Startups - A new image of new India

Introduction
A start-up is a type of business venture that is usually a new and rapidly growing company. The goal of a start-up is to identify an unmet need and create a profitable business model around an innovative product, service, process or platform.

A startup is usually a company designed to effectively develop and validate a scalable business model.

Startup India policy
The Indian government launched the “Startup India” initiative in 2015, aimed at promoting entrepreneurship and innovation. Some of the key elements of this initiative include:

Funds of Funds
A “Fund for Startups” has been created by the government through the Small Industries Development Bank of India (SIDBI) with a corpus of Rs. 10,000 crores. The fund invests in equity and equity-linked instruments of various startups.
Credit Guarantee Fund for Startups
To reduce the perceived high risk of debt funding for startups, the government has established a Credit Guarantee Fund for Startups with a corpus of Rs. 500 crore per year for the next four years. This will provide credit guarantee coverage to banks and lending institutions that provide loans to startups.
Tax Incentives
Startups can benefit from a range of tax incentives, including:
1. Income Tax Exemption on profits under Section 80-IAC of Income Tax Act, 1961 for private limited companies or limited liability partnerships that are incorporated after April 1, 2016 and before March 31, 2023 and meet certain conditions.
2. Exemption from tax on investments above Fair Market Value under Section 56(2)(viib) of the Income Tax Act, 1961.
3. Exemption from tax on long-term capital gains under Section 54EE in the Income Tax Act, 1961, if invested in a fund notified by the central government, with a maximum exemption of Rs. 50 Lakhs.
4. Carry forward of losses under Section 79 of Income Tax Act, subject to certain conditions.
Legal Support and Fast-tracking Patent Examination at Lower Costs
The Startups IPR Protection (SIPP) scheme has been introduced to facilitate the fast-tracking of patents, trademarks, and designs by startups. The fee for filing patents has also been reduced by up to 80% for startups.
Self-Certification based Compliance Regime
Compliance norms relating to environmental and labour laws have been relaxed to reduce the regulatory burden on startups, allowing them to focus on their core business.

Eligibility of becoming startup company
To be considered as a startup, an entity must:

Be incorporated as a private limited company, limited liability partnership, or firm for a period of ten years from the date of incorporation.
Have a turnover of less than Rs. 100 crores for any financial year since incorporation.
Be working towards innovation, development or improvement of products or processes or services, or have a scalable business model with high potential for employment generation or wealth creation.

Recognition as a startup

Recognition as a startup is achieved by making an online application through the mobile app or portal set up by the Department for Promotion of Industry and Internal Trade (DPIIT).
The application must be accompanied by a copy of the Certificate of Incorporation or registration and a write-up about the nature of the business highlighting its innovation, development, or scalability.
The DPIIT may then recognize the eligible entity as a startup or reject the application, providing reasons in writing.

Financing options available to startup companies

Characteristics of Investment	Equity Financing	Debt Financing	Grants
Nature	There is no component of repayment of the invested funds.	Invested Funds to be repaid within a stipulated time frame with interest.	There is no component of repayment of the invested funds.
Risk	Risk factor for the investor is higher as he has no guarantee against his investment.	Risk Factor for the investor is lower as he generally has collateral against his investment.	There is no risk factor for the startup as no collateral is involved.
Pressure for Repayment	Less pressure for startups to adhere to a repayment timeline but added pressure from investors to achieve growth targets.	More pressure for startups to adhere to repayment timeline and as a result, more pressure to generate cash flows to meet interest repayments.	No pressure for repayment as grants are a form of monetary support provided for a specific purpose.
Return to Investor	Capital growth for Investors.	Interest payments.	No Return.
Involvement in Decisions	Equity Fund Investors usually prefer to involve themselves in decision making process.	Debt Fund have very less involvement in decision making.	No direct involvement in decision making.
Sources	Angel Investors, Self- financing, Family and Friends, Venture Capitalists, Crowd Funding, Incubators/ Accelerators.	Banks, Non-Banking Financial Institutions,Government Loan Schemes.	Central Government, State Governments, Corporate Challenges, Grant Programs of Private Entities.

Conclusion
Startups are a driving force in the pursuit of solutions to humanity’s most pressing problems. Their agility and flexibility enable them to quickly respond to emerging issues and develop innovative solutions, making them key players in accelerating progress. The startup environment fosters the rapid prototyping and testing of a vast array of ideas, fuelling the search for better solutions to the world’s challenges.

Written by – Kishan Lohia

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