Building Highways of Entrepreneurship

Entrepreneurship is widely accepted as a key engine of future growth of India. Over the next decade, it has the potential to create 2500 successful high growth ventures, with combined revenue of over Rs 10 lakh crore, and to generate 10 million direct & 20-30 million indirect jobs. This cycle has been set in motion over past few years with emergence of first generation entrepreneurs, increasing availability of capital, and strengthening of the ecosystem.

However, the process infrastructure for creation of high risk and high potential companies remains underdeveloped. Originally designed with the objective of containing the impact of failures and malafide intent, regulations and processes for setting up, operating, and exiting a business remain time-consuming and complex. According to the World Bank “Doing Business 2012” report, India ranks 132 out of 183 countries in ease of doing business.

Today’s entrepreneur is often a first-generation entrepreneur, and does not have the family business support to deal with this complexity. Such processes not only slow down entrepreneurs when building a business, but also create immense overhead if a business fails – where the same time and energy might have been spent more productively towards another business or occupational pursuit. This, in turn, deters individuals from starting their own businesses in the first place.

Interestingly, the one experiment with easing business regulations and processes in form of the STPI scheme, has shown flying colors over past decade. This scheme was essentially centered around single window clearance and self-compliance mechanisms, and enabled creation of a multi-billion dollar industry in quick time. Entrepreneurs also demonstrated high degree of integrity in availing the benefits offered, thereby justifying the trust reposed in them through a self-regulation process. There is an opportunity to replicate that success in other industries by streamlining processes.

Following are the key recommendations of the Planning Commission Committee on Angel Investment and Early Stage Venture Capital in this area:

1. Establish “Single Window Clearance” mechanism for starting a business, and establish time-bound processes for the same.
2. Set up online information and application portal for processes relating to doing business.
3. Permit self-regulation and self-compliance for businesses with turnover less than Rs 25 crore. Stringent penalties may be used to prevent potential misuse.
4. Facilitate labour law reform and ease compliance norms with labour laws. This is essential in triggering entrepreneurial activity in core sectors.
5. Ease investment and exit norms for equity investments into early stage ventures.
6. Establish expeditious procedures for closing of businesses, thereby bringing down the time, cost and complexity of doing so.

If implemented well, these steps will reduce the barriers to creating successful startups, and allow a broader set of people to participate in entrepreneurship. Indian entrepreneurs are charting a high growth trajectory, which could have tremendous impact on the country’s future. They have also demonstrated their ability and commitment to be disciplined and to follow the rules. It is time now to clear the potholes and build the highways of entrepreneurship.

(Also published on startupcentral.in)

4 Responses to “Building Highways of Entrepreneurship”

  1. Krish says:

    @ Alok – I think the step 1 of the key recommendations of the Planning Commission Committee enlisted under your post itself is quite comprehensive. Steps 2-6 just elaborate the obvious.

    For eg., Single Window Clearance could mean the founders make a single application to RoC for incorporation of company and out comes (a) a Certificate of Incorporation (b) Company PAN / TAN nos (c) Registration Certificate under Shops & Establishment Act (d) Sales/Service Tax Registration to start with.

    Given that the details to be filled in for all these applications are more or less the same (Name / Type of Business / Business objects/ Initial Capital / Address proof/ Identity proof / IT returns for last 3 years of founders / Declaration etc.) all it needs is an integration of the IT divisions of various Departments ( Company Affairs / ITO / Excise Commissionerate / Municipal Corporation) to grant the necessary approvals after extracting the data from the single application made for the first of these certificates.

  2. sandeep says:

    just curious to know – what is the typical equity stake of a non-founder CTO in a post Series A funding scenario ?

    The more important question is that how does one verify/or put in writing this percentage – does the employment contract say something like “you get 1% of stock options on a fully diluted basis as on Sep 11” or something ?

  3. Vijay says:

    Chandra,

    With due respect, I dont understand the fascination with wanting to be “stuck” in India or feeling so and cribbing. If you strongly believe that for your business, the US makes the best sense and somehow that few minutes to start is what makes the difference, then you should gladly move. It costs Tens of thousands of dollars to do basic legal work in the US – its peanuts in India. So?

    The key as an entrepreneur is to take the good with the bad. There are quite a few things that are going for us. We dont have to worry about expensive healthcare packages for founders and employees from day one. India, no matter, how to slice it, even with its idiotic laws would still end up cheaper to start than in the US.

    One word: Adapt.

    Secondly, i doubt India will be the technology powerhouse that all the USA returns make it to be and then whimper in disappointment. Being the market that we are, with such diversification, most of the innovation will be around supply chains, business models and new forms of security collaterals. It might help to know what to look for – cause there are some very interesting forms happening there.

    To answer your question on why Investors are far more “legal” than the counter parts, the answer is somewhere in the way corporate law is structured. In the US, its far more investor friendly – which means the govt has blanketed the entities with laws to protect the investor and who gets the money first. In India, its very promoter friendly and hence term sheets have to account for the fact that you took a foreign land term sheet and are force fitting it into an indian company under the Indian law. Hence the reason why it “looks” like its more legalistic than it really is.

    32 Mn SMEs in the country and probably (by very very optimistic numbers) there are probably a few thousand tech companies. To ask the govt or anyone to bend over backwards, being a fraction of the business economy – and then cribbing cause its not happening – is just foolish.

    Really, take the time and figure the ten awesome things you have going for you being in India. If you cant find enough, Move – be whereever you need to be to make your business succeed. its rather silly to be stuck within boundaries, because of patriotic reasons, if you ask me.

  4. Chandra says:

    It takes few minutes to start a business in US and UK. All done online with one click of creditcard payment. In india, it takes a month and is very expensive on a comparative scale ? Why ? Also, VCs(their poor cousin angel investors follow them to the dot) in India – largely -are investing in copy-cat models and companies targeting existing markets and going for easy traction game which is misleading. There is no support for innovation targeting new markets that could lead to a Google/facebook level success. They are too intellectually lazy to be open minded to new things. How can India get respect as innovation powerhouse at global level when it doesn’t support untested ideas and business models?

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