ACCELERATING INNOVATION IN THE DEVELOPMENT A BIRDSEYE VIEW OF THE INDIAN START-UP ECOSYSTEM

Aera Consultancy and Services

Nov 2014

CONFIDENTIALITY STATEMENT ABOUT US PURPOSE & INTENDED AUDIENCE

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About us

Profession organization equipped with Group teams consists of Chartered Ac-countants / Company Secretary / IT Experts/Legal having deep knowledge of Ac-counting,Finance, Corporate Finance, Legal, Compliance, Consulting,Restructur-ing, start-up Mentor and Information Technology. The Company represents a combi-nation of specialized skills, which thrive by helping you to be successful.

Develop Customized services which are unique and practical to cater the current market trends

Aera combines extensive experience with high-touch , individual service. We suc-cessfully bring together the interests of our client in a way that builds visibility and achieves our clients’ goals.

Confidential StatementThe information presented in this document shall not be binding and in no way repre-sents a contractual commitment by Aera Consultancy and Service. All communica-tion received in this document will be treated and regards as confidential.

Each recipient of this document agrees to treat it in strictly confidential manner. The recipient may not to disclose, directly or indirectly, or permit affiliate to disclose any of the information contained herein, or reproduce this document in whole or part with-out written consent of Aera.

Any recipient who accepts delivery of this document or any other document or verbal communication of confidential information from Aera agrees to be bound by the terms of this confidentiality statement and further agrees to promptly return docu-ments to Aera upon request. 

Purpose of this documentThe purpose of this document is to attempt to construct a perspective of Start-up eco-system in India as it stands today.

Intended Audience

Aera Consultancy intends it for use as to understand the current start eco-system in India. We need to study the requirement for each client on case-to-case basis.

DisclaimerThis document has been prepared for informational purpose only. Aera has prepared this document for the sole purpose of providing information relating to Eco system for start-up in India. The contents of this document are based on public information own research and on third party research provided to Aera. No reliance may be placed for any purposes whatsoever on the Information contained in this document or on its completeness, accuracy or fairness. No warranty is made by Aera to recipients of this document or any of their respective advisers or any of their representatives as to the accuracy or completeness of the Information and no liability is accepted by any such person for any such Information or opinion or for any loss howsoever arising from any use of this document or the Information. This document and/or the Informa-tion is confidential and cannot be copied, disclosed or distributed to any person and is being provided to you solely for your information.

All statements other than statements of historical facts included in this document, in-cluding, without limitation, those regarding eco-system of Start-up in India, business strategy, plans and objectives of this system for future operations (including develop-ment plans and objectives relating to this system), are forward looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements ex-pressed or implied by such forward-looking statements.

The Indian ecosystem is still taking early steps along the arc of building unique homegrown Startup ecosystem with world best practice embedded in it. Startup success ratio is still low in India. A lot of this has to do with the fact that the Indian ecosystem is still learning. Still a nascent ecosystem where exit patterns are not defined.

EXECUTIVE SUMMARY

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Executive Summary

The$Indian$ecosystem$is$s0ll$taking$early$steps$along$the$arc$of$building$unique$homegrown$Startup$ecosystem$with$world$best$prac0ce$embedded$in$it.$Startup$success$ra0o$is$s0ll$low$in$India.$A$lot$of$this$has$to$do$with$the$fact$that$the$Indian$ecosystem$is$s0ll$learning.$S0ll$a$nascent$ecosystem$where$exit$pa?erns$are$not$defined.$ There$are$growing$numbers$of$accelerator$networks,$ funding$ for$ interes0ng$projects$and$teams,$availability$of$a$worldDclass$talent$pool$and$a$strong$ambi0on$to$rub$shoulders$with$the$best$of$the$world.$There$are$youngsters$out$of$college$hungry$for$success$star0ng$companies$with$tons$of$enthusiasm.$On$the$other$side,$there$are$companies$with$professionals$seasoned$at$global$firms$who$have$quit$wellDpaying$jobs$to$start$entrepreneurial$ventures$based$on$the$skills$they$have$built$along$the$years.

Despite$the$complexi0es$of$star0ng$business$in$India,$aspira0ons$run$extremely$high.$Over$the$past$few$years,$there$have$been$close$to$30k$startups$in$India,$with$over$8k$new$en00es$expected$to$startup$every$year.$NASSCOM$(Na0onal$Associa0on$of$SoNware$and$Services$Companies$is$a$trade$associa0on$of$Indian$Informa0on$Technology$and$Business$Process$Outsourcing$industry)$recently$launched$a$high$profile$ini0a0ve$called$‘10000$startups’$aimed$at$providing$support$for$the$nascent$startup$ecosystem.$There$are$various$Angel$and$VenDture$fund$having$offices$in$various$ci0es$of$India$and$now$expanding$into$Tier$2$D3$ci0es$of$India.

The$comprehensive$focus$on$the$entrepreneurial$ecosystem$shows$that$the$government$now$realizes$the$benefits$of$a$thriving$entrepreDneurial$ community,$as$witnessed$ in$countries$ like$ the$USA,$UK,$ China,$ Canada$and$ Israel.$Govt$of$ India$are$ge\ng$aggressive$ for$ the$$$$$development$and$promote$entrepreneurship$in$mul0ple$ways:

Entrepreneurial ecosystem

•! Facilitate$collabora0on$with$overall$ecosystem\

•! Par0cipa0on$in$dialogue$with$all$stakeholders$to$ensure$consulta0ve$policy$forma0on

•! Facilitate$effec0ve$provision$of$services$by$incubators$

•! Crea0on$of$accredita0on$frameworks$for$cer0fying$quality$of$startDups

Entrepreneur

•! Procedural$and$regulatory$reform$for$all$stages$of$business$

• $$$$Entry$D$single$window$clearance,$informa0on$availability,$industrial$clusters$etc.$

• $$$$Opera0onsD$labour$laws,$IP$laws$etc.

•! $Exit$mechanisms$and$modali0es$including$paperwork$and$restric0ons

Capital

•! Enabling$venture$capital$funds,$angel$investors$and$businesses$to$provide$equity$to$entrepreneurs

• Fiscal$policy$ini0a0ves

• Regulatory$reform$affec0ng$fund$raising,$opera0ons$&$exit,$especially$domes0c$capital$$raising$

• Enabling$banks$and$FIs$to$provide$debt$to$entrepreneurs$

• $Regulatory$reform$for$promo0ng$credit$to$startDups

•! $Crea0on$of$innova0ve$products$for$providing$nonDcollateralized$debt$

India’s$large$and$diverse$popula0on$offers$a$unique$customer$base$for$businesses.$It$is$cri0cal$for$nascent$businesses$to$design$business$models$aligned$to$the$market.$“MeDtoo”$ideas$that$are$copied$from$interna0onal$successes$oNen$fail.$Online$retailing$businesses$in$India,$for$example,$have$used$cashDonD$delivery$ innova0on$ to$ successfully$ target$an$ Indian$popula0on$ that$has$ low$possession$and$usage$of$credit$ cards.$ This$ approach,$ however,$ is$ not$ used$ by$ many$ upcoming$ entrepreneurs$ leading$ to$ early$ failures$ in$ business$ models.$$$$$$$$$$$$$Entrepreneurs$must$also$consider$the$large$baseDofDpyramid$market$to$build$financially$viable$and$scalable$businesses.

Science, Technology and Innovation (STI) have emerged as the major drivers of National Development globally. India has declared 2010-20 as the “Decade of In-novation”. The Govt of India has stressed the need to enunciate a policy to syner-gize science, technology and innovation. In 2013, Govt of India came up with Sci-ence, Technology & Innovation Policy, in order to create robust innovation culture and ecosystem. The Government of India proposes to increase the expenditure in Innovation R&D to 2% of the GDP. For the development of the Innovation culture in the country, the policy envisages creation of Conducive eco-system for the ven-ture capital in the MSME sector with the initial corpus of Rs. 10,000 cr (around $1.8 billions).

There are various Govt support at State and central level. Few of the successful scheme are:

3.1 TDB Scheme for Seed Support to Technology Business Incubators/ Science and Technology Parks

Technology Development Board (TDB), Ministry of Science and Technology, Government of India is enacted to provide soft financing to Indian companies ena-bling commercialization of their innovations.

1. As a proactive step, TDB has started Seed Support Scheme for technology start-ups in Technology Business Incubators (TBIs)/ Science and Technology Parks (STEPs) by providing grant upto Rs. 1 crore each over a period of upto three years. TDB hereby invites proposals from STEPs/ TBIs/ Institutions having similar infrastructure and capabilities for grant support for Technology Start ups.

2. STEPs / TBIs may use TDB grants to provide loan and / or equity support to their in-house incubatees based on transparent policies & procedures. The total upper ceiling of financial assistance to be disbursed to an incubatee is limited to Rs. 25 lakhs per incubatee.

3. The financial assistance to technology startups is basically to cater to early stage support requiring up- scaling of innovations and related work.

OUR UNDERSTANDING OF GOVT SUPPORT

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4. The financial assistance is for incubated entrepreneur only and not for administra-tive /expenses / facilities creation of /by STEP/TBI. As per the provisions of TDB Act, it must be used for commercializing innovations involving major / substantial / reasonable technology development. Mere applications development / product and / or services creation using existing technology platforms do not qualify.

3.2 “Re-Imagining Andhra Pradesh – role of e-Governance, Electronics and IT”

The State of Andhra Pradesh shares a collective dream of a new India where new generation software products would be manufactured creating multiplier effects in growth of the state and nation, employment creation, and social transformation.

Through the Innovation and Start-up Policy, the government intends to create an ecosystem that produces an entrepreneur in every family. The targets laid out for the Andhra Pradesh through this Policy by June 30 2019 are:

1.100 Incubators / Accelerators to be established 2. 5,000 Companies & Start Ups to be incubated 3. 1 million sq ft of Incubation Space to be developed 4. Venture Capital of Rs 1000 Cr to be mobilized for Innovation 5. Foster Innovation Culture

The Policy would have following Niche Themes as focus in the initial period:

1.‘IT for X’ in the areas of Pharma, oil & gas, urban management. 2. Social Media, Mobility, Analytics and Cloud Computing (SMAC) 3. Fables Semiconductors 4. Animation & Gaming 5. Entertainment 6. Visual Effects 7.Health and Fitness 8. Automotive 9. Internet of Things (IoT)

Under this policy

1. The Government will act as market maker for giving a massive fillip to Software Product Industry. In line with the State IT Policy, an Innovative Start-up-Boot up-Scale-up Model would be followed for attracting cutting edge Software Product Start-ups to Andhra Pradesh by leveraging the points of IT projects up to 50 Lacs for Rural Companies, up to 5Cr for MSME’s registered in Andhra Pradesh and up to 50Cr per annum proposals to be taken up Suomoto using Swiss Challenge

2. Time bound approval of Proposals in 4 weeks would be given to Innovative Product Companies to demonstrate their product(s) as Pilot project i.e., Start-up Phase. Once the pilot is successful, the Government would encourage companies to do local prod-uct development for software companies and manufacturing (for hardware compa-nies) i.e.-Boot up Phase. The companies, which have deployed their products in Andhra Pradesh, would then be given incentives as decided by the State Innovation Council to go National and International i.e.- Scale up Phase.

There are various other attractive startup eco system is getting in shape. Towards this objective, the Central Government set up a National Entrepreneurship Mission (the “Mission”), whose sole focus is to establish a vibrant entrepreneurial eco system in India. The Mission’s mandate, as one single entity within the Governments both at the National and State levels, is require it to pursue exclusively, the task of facilitating entrepreneurs and entrepreneurship.

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The Support structures have also been improving with the presence of associations like ‘The Indus Entrepreneurs’, (TiE) across multiple cities in India. Initiatives like the National Entrepreneurship Network (NEN) are doing high quality work in channeling entrepreneurial energies of students at the university level towards new venture creation. Incubation centers at various prestigious educational institutes5 in the country have also played their part in encouraging the top talent of India to venture on their own.

Critically, the angel and seed funding ecosystem has improved significantly in recent years, making much needed risk capital and mentoring more accessible to entrepreneurs. Some of the leading organizations providing angel/seed stage financing include Mumbai Angels Network, Indian Angels Network, Seedfund, Blume Ventures, etc.

Several VC firms have also started providing seed stage financing to try and “catch them early”. Furthermore, successful business houses and high net-worth individuals (HNIs) are also carving out a portion of their capital to invest in early stage opportuni-ties.

Top Seed Fund in India

1. Blume Venture2. India Quotient3. Kae Capital4. Indian Angel Network5. 500startupIndia has over 25+ active seeds funds that are known to invest from $100k to $1 million.

Top Incubators for Indian startup

1. Y combinator2. 500 startup 3. Microsoft ventures

4 OUR UNDERSTANDING OF PRIVATE INVESTOR SUPPORT

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Top Venture Fund in India

1. Nexus Venture Partner 2. Sequoia Capital3. Accel Partner4. IDG Ventures5. SAIF Partner

They provide Series A and Series B stage investment from more than $ 2 millions upwards.

Statistics in India:

1. In 2013, Indian Angels invested about $60 millions (300 crores) in around 125 deals 2. As a proportion of Early stage investing, angel investments in India comprise around 7%, as against around 75% in US3. Huge investment by Venture fund around $ 4 billions

Start-up Hubs of India

Innovation in India remains strong and growing in the country, but the challenge of raising capital remains. The question is whether the start-up sector could be that much stronger in India. Help appears to be on the way in the form of Central Govt reforms announced, which will see the development of friendly start-up eco system.

India is poised for its next big Investment avenue to compete and shine on the global scene – Flipkart, Snapdeal and others were a proxy for technology in recent times.

Meaningful and consistent capital flows, attracting and retaining the right talent, offering relevant educational and training programs and access to a growing technology infra-structure are the top priorities by Govt to ensure the sector remains productive and robust.“India’s start-up sector is transitioning back to a level of prominence. Investors and venture capitalists/angel investors are reassessing their resource sector holdings and examining the high growth potential of the industry.

Bangalore and Delhi are hot cities for start-up in India while Mumbai is emerging as the fastest startup hub of India.

If work carefully, India can be a rewarding experience:

• Most maturing destination and wide spectrum of service and capabilities

• Cost benefits

• Scaling up is easy

• People are willing to learn and innovative

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AERA – START-UP SUPPORT

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Aera2–2Start5up2supportAt$Aera,$we$understand$the$ importance$of$turning$ idea$ into$reality.$ Founders$ face$considerable$challenges$as$they$work$to$bring$new$ideas$while$$$$$taking$leadership$responsibili0es,$Raising$capital,$finding$talent,$establishing$a$corporate$framework,$and$other$management$ini0a0ves$take$0me$and$are$important$to$maximize$business$success.$We$are$delighted$to$share$highlights$from$our$experience$in$this$guide$including$opera0onal,$financial,$tax$and$accoun0ng$ma?ers,$and$other$business$considera0ons.

Ma7ers2to2be2considered2include2(not2exhaus=ve2list):

1.$ Developing$your$pitch

2.$ Choosing$a$legal$structure

3.$ Tax$ma?ers

4.$ Regula0on

5.$ Human$Resource

6.$ System$Design$and$Development

7.$ Service$Partner

8.$ Account$and$Finance

9.$ Legal

Contact Person for AeraVikash'Parakh

M/s'Aera'Consultancy'and'Services'Private'Limited

Cell:'+91'9769150250

Mail'to:'vikash.parakh@gmail.com