Startups expect #PolicyNeutrality from #Budget2016

When me and my team set out to meet Angel Investors to fund the development of our product, all of them inevitably asked us the same question — Why do you want to do this?

This deceptively simple question is a great way of separating serious entrepreneurs from the dabblers.

To the true entrepreneur the answer to ‘why?’ is very simple — she has picked the business because she is passionate about it. Period.

This I believe is the fundamental differentiating factor between large established organisations and a startup. While large organisations are driven by several factors like brand fit, market segment, size, scale etc., an entrepreneur, despite knowing the odds are stacked against her, is driven by the passion to create an impact where she believe these large companies have so far failed to meet customer needs.

What startups don’t need from the government

Let me begin by clarifying that Startup India is a welcome initiative. It has brought entrepreneurship to the forefront of the mainstream imagination. The thought that we have the government’s wholehearted support is motivating and heartening. However, what we don’t need to be treated as special category companies. We don’t expect extra tax breaks or discounted prices for government services. If an entrepreneur is creating a product or service of value there will always be investors and customers willing to partner with the startup.

Another crucial concern for the startup community — something that has been pointed out by several founders — is that we definitely don’t need the government deciding if a company is indeed a startup.

Judging whether a business is ‘innovative and significantly different’ from the existing businesses is not the government’s job. This question is best answered by the customers when the offering hits the market.

Government or government appointed individuals making this very important decision and offering sops to select companies has the potential to seriously harm the startup environment and kill crucial innovation even before it reaches the market. Consider the case of social networks. By the time Facebook launched, there were several popular social networks like Orkut, MySpace, Hi5 and more that were already popular on the net. I doubt whether a bureaucrat back then would have believed that a new incumbent with a strange name as ‘The Facebook’ was ‘innovative and significantly different’ from any of these social networks and recognised it as a legitimate startup. Yet 10 years down, the only surviving social network is Facebook. Administration can be great at administering but we shouldn’t expect them to be a great judge of innovation and market potential. This is the job of the market.

What startups do need from the government

Startups need the same things that large domestic companies need, the same as what foreign investors investing billions need and what most PSUs need as well. Large Indian companies should also be able to exit or downsize a business easily so they can try out innovative and risky ideas. Foreign companies should also get the same tax incentives for the investments they make in India. PSUs should also be able to raise money through fund of funds to make them more agile, competitive and free from government intervention. And finally, everyone would want to be able to register a new company within a day. Most of what the government announced as part of #StartupIndia is welcome, but restricting these measures to select startups is not.

The real problems startups face are protectionist policies. There are several restrictions in critical industries that disqualify startups from entering the markets easily. For instance, why should a new airline not be able to offer international services on par with an old airline? Why shouldn’t small startups disrupt the the entrenched players in defence? Policies could also use some rationality and symmetry — While anyone with the requisite technical qualifications can start a stock brokerage firm, even Prashant Jain, who heads HDFC Mutual Fund, can’t startup a AMC by himself. He will have start a financial entity like a stock brokerage and wait several years before moving to his core expertise as regulations require the sponsor to have existed for several years before they can start an AMC.

Such protectionist policies safeguarding the interests of existing players are most prevalent in crucial sectors like Finance, Public Transport and Education where radical innovation is most needed.

My expectation from #Budget2016 is that the FM will repeal some of these protectionist policies and let startups, small firms, big firms, foreign firms and PSUs compete on a level playing field.

Just like TRAI has ensured that every customer and every internet business has fair and equal access to internet through its #NetNeutrality ruling, we need #PolicyNeutrality in all industries so that they are all open to disruption from startups, incumbents, foreign businesses or even PSUs.