"How to start a business in India with a little support?" - An Investment Banker's Insight

The answer to the question about how to start a business in India is all dependent on the level of motivation. The current rate at which the Indian market is growing is a dream come true for entrepreneurs of all sectors. After India experienced the economic boom, it attracted the attention of the world over. Given plenty of such opportunities, and backed by an enabling environment in the form of a growing economy, a significant middle-class, a young population, and an optimistic investor community; India has seen a flurry of entrepreneurial activity in the past decade and is poised for a lot more.

Start-ups in varied sectors have done well so far with a lot of aspects required for running a successful business, turning in their favour. The pre-dominant feature of start-ups has been to leverage technology, most importantly information technology for providing an array of services right from booking cabs to managing someone’s health. The spread of broadband and smart phones have only led to frenzy in the E-Commerce sector.

Tourism has also been another high growth sector which has seen niche travel options being offered by travel enthusiasts. The typical pattern is that the cheapening of information technology has allowed niche markets to emerge.

Getting back to how to start a business in India, start-ups need to be a company registered having one of the several legal avatars, as the investors and the entrepreneurs see fit. Business enterprises can take several forms – legally speaking - depending on business objectives, the scale of operations, the number of partners and how liabilities is agreed to be shared.

The business could be For-Profit or Not-For-Profit. Focusing on For-Profit ventures, business forms could be Sole Proprietorship, Partnerships, Limited Liability Partnership (LLP) or a Private/Public Company.

Start-ups are rarely an individualistic affair and therefore seldom fall in the sole-proprietorship category. Start-ups with more than one entrepreneur-partner can carry on as simple partnerships without having to register. However this structure implies that each partner has an unlimited liability for any debts incurred on behalf of the partnership firm.

A more feasible form is a limited liability partnership or a company where liability is limited to capital contributed. Investors funding start-ups go for either of the forms depending on what is most efficient.

Almost every start-up faces the never ending issue of a steady cash flow. Thankfully for them, there are financers out there who are willing to bet on the survival and success of promising start-ups. The investment community consists of several parties including seed funders, angel investors, venture capitalists, Private Equity Firms, etc.

Seed Funding is the first round of funding that an entrepreneur receives and is normally provided by provided by Family and Friends, although there is also a seed funding community that takes active interest in funding early stage start ups. The amount received is not usually enough to sustain the business, so promoters normally look out for further investment.

Angel investors, instead invest their own money in small amounts but in many more ventures. They normally prefer investing in a particular industry that they feel will yield them better returns in the long run.

Venture capital – is a pooled fund, professional investors use to bet on ideas. Financing occurs at several stages, and the funds are used to scale up the business. Venture capitalist usually only prefer investing above a certain threshold and stay invested for 3-5 years.

Private Equity funds invest in start ups on similar lines to a VC, although they scale up investments to a much higher level. They normally enter start ups at a later stage once they are more mature. The quantum of investment by PE’s is also huge. They normally diversify their portfolios to minimize risk and maximize returns.

Start-ups need to pay close attention to the basic processes that a firm needs in order to function effectively with the help tools like accounting. Understanding the laws of the land and recruitment of people to expand operations are aspects that cannot be overlooked. Themis looks at these operational sides of a business, managing almost routine affairs like accounting, a raft of legal rules and help in getting all statutory & even internal policies and procedures in place by embedding themselves in their clients’ operations and help them to focus on their core competencies.

India ranks 166th of the 183 countries, when it comes to starting a business as found by the World Banks Doing Business Survey. Notwithstanding the legal maze, a combination of enthusiastic investment community, a diverse pool of talented minds, and the possibility of a massive impact, there is a flurry of start-up activity. With social shifts giving a slight sheen to the tag ‘entrepreneur’ and an enabling eco-system, times could never have been better for entrepreneurs today.

Nibhrant Shah is an ex investment banker who started a company called Themis that provides start-ups with everything they need to get up and running — Book-keeping, Taxation, HR and Company Secretarial functions. So far, their happy clientele includes over 50 start-ups and is growing quickly.