakhs (shared 50:50 by DST and MHRD) shall be provided for three years for encouraging student driven Startups from the host institute.
• Setting-up/ Scaling-up 18 Technology Business Incubators (TBIs) at NITs/IITs/IIMs etc. as per funding model of DST with MHRD providing smooth approvals for TBI to have separate society and built up space

 

So, there is a lot to a startup, than just your passion, just your excitement. One has to be patient, stick to your basics, and be ready to change your plans when its needed. Your goal is fixed, first achieve that and then try to excel that at each and every step. The goal you achieve shouldn’t be your zenith, it should be the first step as progress in your grand journey.

                                                                                                                                 

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