Startups feeling left out in the cold
By BackUPStories - February 14, 2019
The mood in the startup community is one of wariness, especiallly after the incidents with Travel Khana and Babygogo, both of which are not DPIIT-registered.
“When something like that happens, it reduces the trust in the stakeholders and policy makers,” an early-stage investor told YourStory on condition of anonymity.
For Travel Khana and others like it, their very existence is in question.
“While the accounts are no longer frozen, there is no money in my accounts to run day-to-day operations. For an early stage startup, Rs 33 lakh being deducted from our accounts has affected our business. I have been told it will take a few months for the issue to be sorted. But for a startup, a few months can kill us,” says Pushpinder.
The startup community, has joined forces to help. Pushpinder says alumni from IIT have offered support, and many are even ready to give him short term loans. however, he is looking for a long-term solution.
“It effectively even cuts off investment from other investors, as it is an ongoing case. So, investors worry that whatever they pump in will not be used for growth of the company but to resolve existing issues,” says Siddarth, adding that data from 2015 to 2018 shows that the number of unique Angel investors has fallen by 48 percent.
“If you look at the deal data, the number and size of deals in early stage deals has also reduced. While the other rounds are increasing, the Angel and early stage investments are drying up. Currently, the number of Angel investors backing off from investing in startups is steadily increasing,” he says.
Rajesh Sawhney, noted mentor, Angel investor and Co-founder of InnerChef, said on Twitter that he will not invest in startups until the government provides clarity. He will continue to mentor startups, though.
“You (the government) are effectively killing startups. With no early stage investments, how can a startup ecosystem flourish,” says a founder, who currently is seeking angel investment. Another founder is thinking of moving overseas:
“I am, in fact, thinking of registering my startup in Singapore or in San Francisco. As a founder, I don’t need income tax benefit, I need Angel Tax to be removed. It will make it easier for my startup to raise funds, and focus on developing my product if it is out of India.”
Despite numerous assurances, what remains be seen is what the government will do to sort the issue out once and for all – and not just of Angel Tax, but of Section 68 as well, for the danger here is that two sections of the IT Act can kill an ecosystem that is just about beginning to mature.
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