Early-stage venture funds invest a total of about Rs 1,200 crore in Indian start-up businesses annually . That's a fraction of the Rs 29,000 crore such funds invest every year in the United States, the world's most successful entrepreneur-driven economy. The start-up landscape in India could, however, transform soon once the Union government announces a National Entrepreneurship Policy.
Early stage funding for entrepreneurs
More entrepreneurship courses in institutions of higher education
The policy aims at encouraging both entrepreneurs and investors. While the policy is in the works, a committee set up by the Planning Commission suggested measures in June this year to boost entrepreneurship. One of its main recommendations is to set up a Rs 5,000 crore corpus that will be used to inject capital in early-stage venture funds, which in turn will back start-ups. This corpus can result in a multiplier effect leading to capital flow of Rs 25,000 crore in the next 10 years, according to Planning Commission estimates.
The committee also suggested setting up a National Entrepreneurship Mission to coordinate among government agencies and to monitor the implementation of the proposed policy. It recommended giving tax incentives to encourage wealthy individuals to turn angel investors. Besides, it proposed to increase the number of incubators from 120 now to 1,000 by 2020. The committee also suggested starting more courses on entrepreneurship in institutions of higher education.
Similar government actions in other countries have yielded substantial benefits. In the United States, for instance, the government runs the Small Business Investment Company (SBIC) programme that has invested more than $18 billion in venture funds. The public-private initiative invests up to 75 per cent of a venture fund's corpus with an upper limit of $108 million. In Israel, the government started a scheme called Yozma in the early 1990s to invest both in venture firms and directly in promising ventures. Yozma has invested more than $200 million so far, and has become a launch pad for venture capital and technology start-ups. In New Zealand, the government runs the Seed Co-investment Fund that jointly invests with angel investors.
More support with incubation centres
Make it easy for starting and closing a business
Experts say the Rs 5,000-crore corpus will be crucial as early-stage venture funds in India get more than 90 per cent of their capital from foreign investors. These funds, say experts, cannot depend on foreign sources for long as the number of local entrepreneurs grows.
Saurabh Srivastava, Chairman Emeritus of the Delhi chapter of The Indus Entrepreneurs, a non-profit network of entrepreneurs, says offshore investors have limited understanding of local problems. "So, if they invest they will love technology ventures or those with a base in India but with a global market - something they understand better," says Srivastava, who was part of the Planning Commission committee. "In countries with much more advanced entrepreneur ecosystems, such as the United States or Israel, early-stage funding has flourished only on capital from home," he adds. Taslima Khan