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STARTUPS AND ECONOMIC PRECEPTS

INTRODUCTION

Growth is never the sole criteria; it is the product of numerous novel forces interacting. This transition in business has been gradual and evolved over the years. What is the source of this economic boom? – Authentic problem-solving concepts, experiments, and inventions. Startup businesses are new business concepts initiated by entrepreneurs; they are not traditional businesses and face more challenges and roadblocks than customary businesses. In recent years, India has seen a surge in Startup companies’ activity, and it has emerged as a new hotspot for such companies. With such a massive influx of Startup companies, legislation must ensure that every entrepreneur does have an equal opportunity. And, in the face of the onslaught of Startup companies that have become a new-normal, improved inspection must be ascertained.

WHAT IS A STARTUP?

A Startup company is a new idea-based business founded by an entrepreneur or a group of entrepreneurs based on their intellect and available funds. They work hard over the period to bring the business idea to the next level and reap the benefits by trying to aid society. Startup businesses are comparatively risky because it’s founded either by a single person or a small group of people with a new idea but no mentorship or financial resources. These Startups are not fully formed businesses but are in the early stages of seeking funding from investors in exchange for equity shares in the company.

Previously, Silicon Valley was a hub for Startup companies and their search for investors. However, India is now emerging as a new Startup company hotspot, cutting off strong economies.

COMMENCING WITH A STARTUP IN INDIA

By instituting a tech-savvy environment, the Indian economy has increased Startup company productivity by maximizing available resources, a vast market, and exponentially growing technology. The government has launched the ‘Startup India initiative’ to encourage such entrepreneurs and young minds to help build an ecosystem of Startups in India and lead the country in new directions. There are some pre-requisites for commencing a Startup company: an idea, a team, funds, and a goal to achieve.

OBJECTIVE

FUNDS

TEAM

NOVEL IDEA

 

1                                  2                                    3                                      4

 

Steps for registration

·       Firstly, the Startup firm needs to be incorporated either as a Private Limited Company, a Partnership firm, or a Limited Liability Partnership.

·       Then it has to be registered with ‘Startup India’ to get the venture officially registered.

·       The next step is to get DPIIT recognition so that the Startup company can get several benefits; tax benefits, IPR, and other relaxations.

·       Then there are some other registration processes too.

WAY FORWARD

The supreme goal is to take the business to new heights and achieve the desired goal, not merely to establish a Startup company; however, this journey is fraught with peril. Many businesses fail to get Seed Fund because they cannot pitch their idea appropriately to raise funds or persuade an investor to join the venture.

Investment

An entrepreneur who plans to solicit investors must set a value for his firm to raise funds. It is difficult to gauge a company’s market value because most startups have a negative balance sheet and operate at a loss during their early years, as they offer financial incentives to attract new customers during this time. So, to get an Angel investor on board, pitching of business idea is crucial because a strong investor will ultimately bring more expertise and intellect to the firm’s board of directors. For example, BYJU’s one of the highest funded ed-tech startups, currently valued at around $18 Billion.

Aftermath these initial stages, raise money from the Stock market by diluting the equity stake in the company. The equity market is the largest source of raising funds from the public through bringing an IPO (Initial Public Offering) with the approval of SEBI. An IPO is a significant step for a company because it allows the firm to raise a large sum of money. It increases the company’s capacity to grow and expand. The increased transparency and legitimacy of the share listing may also help it obtain better terms when seeking borrowed funds.

Originality protection

A Startup company’s origin lies in its founder’s novel ideas. Hence, the companies should be entitled to protect their innovations, including the business concepts, products, and services. Intellectual Property Rights provide protection by the tool of patents, copyrights, trademarks, and design. Over the last seven years, India has seen a five-fold increase in patents granted, according to a report.

As per NASSCOM, Startup companies in India filed above 400 technology patents between 2015 and 2021, with healthcare and medical devices remaining their focus areas. The pandemic has, even more, pushed things furthermore swiftly. Artificial Intelligence and new-generation technology patents are leading. These technological advancements are primarily in the sector of Medical-science related software and portals, Smart devices, ed-tech, and gaming software.

India and global

The lion’s share of Startup companies (71,153) is in the United States. India ranks second with 13,125 Startup companies, followed by the United Kingdom with 6,220 Startup companies.

According to a report, India jumped 28 spots to rank 19th among 100 countries in the world’s top 100 Startup company hubs in 2021. Furthermore, India ranked 48th in 2020. As a result, India’s startup company filing rate will be comparable to that of the United States, and technology innovations will stay ahead of the curve.

DRIVERS AND SCHEMES

India has gradually established a thriving ecosystem for Startup companies. The government has assigned a Ministry (department) dedicated to assisting new businesses to promote and support entrepreneurs. Furthermore, the Central Government of India has introduced numerous schemes to promote entrepreneurship skills in India and fiscally support emerging Startup businesses.

CORPORATE

Incubators and Accelerators share their assistance and funding with the evolving company that has such potential to scale up in the future. These funding houses and investors provide essential guidance and take a position on the Board of Directors to have their say over decisions and direct the venture accordingly in the direction needed. Mentorship programs are there to support and encourage aspiring women entrepreneurs.

GOVERNMENT

The government has implemented several schemes to assist Startup companies. The exponential surge in Startup ventures and businesses in India is predominantly due to ‘Make in India,’ ‘Atmanirbhar Bharat,‘ and ‘China Plus One.’ Furthermore, to boost businesses and motivate entrepreneurs, the following schemes have been announced, namely: –

SAMRIDH Scheme

The SAMRIDH initiative provides funding and assistance to the Startup company to help them grow successfully.

Startup India Seed Fund

As aforementioned, a seed fund is the first step in raising funds for a Startup company to broaden and diversify the venture. The government of India has specifically allotted the capital for funding such companies.

JUDICIOUS COGNIZANCE

It’s only been three to four years since the pandemic and internet access exploded India’s digital ecosystem. The entire country is conducting business digitally, and companies in the space are rapidly expanding. A large population is a reason for the success of any Startup company that ventures into the realm of technology. Furthermore, young Indian entrepreneurs intend to take more risks and utilize their mental abilities. However, such rapid growth raises concerns about the sustainability of the economy. Unicorns are sprouting up like weeds; unicorns, which were once rare and unrealistic, are now extremely common. However, this is a critical situation wherein the authorities must exercise extra care. Paytm, Zomato, Swiggy, and a long list of others are recent examples of Startup businesses whose business model is such that it is a loss-making module. These Startup companies are surviving on cashback and freebies, and the day they stop paying such freebies, the business will most likely collapse. Recently listed IPOs of various Startup companies have become a never-ending source of pain for investors because the market valuation was not according to its balance sheet. Its early investors and promoters profited from it even after such a downfall in stock price. So, this dire situation has arisen as an amalgamation of the inflow of funds, high liquidity, and government assistance. It indicates the formation of an economic bubble, which is not in line with the country’s fiscal health and global economics. It’s scary because if this bubble bursts, considering the prevailing global economic situation (inflation, debts, GDP), it could be even worse than the previous economic collapse.

CONCLUSION

 India is a country with a lot of young people and intellect. It is encouraging to see this growth, but exponential growth without an alignment of the economy appears to be pseudo-growth. The government should assist new entrepreneurs and budding Startup companies while keeping in mind that progress is pertinent to India’s fiscal strength and does not adversely affect the Indian economy and its investors at various levels. The government and other authorities such as the RBI, SEBI, and Ministries must be observant. If development and appropriateness are linked together, we will see higher yields, and consequently, India will be in a stronger position globally.

Author(s) Name: Ajay Singh Rathore (SRM University, Lucknow)