India needs 10 million jobs a year and global data shows that it is start-ups, not large enterprises that create net new jobs in any country. Start-ups are also the centers of innovation and are a great way to enhance employment creation in the economy. 

What is a Start-up?

• A start-up is a young company that is just beginning to develop. Start-ups are usually small and initially financed and operated by a handful of founders or one individual. These companies offer a product or service that is not currently being offered elsewhere in the market, or that the founders believe is being offered in an inferior manner.

Business Cycle of Start-ups

1. In the early stages, start-up companies’ expenses tend to exceed their revenues as they work on developing, testing and marketing their idea. As such, they often require financing.
2. Startups may be funded by traditional small business loans from banks or credit unions, by government sponsored small business administration loans from local banks, or by grants from non-profit organizations and state governments.

Types of Startups

Start-ups are essentially of two kinds.

1. One that starts something ground up, something that no one has thought about and is often ground breaking. This type of start-up is difficult to create but once created, often sees unprecedented growth.
2. The second kind of start-ups are primarily the ones who do not want to reinvent the wheel. They are akin to adding old wine in a new bottle to create something new and innovative.

Challenges that start-ups face

• There is no formal mechanism to mentor start-ups in the country. Unfortunately, every mentoring that happens is on an ad-hoc basis. Honest, unbiased, good business mentors are far and few in between.
• There are challenges of funding, patents and creation of intellectual property.
• There is a long process of registration of patents and lack of incentives for research and development. In fact, this is one of the reasons why many start-ups prefer to be domiciled abroad.

Government Financing Initiatives

• Pradhan Mantri Micro Units Development and Refinance Agency Limited (MUDRA):
  This scheme started with an initial corpus of Rs. 20,000 crore to extend benefits to around 10 lakhs SMEs. One can submit a business plan and once approved, the loan gets sanctioned.  One gets a MUDRA Card, which is like a credit card that can be used to purchase raw materials, other expenses, etc.
• Bootstrapping or self funding: Self-funding, also known as bootstrapping, is an effective way of start-up financing, especially when you are just starting your business.
• Crowd Funding: Crowd funding is like taking a loan, pre-order, contribution or investments from more than one person at the same time. In this, a start-up will put up a detailed description of his/her business on a crowd funding platform. He/she will mention the goals of his/her business, plans for making a profit, how much funding he needs and for what reasons, etc. and then consumers can read about the business and give money if they like the idea.
• Angel Investment: Angel investors are individuals with surplus cash and a keen interest to invest in upcoming start-ups. They also work in groups of networks to collectively screen the proposals before investing. Angel investors can also offer mentoring or advice alongside capital.
• Venture Capital (VC): Venture capitals are professionally managed funds who invest in companies that have huge potential. They usually invest in a business against equity and exit when there is an IPO or an acquisition. VCs provide expertise, mentorship and act as a litmus test of where the organisation is going, evaluating the business from the sustainability and scalability point of view.
• Business Incubators & Accelerators: Early stage businesses can consider Incubator and Accelerator programs as a funding option. Incubators are like a parent to a child, who nurture the business providing shelter tools and training and network to a business. Accelerators are almost or less the same thing, but an incubator helps/assists/nurtures a business to walk, while accelerator helps to run/take a giant leap.
• Microfinance Providers or NBFCs: Microfinance is basically access of financial services to those who would not have access to conventional banking services. NBFCs or Non-Banking Financial Corporations are corporations that provide Banking services without meeting legal requirement/definition of a bank.

Government Initiatives

Start-Up Action Plan has a 19-point agenda including incentives such as self-certification for complying with labour and environment regulations, a panel of facilitators to help file patent and intellectual property applications, tax exemptions for seed funding, capital gains and three year holiday on income tax as well as a Rs. 10,000 crore financing support through a fund of funds for four years.  

Start-up India’s 19-Point Action Plan

1. Self-certification Compliance
2. Single Point of Contact via Start-up India Hub
3. Simplifying Processes with Mobile App and Portal (for registration, filing compliances and obtaining information)
4. Legal Support, Fast Tracking and 80 per cent reduction in patent registration fee
5. Relaxed Norms of Public Procurement
6. Easier & Faster Exit
7. Funding Support via a Fund of Funds corpus of INR 10,000 crore
8. Credit Guarantee Funding
9. Tax Exemption on Capital Gains
10. 3- Year Income Tax Exemption
11. Tax Exemption on Investments above Fair Market Value (FMV)
12. Annual Start-up Fests (national and international)
13. Launch of World-class Innovation Hubs under Atal Innovation Mission
14. Set up of countrywide Incubator Network
15. Innovation centres to augment Incubation and R&D
16. Research Parks to propel innovation
17. Promote Entrepreneurship in Biotechnology
18. Innovation Focussed Programs for Students
19. Annual Incubator Grand Challenge

Concluding Remarks

• It can be concluded that Start-up companies are the most dynamic economic organizations on the market, since they vide additional dynamics and competitiveness to any economic system. They act as a catalytic agent for change, which results in chain reaction. Once an enterprise is established, the process of industrialization is set in motion.
• All these activities foster entrepreneurship and create demand for various types of units and will in turn, lead to overall development of an area due to increase in demand and setting up of more and more units.
• Indigenous start-ups will not only make the lives of the people easier through their affordable and convenient services but will also act as a major booster for the development and the progress of the Indian economy.