Tough regulatory environment remains the biggest challenge faced by Indian start-ups

India has the world’s third largest start-up ecosystem and is ranked 57th in the Global Innovation Index 2018.
For representational purposes (File | EPS)
For representational purposes (File | EPS)

India has the world’s third-largest start-up ecosystem and is ranked 57th in the Global Innovation Index 2018. Seven central ministries have launched schemes and policies promoting start-ups and 21 state governments are pursuing start-up policies.

Yet, challenges persist, says Ajay Kapur, Director, Operations and Strategy Management, Risers Accelerator in an interview with Sunitha Natti. Excerpts:

What problems are Indian start-ups facing? 

The first challenge is hiring a qualified team, dealing with customers, and developing a market strategy since many founders have technical know-how, but lack business knowledge. Many are bootstrapped and start looking for investors to scale up their business. Finding the right investor is difficult even in scenarios where the start-up has got a good response from the market. 

The second challenge is the gap between the solution provider and users, mainly because the country’s diversity makes understanding the start-up limited to a region, making it difficult to build a pan-India company. This challenge exists also because of the disconnect with customers arising from the fact that many founders come from well-off families. 

The third challenge is marketing the product. Start-ups are at a disadvantage compared to big firms and customer retention becomes another challenge. Start-ups are also expected to come up with affordable solutions as customers are price-sensitive and expect discounts. 

Finally, the biggest challenge is the regulatory environment, which is seen as difficult despite the government’s moves to boost the ease of doing business. India still ranks 137th of 190 countries in the World Bank’s Starting a Business Ranking index.

Government processes are tedious, and they end up wasting time when regulations suddenly change. Setting up a business is also a lengthy process and to avail tax exemptions, one has to qualify under set definitions, which few start-ups fulfil. The tax policy, GST included, is also not friendly.

Is mentorship important in the current scenario?

It’s extremely important.  Start-ups need guidance to fill knowledge gaps or build connections, which will help them run the business successfully. Two ways to mentor are giving internal support through an incubator or have an accelerator’s on-site employees to help them with practical issues and provide support. Incubators and accelerators also organise seminars and workshops where start-ups interact and share experiences.

What are your views on the government’s policy for start-ups? 

Time and again, the government has shown its intention to promote start-ups. In fact, many schemes are floated to build an ecosystem conducive for start-ups. India has the third-largest start-up ecosystem and is ranked 57th in the Global Innovation Index 2018. Seven central ministries have launched schemes and policies promoting start-ups and 21 of the nation’s 29 state governments are pursuing start-up policies. The total funding has doubled between 2017 and 2018 in tech start-ups.

Why do early-stage entrepreneurs struggle to scale?

The real challenge is utilising raised capital. Good start-ups can easily raise funds, but when it comes to utilising it, they fail. The market has lot of capital for category leaders, getting Series A and Series B funding is still difficult after raising seed money. Some fall into the problem of finding little or no market for their product. Some are too optimistic and think it’s easy to get customers. Initially, they might attract customers with an interesting website, product, or service, but gradually, it gets tough.

There has been a trend of early-stage entrepreneurs selling and exiting after building a business...
This has two fallouts. Competitive investors will start to push for an exit, the ones who have not done so yet, and secondly, the current round of healthy exits will spur the next wave of risk capital. It is also shaping a secondary market for hot startups, which is a good sign that will help ease the worries of investors about the lack of exit options. 

What hurdles are accelerators facing in India? 

Several accelerators are run by individuals from the affluent class who do not have enough motivation and skin in the game. Then there is a lack of individual training for each founder. A majority of the country’s colleges and universities do not have the requisite talent to assist students in building viable businesses.

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