What’s the state of financing in Karnataka

4th Feb 2016
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The State, which is home to the technology capital of India, had its message clear to the world, asking investors to spend and innovate in Karnataka, as it readies itself to become a thriving hotbed of opportunities.

But what happens to the pumping of finances into businesses and projects, especially when Bengaluru is ranked as the second fastest growing startup ecosystem in the world.

Speaking on the occasion was M.C. Dinesh, Senior Vice President, FICCI, who laid the foundation for a panel discussion, by highlighting the lack of awareness and availability of funds. His grievance was the huge amount of processes to be followed while raising credit, which becomes an impediment for entrepreneurs.

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Is there anything for startups?

Agreeing with him was Ramesh Kanan, Managing Director, Kaynes Technologies, who started his business in the 80s.He raised the point about how legal norms for raising funds have not changed since.

He said,“Banks and funding agents need to come out and understand what type of funding is required for businesses. Different businesses have different monetary needs. Moreover, legal compliances should improve, with the government getting in ratings for big buyers while assigning them funds.”

Ramesh recalled how fund was always a crisis at the time he started up, with limited options from State financing agents, but prevalence of soft loan and seed capital. Today, there is much more angel investment, with more creative private equity funds as options.

Srikanth Sundararajan, Venture Partner from Helion Ventures, echoed Ramesh's grouse. Comparing his experiences with the ecosystem in the US, Srikanth pointed out how incorporating and getting seed fund to startup was a faster process there. Moreover, there are phenomenal tax credits given to early-stage businesses with an opportunity to plough back their profits. He felt that it was time India made a move towards creating a robust ecosystem that boasted a perfect mixture of good academics, seed funding and mentoring.

He said,“The conventional funding system in India is quite bad. The system asks for 10 information points but never uses them. What’s the point then?”

The ‘Startup India’ initiative introduced by the government on January 16 deals with these grievances head on. However, the devil is in the detail. It will all depend on how the Central government implements and works on the promises.

But with the spotlight perennially on funding, one can't help but question whether VC funding makes intellectual capital irrelevant, as more startups run towards creating profitable funds.

According to Prashanth Prakash from Accel Partners, that really depended on the VC firm. He explained that there are two types of VCs in market, one that focusses on company building, while the other on just team-building and not wanting to get its hands dirty. With the recent rise of ‘disruptive’ entrepreneurship, it’s not just the cash but also brains that has made some companies game changers, he said.

Prashanth added, “India has an advantage of doing frugal innovation. Thus, with the Make in India initiative, the real challenge which should perplex the startup ecosystem is that how to create frugal innovation from India, which has relevance globally across boards.”

Are public banks bad funding options? 

For the past month, the RBI has mandated that public banks should clean up their balance sheets as quick as possible. This raisesthe question whether it will affect their ability to give credit to startups.

Sharad Sharma, Managing Director, State Bank of Mysore, said that there is nothing to worry about, adding that even today 70 percent of banking in India is handled by the 28 public sector banks in the country.None of the public banks feel strained about the mandate, he said.

However, the cleaning of balance sheets raises the other issue that with the creation of late defaulters smaller loan takers are affected, and forced to come under the same scrutiny.

Sharad said that bankruptcy law,unfortunately, doesn’t discriminate between small and big defaulters. The bankruptcy code is still a point of discussion in the Parliament and banks will be happy if it is passed.

Another recent development of payment banks created tremors, with a possible threat to bigger banks and players in the segment.

Satish Kamat, General Manager, Credits, Syndicate Bank felt that there was enough for multiple players to operate in the space with no effect on the bigger banks. However, he didn't deny that the space became more competitive, with the need for bigger players to look at how fast credit can be delivered to help businesses. Moreover, he also felt that public banks are not differential and are also catching up with the technology and the way they deliver their products.

Thus, summing up for entrepreneurs and MSMEs, there are more funding options rising from lending institutions, despite policies not really complementing the cause. The interest amongst banks to fund a startup is definitely aroused. However, it is also important to take into account the different ways businesses can raise their funding.

To close on an example, exporting goods to loan-struck countries from India can be a possible option for Export Import Bank. India gives as much as $5 billion in loan to African countries every five years. There could be possible business opportunities that could be tapped there.

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