India is home to more than 50,000 startups making India the third-largest startup hubs in the world but like every other sector, the startup ecosystem is being choked due to the heavy toll of this unprecedented COVID-19 pandemic. (i) The pandemic has brought an unprecedented situation where the global economy is falling adversely affecting all businesses in almost all countries across the continents. The adverse impact could be seen from the global production to supply chains to international trade. The blow could be felt across the spectrums of the global economy with startups being no exception.
Given the nascent stage of startups, they are most vulnerable to these blows. They are at that stage of their lifecycle where they need nourishment in terms of capital and customer. Keeping in mind the special protection requirements of this startup ecosystem governments across the globe had to come forward and bring special measures to ensure their survival. The government of India also came up with a number of such measures which will be dealt with in this article at a later stage. First, let’s start with a clear understanding of what are startups and how are they different from other businesses.
WHAT ARE STARTUPS?
A startup is a project initiated by an entrepreneur to effectively develop a scalable business shortly. Entrepreneurship entails all forms of business models with or without an intention of getting it registered anywhere whereas a startup is intended to grow over and beyond its founder/founders. It is one of the riskiest businesses with very high rates of failure but few startups go on to become very successful and influential businesses like Instagram, Airbnb, Facebook, Uber, etc.
If one wants to define startups, the definition given by Steve Blank could be worth noting. Steve Blank defines startups as “temporary organizations designed to search for a repeatable and scalable business model”.(ii) It can be contrasted with a small business model which runs based on a fixed business model.
The startup ecosystem consists of people, startups in their various stages, and different organizations, all of which interact to provide a conducive environment for the development of new startup companies.(iii)
The various people who are involved in this process are entrepreneurs, angel investors, venture capitalists, various advisors, and mentors in the field. The institutions and organizations involved are government-supported entrepreneurs programs, chambers of commerce, universities, etc. The most famous startup ecosystem is in Silicon Valley, California. The startup ecosystem in Silicon Valley is made up of major IT companies like Google, Apple, Facebook, etc., and world-renowned universities like Stanford University. They provide a stimulating environment for startup companies to grow and prosper. Closer to home example would be Bengaluru, famously known as the Silicon Valley of India boasts to be the startup capital of India. Bengaluru has been ranked as world’s top 30 startup ecosystems in ‘The Global Startup Ecosystem Report 2020’ by Startup Genome.(iv)
TYPES OF STARTUPS
According to Steve Blank startups can be categorized into six different types. These are broad generalizations and might overlap in some cases as per the structure of the startup company.
1) Lifestyle Startups
An entrepreneur who chooses to build a lifestyle as a business model and earns income out of it is known to have set up a lifestyle startup. Examples of such startups would be people involved in freelancing, people providing fitness training, dance training, web designing services online.
2) Small Business Startups
These are small businesses, not build to scale and turn into big corporations. The services provided by hairdressers, plumber, medical stores, etc. are some examples of small business startups which are done not for big profits but self-sustenance and taking care of the family.
3) Scalable Startups
These startups are born to be big and therefore they are called scalable startups. The founders of these startups have a bigger picture in mind since its inception to turn it into a big corporation. They constantly try to scale their business up, adopting new models, upgrading it, looking out for investments and investors. Google, Apple, Facebook, Netflix could be the best example of such startups.
4) Large Company Startups
Large company startups are also known as offshoot startups of a big corporation. To be relevant in the market or to capture new markets big companies innovate and creates a startup. An example of such a startup would be Amazon Pay which is a fintech branch of the e-commerce giant Amazon.
5) Buyable Startups
These startups are built not with a vision to turn into a billion-dollar company but to sell it to large corporations. In the recent past, we have seen many small startups being bought by large companies. In this kind of startup, the founder invests few initial years with the app and develops it, runs it, and makes it worthy to be bought by big companies.
6) Social Startups
A social startup is a non-profit organization that works for non-profit motives. They function and are set up in the same fashion as any other startups but their aim is not to earn profit but to help others and disseminate ideas into the world. An example would be Selco, a company that provides sustainable energy to rural India.
COVID SCHEME FOR STARTUPS IN INDIA- REGULATORY REFORMS & ECONOMIC SUPPORT
The government of India in the given circumstances to protect the vulnerable startup industry stepped in and brought some major regulatory reforms coupled with some economic reliefs.
This Covid-19 scheme of the Indian government can be categorized into the following parts:
1) Government of India (GOI) Initiative
A) Department for Promotion of Industry and Internal Trade (DPIIT) has set up a control room to monitor the problems that the people in the industry are facing regarding the manufacturing, delivery, distribution of goods. DPIIT ensures that the flow of goods is not halted due to lockdown restrictions imposed by the government. The department has also provided contact details to be reached in case of any inconvenience. The contact details are as follow:
Telephone: +91-11 23062487, Email: [email protected].(v)
B) Business Immunity Platform (BIP) has been set up by the National Investment Promotion Agency to provide 24/7 active forum for startups to get help. The platform has a panel of experts who are trained to help businesses conduct hassle-free operations especially during Covid lockdowns.(vi)
2) Regulatory Reforms– The government of India has brought a series of regulatory reforms in the light of this pandemic to sustain the new growing businesses and startups.
a) Income Tax- These reforms include an extension of filing income tax return dates, reduction in interest rates for delayed payment, extension for PAN-Aadhar linkage.
b) GST- Extend date for opting for a composite scheme, immediate release of all GST and Custom refunds, all due dates of approvals, licenses, returns, sanctions, etc. are extended.
c) Ministry of Corporate Affairs (MCA)- MCA brought a scheme to allow companies to make good their defaults, irrespective of their duration of defaults so that they can start fresh as a fully compliant business entity.
d) CUSTOMS- Government brought in reform and allowed for 24/7 CUSTOM clearance and appointed nodal officer for speedy clearance of export and import.(vii)
e) SEBI- Extension on the due date of regulatory filing for Alternative Investment Funds (AIF) and Venture Capital Funds (VCF). The relaxed compliance requirement for portfolio managers.
f) RBI- All banks, financial institutions, and NBFCs were allowed to give a moratorium for any default on the payment of installments. Charges on debit card transactions via ATM were waived. The minimum amount to be maintained for all savings account was abolished. The digital charges for trade transactions were cut down.
3) Economic package– The government of India has approved around Rs. 3 lakh Crore economic package as a working capital facility for business. This specifically includes MSMEs (Micro, Small & Medium Enterprises).(viii) This amount can do wonders to sustain these businesses in their nascent stage of development.
Covid-19 has adversely affected all businesses across the globe. It gave a major blow to the investment sector as there was a huge liquidity crunch throughout the industry spectrum. This was a major setback for the startup industry especially because startups are nothing but an idea with a vision to develop into a multi-million company, for which it requires investments and funds. Covid-19 acted as a double-edged sword, destroying the business of startups and extinguishing the investment opportunities. The reforms and support package by the government of India cans serve as a major relief but only when it is implemented effectively and in an efficient manner. Countries like France and U.K have already rolled their startup relief schemes which provide for investments and loans/financial assistance in situations of loss due to Covid.
Startups intensify innovation, creates employment, and promote competition in the business environment. India’s goal of becoming “Atmanirbhar” and a $5 Trillion economy largely depends on the startup ecosystem. Therefore India needs to do all it can to protect this Startup ecosystem during these rough days of the pandemic.