A professor from Harvard University has said incentives are required to build entrepreneurship eco-system in India.
“To build an entire eco-system in a short time, competitions and incentives have been the tool to encourage innovation in the developed world. Similarly, in India’s context, competitions can be used particular to expedite rural development and social inclusion,” said Tarun Khanna, Harvard University professor and Chairman of NITI Aayog's Expert Committee on Innovation and Entrepreneurship.
“Though this mechanism is by no means an infallible method, it encourages entrepreneurship. It can help in incentive-creation for entrepreneurship in the absence of a fully functional patent system,” he added.
India’s strong scientific knowledge base can also be used for development. It should be harnessed to solve the country’s most dire socio-economic problems. If India is able to successfully achieve this, the model can be replicated across the developing world, he said and added, “There is a strong case to use local talent to develop solutions to local rural problems.”
Access to capital Access to capital is a critical ingredient for start-up success. In India, entrepreneurs struggle to obtain funding. Entrepreneurs spend an average of four-to-five times more effort raising funds compared with their American counterparts, Khanna said.
Access to funds is even more constrained for the economically deprived and for women. Recent survey showed that economically backward youth, 97 per cent of respondents stated that access to capital was a barrier to entrepreneurship. Followed by adequate training, mentorship, access to capital and a supportive ecosystem, he added.
Equal measures of these could unleash a rural start-up boom. Further, rural youth are also keen on self-employment.
Private equity Khanna said that much of invested private equity and venture capital (VC) funds are directed towards the e-commerce sector. As a result, large swathes of entrepreneurs struggle to secure capital.
Another issue is the lack of funding available at the seed funding and angel stage. Angel investments in India comprise only 7 per cent of early-stage investing as compared to 75 per cent in the US. VCs in India tend to prefer later-stage type funding to companies that are already generating revenues, which would ideally attract PE investments.
They also prefer to make large investments in a handful of companies, in the range of ₹3 crore to ₹5 crore. Consequently, smaller start-ups, that need funding in the range of ₹25 lakh to ₹50 lakh, are often overlooked.