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NASSCOM Report on Fuelling Entrepreneurship - Start-up survey findings and policy recommendations

Garima Prakash

@GarimaP

October 29, 2022

Public Policy

316

Rising strength of the start-up ecosystem in India

India has emerged as the third-largest ecosystem for start-ups globally, with 100+ unicorns and over 79,000 start-ups recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) across the country.

021 witnessed start-up funding from Private Equity (PE) and Venture Capital (VC) investors of USD 48.2 billion, being the highest in the last decade. This was coupled with 65 companies raising USD 17.7 billion via Initial Public Offering (IPO), an increase of 2.7 times in issue size, as compared with 2020. This demonstrates the confidence and strength of the Indian start-up ecosystem. In 2022, PE and VC start-up funding continues to be strong at USD 5.1 billion for six months ending 30 June 2022, although global downside trends in funding as well as valuations are expected to continue in 2022, which may impact start-up funding in India as well. Irrespective of the trend at any point in time, access to capital is key to the success of any start-up ecosystem.

The Report and Survey Findings

In the above context, this report by NASSCOM, in partnership with TiE Delhi-NCR and Grant Thornton Bharat, analyses the state of access to capital to the start-ups in India. The report covers findings of a detailed survey of the start-up ecosystem in India comprising founders, investors, incubators, etc., and examines the issues and challenges in access to capital, throughout the life cycle of a start-up, i.e., from early stage to listing.

The survey indicates that:

Access to capital and various funding options are the most important enablers as well as the top challenge, particularly for early stage start-ups. For others, access to capital continues to be the most important enabler but other aspects, such as ease of doing business and listing, also attain importance.
Over 40% of the respondents highlighted access to capital as the most important enabler for success of the start-up, followed by access to various funding options (debt, equity, structured debt, public markets etc.,) at 23%, ease of doing business at 20%, access to mentorship at 13% and ease of liquidation and tax incentives at 4%.
49% respondents highlighted PE and VC as the most preferred option for raising capital, followed by bootstrapping/founder-funding (22%), incubators (18%) and listing (11%).
Challenges: 36% respondents highlighted lack of innovative funding instruments, followed by, valuation mismatch between founders and investors (22%), lack of funding platforms such as crowdfunding (23%), lack of funding in place of business and tax incentives (19%).

The report covers an in-depth analysis of various sources of funding available to start-ups, both domestic and overseas, as well as listings, both in India and overseas. The report explores ways in which direct overseas listing may be made possible for the advantage of start-ups in India and the regulatory changes required in India to implement them.

Recommendations

The key recommendations, which have been dealt in detail in the report, include:
1. Increased impetus for domestic investors by way of tax reforms, especially by harmonising tax rate on Long Term Capital Gains (LTCG) applicable to resident and non-resident investors; harmonising tax rate on LTCG applicable to listed securities and unlisted securities.
2. Creating and enhancing market opportunities for start-ups through government procurement reforms.
3. Supporting creation of industry-led innovation clusters to enhance collaboration between start-ups, industry and academia
4. Regulatory and tax reforms to enable direct overseas listings.

The recommendations are an outcome of the survey findings, interactions with the start-ups, entrepreneurs, mentors and investors.

The Report can be downloaded from here.

In case you have any feedback or are interested in discussing this topic with us, please write to garima@nasscom.in or tejasvi@nasscom.in with a copy to policy@nasscom.in.

Start-ups tech start-ups access to capital funding policy recommendations

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Garima Prakash

Manager, Public Policy and Government Affairs

Reach out to me for all things policy about e-commerce, international trade, export controls, start-ups and fintech