Startups need to have a better governance model, particularly a better model of financial governance, said India's G20 Sherpa Amitabh Kant at the Moneycontrol Startup Conclave on August 9 in Bengaluru.
"We have had several stories within the startup world where they have acquired high valuations and yet collapsed miserably sending out shockwaves. Therefore it is important that there is a sense of great financial discipline among startups," he said.
Kant's remarks follow a series of governance lapses, fund mismanagement, exaggerated revenues, and even instances of fraud over the past couple of years in India's startup ecosystem after the funding euphoria in 2021.
This includes edtech major Byju's, which was the country’s most valued startup until recently, as well as startups such as BharatPe, Zillingo, GoMechanic, Trell and 4B Networks among others.
"As they (startups) grow and evolve, there is a need to bring in good governance, audit, and self-governance. This requires a huge amount of financial discipline. Without self-governance, the startup movement will get a bad name," Kant said.
"If you do not do self-governance, or bring in financial discipline, and there are many failures of this kind, then external agencies and regulators will step in. That's the last thing you want in the startup movement" he said.
Kant said we have avoided that so far but many more failures will lead to that "cry for much closer regulation and regulators must be kept at bay."
"When the startup movement was launched in India, we kept all regulators away from it. The Prime Minister's desire at that time was to keep regulators away, so we actually eliminated factories law, labor laws etc from startups," he said.
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Kant said that startups have to be a major driver of growth and job creation in the country.
"Disruption doesn't happen by large companies. They are all status quoist in character. So if India wants to do a lot of disruption in a range of new technologies such as AI, machine learning, geospatial technologies, battery storage, and electric vehicles, it will never happen from large established companies" he said.
Disruption will instead happen from young dynamic companies and young entrepreneurs who will break new ground, Kant said. "When they do that, they will spur growth, create jobs, and challenge the established players," he said.
For example, Kant said if young startups had not pushed for electric vehicles (EVs), then established players would not have gone in for new models of EVs.
Need for patient capital
India will also need a lot of patient capital to grow in deeptech sectors, he said. Last month, the Indian government had announced plans to set up a venture capital fund of Rs 1,000-crore for the space sector.
"It's not Rs 1,000 crore for startups for the space sector, you would need Rs 10,000 crore for a range of deep tech areas where India needs to do path-breaking work. That will ensure that you have many more venture capital funds that will do due diligence. Some of that risk sharing will be done by the fund-of-funds" Kant said.
Kant, who previously served as chief executive officer of NITI Aayog, also talked about the need to develop domestic sources of funding for startups that are still dependent on foreign sources of funding. 78 percent of the overall funding to the sector is currently coming from foreign sources, he said.
Indian pension funds, large insurance companies, family business houses, and large companies including Navratna companies should put resources into the country's startup movement, he said.
Watch the full livestream of the Moneycontrol Startup Conclave 2024
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