Fund crunch, rules ground start-ups

DC | K.T.P. RADHIKA
Published Feb 23, 2015, 11:32 am IST
Updated Jan 10, 2016, 8:38 am IST
70 per cent of start-ups in Chennai fail after running for a year or two
Representational image
 Representational image
ChennaiThanks to lack of sufficient private incubators and savvy regulations, start-ups in Chennai are staring at a big crisis. Industry experts say that over 70 per cent of start-ups in Chennai fail after running for a year or two. While this is a figure not more than the national average, Chennai start-ups are fighting way too many odds, it seems.
 
According to Chandu Nair, entrepreneur and start-up advisor, one of the reasons behind this crisis is that the start-up eco-system in Chennai is not mature enough. The city has around 12 major incubation centres which groom over 60 start-ups a year on an average. The number is increasing every year.
 
However, venture capital (VC) and angel investment eco-systems are not developed enough, said Nair. “Most VCs are in Bengaluru and we have only four or five such companies in Chennai. Thus, funding becomes a problem for start-ups,” he said.
 
Shripati Acharya, managing partner, Angel Prime, an angel investment firm, agreed. Angel investments are mostly localised in nature, he said. “Most often, we are looking for companies we can meet personally and frequently. Thus, companies in cities such as Bengaluru find it easier to get funds.” The start-up eco-system in Bengaluru is also more organically formed. “There are more companies and more technical talent available. As a result, more investment flows to Bengaluru,” he said. Angle Prime has currently invested in six companies in India’s Silicon Valley against one in Chennai.
 
In fact, Chennai has academic as well as private incubators, according to Dr Tamaswati Ghosh, in-charge, IIT Madras incubation cell, the institution which incubates the maximum number of start-ups in Chennai. “Academic incubation cells in IIT-Madras, Anna University, Madras University, etc., have been here for quite some time,” she said. However, unlike cities like Bengaluru where they have mature private incubation centres, private incubators are only now emerging in Chennai.
 
Another area of concern is the lack of right mentors. Says Ghosh, “Often, many mentors focus on technology rather than on the market because most of them come from a technology background. The government has to really involve both academia and industry to give them right guidance.”
 
Complicated regulatory process is another hurdle where many start-ups fall. According to the Companies Act 2013, there are many compliances that a person has to follow to start a company. With so many regulations and procedures, start-ups really struggle to make it work. “If they do not follow these agreements, there is a huge penalty lined up,” Ghosh said.
 
Varun Sridharan, a Chennai based entrepreneur, echoed the sentiment. He noticed that a start-up has to get manymandatory licences. “If the entrepreneur is not well-versed in the procedures or lacks professional support, he will lose a lot of energy. A single window clearance system might ease the process,” he said.
 
Strangely, even the way one dresses up matters in getting some licences quickly, revealed a young entrepreneur. “Young people wearing jeans and T-shirts are finding it difficult to get things done, compared to those who dress formally,” he said.
 
But not everyone is pessimistic. “Chennai is a late bloomer in the start-up eco-system,” says Akhila Rajeshwar, executive director, TiE Chennai. “Early offshore sites in the country sprouted in Bengaluru first, as did early software manpower export companies in Mumbai. This gave a natural lead to both those cities.” Rajeshwar feels that the city is now attracting a number of investors thanks to the wealth of home-grown entrepreneurs who are innovating in domestic markets. “The younger generation is picking up on the ambition of the leading cities and finding success, leading to more interest in the community as a whole,” she added.
 
According to K. Gopalakrishnan, chairman, Tanstia-FNF Service Centre, a collaborative venture between the Tamil Nadu small and tiny industries association and Friedrich Naumann Stiftung Foundation, the state has several schemes to support start-ups.
 
“For a person to start a company, the state industries and commerce ministry gives 25 per cent subsidy on the initial investment. Apart from this, state government started a scheme called New Entrepreneur cum Enterprise Development Scheme (NEEDS) two years ago,” As per the Needs scheme, a first generation entrepreneur will get seed capital of 30 per cent of his/her investment. But, awareness about these schemes is yet to pick up. To make these schemes more fruitful, the government has to spread the word, said Nair.
 
Location: Tamil Nadu

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