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Summer internship presentation development process of startups from start to maturity

Startups have been the flavour of the season over the last few years for the Indian markets. This has resulted into the emergence of a number of home grown unicorns across the country. One of the major contributors leading to this development has been the mega funding that has been ploughed into most of these unicorns between the period 2007 and 2015. This has been in line with the global trend dominating the space. Even the aspiring unicorns have had a decent run during this period, where managing to find investors is usually considered a tough task. The trends of investments suggest that investors want to enter as an early investor, even before the start of the firm.

From an overall viewing, India comes across as a thriving under-penetrated consumer driven market with a scope for exponential growth. Internet penetration and its increasing importance will drive most of the businesses. On account of the consumer demographics, with China being out of bounds, India offers the largest pie of investment opportunity that the world is eyeing. This is despite the multitude of operational, regulatory and taxation issues that surround the business running environment in India. However, 2015 has turned out to be a year offering a bit of a reality check to one and all and redefined the dynamics to a great extent. The year also set the tone for the next stage in the evolution of the startup ecosystem. The maturity in decision making that should ideally come in at this stage would be a step in the right direction taking the startup space in India towards greater heights, as it deserves.

The larger problems plaguing the businesses, such as the unorganized and fragmented Indian market, lack of clear and transparent policy initiatives, lack of infrastructure, lack of knowledge and exposure, complications in doing business, etc. are at least now being identified as issues that need to be addressed. The framework and course of regulations need to be updated and adopted as per the times. The right policy matter announcements by lawmakers can be a push. In times like these, pro-reforms announcements are required to provide the much needed impetus to the general business environment in the country in the startup space. To create awareness and building an entrepreneurial environment, a lot of emphasis should now be given to creating infrastructure for mentoring startups. Various stakeholders such as the government, corporate, educational institutions and others are and should join hands to build a better ecosystem for young people. I understand that the Commerce Ministry is planning to build an online portal for information sharing among various stakeholders including incubators/accelerators, angel investors, VC funds and government departments. Also, I understand that other such initiatives are in the pipeline and are expected to be rolled out in due course.

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Summer internship presentation development process of startups from start to maturity

  1. 1. Summer Internship Presentation Development Process of Startups from Start to Maturity Dinesh Kumar, PGDM - 87
  2. 2. About Starters’ CFO • Starters’ CFO is a virtual Chief Financial Officer for startups offering complete financial and taxation services including – management consultancy, tax consultancy, accounting services, secretarial services financial accounting consultants, payroll management and other financial service. etc. • They are a professional firm having our presence in different cities across India and abroad. • Their team is proactively and efficiently assisting more than 125+ startups with their regular compliances. • Privilege clients include alumnus of IIT Delhi, IIT Varanasi, IIT Indore, IIT Bombay, BITS Pilani, IIT Roorkee, NSIT, DTU, ISB HYB. etc.
  3. 3. Start a Business Start-up Special Registrations Business Maintenance Services ROC Return Filing Winding-Up Overview of Services
  4. 4. OBJECTIVES Understanding the concept of the startup ecosystem Understanding the structuring of the startups Analyzing what sort of entity a startup would like to function Study on the issues that startups are not aware of once they are incorporated Understanding the myriad of contracts startups enter Specific risks faced by the startups in which they are operating Analysis of various stages in the growth of the startup and seeking investments at different stages of their lifecycle Analyzing the due diligence process by investors and financers Study on the exit routes for startup at the time of their maturity Analyzing different ways of leveraging Intellectual Property for startups
  5. 5. Overview of the Project Startup India Action Plan and Policy Structuring of Startups Incorporating a LLP in India Incorporating a Company in India Basic Documentation Seeking Investment from Angel Investors Applicable Employment Laws Risk Management Leveraging IP Financing Maturity
  6. 6. Start-up India Action Plan and Policies
  7. 7. Setting up of Incubation Centers Setting up of INR 10,000 Cr. Corpus Fund Easier Patent Filings Tax Exemption on Profits Ease of setting up of Business Faster exit mechanism Startup India – Action Plan
  8. 8. Stages of a Start-up Cycle
  9. 9. An Entity Pvt Ltd Co./ LLP Definition of a Start-up Tenure < 5 Years Turnover < 25 Crores Innovation, Development, Deployment, Commercialization
  10. 10. Recognition as a Start-up Recommendation (in ‘DIPP’ Format) from Incubator in PG college Letter of Support by Incubator funded by Government Recommendation (in ‘DIPP’ Format) from Incubator Recognized by Government Letter of funding by Government of India or any State Government Letter of funding of not less than 20 per cent in equity A patent filed and published in the Journal by the Indian Patent Office
  11. 11. Pvt Ltd/ Partnership/ LLP DIPP Whether Tax Benefits and IPR benefits Required No Yes Recognition Inter- Ministerial Board •JS, DIPP •DST •DB Application
  12. 12. Startup India Action Plan and Policy Incentives given by RBI Tax Incentives Incentives of Ease of Doing Business
  13. 13. Intellectual property lead global business Indian promoters/founders investing outside India Flipping business to go global Potential tax implication arising from promoters/founders conducting business of offshore company in India Structuring
  14. 14. Incorporating a Business Governing Act Types of Business Entity Incorporation Process (as per Companies Act, 2013) along with timelines Post Incorporation Steps Royalties and Fees for Technical Services
  15. 15. Confidentiality and Non-Disclosure Agreement Offer Letter/Employment Agreements Non-Competition and Non-Solicitation Agreements Intellectual Property Assignment Agreement HR Policy/Employee Handbook ESOP’s Basic Documentation
  16. 16. Factories Act, 1948 Shops and Commercial Establishments Act Industrial Employment (Standing orders Act, 1946 Contract Labour Act, 1970 Maternity Benefit Act, 1961 Sexual Harassment of Women at Workplace Act, 2013 Minimum Wages Act, 1948 Employees’ Provident Funds and Miscellaneous Pro- visions Act, 1952 (‘EPF Act’) In total 19 Employment laws Applicable Employment Laws
  17. 17. Funding
  18. 18. Information Memorandum/ Business Plan Copy of charter documents and any existing founders agreement Draft term sheet Seeking Investments from Angel Investors
  19. 19. What is a Term-sheet? “Letter of Intent”, “Memorandum of Understanding”, “Agreement in Principle” First major step in transaction -Focus on the deal is at its maximum -Gives road map for lawyers to draft actual docs More detail generally better (especially for the company)
  20. 20. Valuation • Percentage of Company Control • Board Composition, • Protective Provisions and • Restrictions on Founders Stock Exit Strategy • Redemption • IPO –Registration Rights • Acquisition –Liquidation Preference Down- side Protection • Anti-dilution adjustment Principles of Term-sheets
  21. 21. For an E- commerce/Internet based company The IT Act, 2000 Content Regulation Risk Management
  22. 22. Leveraging IP Patents Trademarks Trade SecretsCopyrights
  23. 23. •CCPS •CCD’sFinancing •IPO •M&AMaturity
  24. 24. India is amongst the top five countries in the world in terms of startups. US ranks number one on the list with 83,000+ startups. Findings and Interpretation
  25. 25. Findings and Interpretation Indian startup industry composition
  26. 26. India is ranked 130th out of 189 economies on the ease of doing business, 133rd on the ease of trading across borders and 157th on the ease of paying taxes; India is ranked 155th in case of starting a business; On an average, Indian businesses need to make 33 tax payments annually with around 243 hours spent to prepare and pay taxes in a year. In contrast, China requires just nine tax payments annually, while the US doesn’t trouble its taxpayers more than 11 times annually for tax payments; Among South Asian economies, India made the biggest improvement in business regulation, increasing its distance to frontier score. Challenges faced by the startups According to the World Bank’s Report: Ease of Doing Business
  27. 27. Challenges faced by the startups Culture and Awareness Social Issues Technological Issues Financial Issues Sustainability Issues Regulatory Issues
  28. 28. Geographies of Startups (2011-2015)
  29. 29. Dilution over Lifecycle of startups Year 0 1 2 3 4 Start Initial Hires Seed Round Create Pool VC Round Pool Refresh 2nd VC round Founders 100% 90% 68.4% 59.9% 44.9% 43.2% 32.4% Seed Investors 0.0% 0.0% 24.0% 21.0% 15.8% 15.2% 11.4% Initial VC Investors 0.0% 0.0% 0.0% 0.0% 25.0% 24.1% 18.1% Later VC Investors 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 25.0% Early Employees + Advisors 0.0% 10.0% 7.6% 6.7% 5.0% 4.8% 3.6% Employee Pool 0.0% 0.0% 0.0% 12.5% 9.4% 13.0% 9.8% Total 100% 100% 100% 100% 100% 100% 100%
  30. 30. Recommendations Government Policy Funding Marketing
  31. 31. A wide gamut of services including the rules, regulations, and application of various agreements for which two months were not sufficient and further extension to pursue the internship was not granted even on request. In my view, a minimum of four months are required to understand the application of compliances properly and to get well versed with the operations and the technical jargon. However, the privacy policies of Starters’ CFO were very stringent. Therefore, data was hypothetically modified before incorporating the same in this project. Also, in the startup ecosystem since the new policies and regulations are been constantly revised and formulated therefore there is lack of stability and clarity on some issues. Limitations The entire project of understanding and analyzing various aspects of the startup ecosystem i.e. the processes involved from start to maturity, involved:
  32. 32. Clean Electric Pvt Ltd Our Clients Kreatryx (IIT Indore) Control N Solutions (IIT Bombay) My Ti (BITS PILANI) Mad Guys Lab (IIT Roorkee) Clean Electric Private Limited (IIT Varanasi) ZIKR Studio (IIT Delhi) Angel Hearts (ISB HYB.)
  33. 33. Our Clients Tominto Drive Bud Credofy Accuit Technologies Telispire Ink Tree Desi Chain Bigzoo Techguard