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Expanding The Start-up Ecosystem: Big corporations take up bigger roles, but stakes need to be raised

With angel investors and venture capital firms lifting their foot off the funding gas pedal, start-ups in India are for financial resources to not only survive but also for growing the market they’re in.

Written by Pranav Mukul | New Delhi | Published: August 30, 2016 4:08 am
startups, startups  in india, e-commerce, e-commerce india, business news The larger corporate involvement in start-ups, though, would have to come closer than the current arm’s length relationships, according to experts.

Marquee firms such as Amazon, IBM, BSNL, Vodafone that are partnering with the Karnataka government on a novel approach to encourage the start-up ecosystem by promoting technological start-ups are optimistic about expanding the incubation model to foster entrepreneurial ecosystems across the country. The larger corporate involvement in start-ups, though, would have to come closer than the current arm’s length relationships, according to experts.

On July 25, the Karnataka government announced a booster kit for start-ups bringing big names such as Amazon Web Services (AWS), IBM, BSNL and Vodafone on-board to offer subsidised and discounted offerings for their services to start-ups registered with the state administration.

The state has partnered with Amazon Web Services, IBM, Microsoft Bizspark, Digital Ocean, and KEONICS for cloud services. For providing virtual telephony and Internet services, mGage, Knowlarity, Exotel, Ozonetel, BSNL, and Vodafone have come on board. Payment gateways such as Citrus, Razorpay, InstaMojo and ProfitBooks have also agreed to associate themselves with the initiative.

While Amazon would offer cloud credits of up to $3,000 under its AWS Activate Program, IBM will offer a suite of cloud services worth nearly $10,000. Telecom companies BSNL and Vodafone would offer discounted rates for their internet and leased line services. Amazon Web Services has designed a programme called AWS Activate to provide start-ups with the resources they need to get started on AWS. This includes credits for AWS Services, technical and training support, among other benefits.

“We will be liaising directly with the incubators/accelerators/seed-funds that the Karnataka Government will be supporting to avail these activate benefits,” said Gaurav Arora, head of start-up ecosystem, Asia-Pacific, AWS. He also said that the cloud services company has already gone nationwide with its benefits program. Apart from signing a memorandum of understanding with Niti Aayog to extend AWS Activate benefits to start-ups across India, the company is also engaging with other state governments too.

“We have had similar discussions and offered support to Telangana, Andhra Pradesh and Maharashtra Government start-up initiatives. Our model of engagement is consistent and objective as called out earlier. That’s the only way to support the larger start-up ecosystem in India at scale,” Arora said.

An official with BSNL’s Karnataka unit said that for the telecom company, the exercise means a dedicated customer in the form of the start-up it served would come on-board, and considering the scale of the state-run company, it wouldn’t have a problem in expanding this model countrywide.

“What basically every state government or the national government has to do is create an entrepreneurial ecosystem. In that it has various elements like government policy regulations, funding, mentors, support system, etc. If the government is able to create that entrepreneur and make this ecosystem a success, definitely it can be replicated not only in different states but also at the national level itself,” said Sajai Singh, partner at law firm J. Sagar Associates.

Pragya Singh of advisory firm Technopak said, “This is a good consolidation platform because even if 10 per cent of these start-ups make it to the next step, the big firms that are participating in this initiative will find new set of users”.

“At the same time, it would create a goodwill for them in a way that they’re supporting these entrepreneurs. A national company would be very much interested in supporting the start-up system countrywide as it helps in ensuring a future set of users or future revenue accounts,” she added.

However, there are those who also believe that simply offering subsidised and discounted products may not be enough to provide the boost that the start-up industry currently needs from the corporate sector at a time when the VC funding in the country seems to be decelerating.

With angel investors and venture capital firms lifting their foot off the funding gas pedal, start-ups in India are for financial resources to not only survive but also for growing the market they’re in.

“We’ve witnessed in foreign countries that start-up businesses are actually taken over by existing corporates, and they’re also inducted into the value chain of existing businesses. That is another model of success for start-ups rather than just creating new business houses everywhere,” said Anjan Das, executive director-technology, CII.

“The corporate sector needs to do more than hand-holding or mentoring for start-ups, and subsidising some services is not the only thing required. I’m not saying that’s a bad model, but other things are also necessary to make the whole program is successful,” Das added.

He said that the corporate sector should not look only at the financing aspect of the start-up industry, suggesting that bigger traditional firms could also plan inducting certain start-ups, which they back, into their own value chain. For that, Das said, corporates should move beyond discounts and subsidies and identify start-ups in which they can pick stakes.

“Right now start-ups are running on charity in a sense that they will have some mentor who does not have any stake in it. So corporate sector, apart from being involved in mentoring, should also put some stake into it,” Das said.

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