India rupee banknotes at a cash counter (Photographer: Dhiraj Singh/Bloomberg)  

Startup Street: Indian States Need To Buy More From Startups

This week on Startup Street, a deep dive into India’s state-wise startup ranking shows how the country has a lot to improve in public procurement from startups. Asia’s oldest stock exchange launches a platform to list startups. And how Flipkart co-founders are making a comeback. Here’s what went on:

State Procurement From Startups Remains Dismal

India’s startup ecosystem has grown exponentially over the past five years, particularly with substantial incubation and seed funding support from the state governments. Yet, there remains a sizeable void when it comes to public procurement from startups.

The government support in procuring goods and services from startups in majority of the states is “below average” and an area for improvement, according to the National Report on State Startup Rankings released earlier this week. “There is an immediate need for reforms to ease public procurement for startups.”

Public procurement, which according to the government is one of the pillars of a healthy startup ecosystem, had the lowest national average score in the assessment of seven such pillars. Out of 14 points, the national average stood at a meagre 1.27. Only three states could cross the 50 percent benchmark for reforms for procuring from startups.

Score based on number of reforms implemented for easing public procurement. (Source: National Report On Startup State Ranking 2018)
Score based on number of reforms implemented for easing public procurement. (Source: National Report On Startup State Ranking 2018)

Governments are one of the biggest procurers of goods and services in the country and winning a tender from them is highly valued. However, when a tender is floated by a government or a state-run unit, very often the eligibility criteria includes “prior experience” or “prior turnover”. “Such a stipulation impedes startups from participating in such tenders,” the report said.

The report, launched by the Department of Industrial Policy and Promotion, suggested removing the prior experience and turnover criteria, along with doing away with the criteria that requires an earnest money deposit for the tender.

States should also give preferences to homegrown startups for government procurement, like having a preferential purchase policy where at least 15 percent of the products are procured from local small business and startups.

The report cited the “exemplary performance” by Chhattisgarh, Gujarat and Odisha in easing public procurement. All three states have done away with criteria of prior experience, turnover and money deposit for tenders. The states have also “scrupulously” directed all government offices to follow the above provisions.

Similarly, Bihar and Madhya Pradesh have put in place rules to give preference to small businesses and startups for procurement.

But a lot more needs to be done. “Clearly, action points in this pillar of the ranking framework remain very high and critical on the selected areas of improvement going forward.”

Also read: Gujarat Tops India’s Startup Rankings

Get Listed On Asia’s Oldest Stock Exchange

An electronic ticker board displays stock figures outside the Bombay Stock Exchange building in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)  
An electronic ticker board displays stock figures outside the Bombay Stock Exchange building in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)  

Listing startups on the Bombay Stock Exchange just got easier.

Asia’s oldest stock exchange has launched BSE Startups, a new platform for entrepreneurs to list their startup. “Indian youngsters need to get involved in creating more startups and raise funds from other Indians using BSE Startups platform,” BSE managing director and chief executive Ashishkumar Chauhan said in a media statement. “The future belongs to startups and BSE Startups segment.”

The exchange has tied up with two venture capital firms—Cornerstone Venrtures Investment Advisers LLP and Venture Catalysts Pvt. Ltd.—as part of the launch. “The strategic collaboration with the two firms will enable BSE to further incentivise the startup firms in sectors like IT, ITeS, biotechnology and life sciences, 3D printing, space technology and e-commerce,” the statement said.

The platform will also help in listing of firms from sectors like hi-tech defence, drones, nano technologies, artificial intelligence, big data, virtual reality, e-gaming, robotics and genetic engineering.

“Thousands of young hi-tech companies should come and raise funds from discerning investors on this platform helping immense wealth creation for entrepreneurs, investors and the country as well as creating millions of jobs,” Chauhan said.

The Bansals Chart Their Comeback

Flipkart co-founders Sachin Bansal and Binny Bansal are looking at new ventures to return to India’s startup ecosystem after both, on two separate occasions, exited from the e-commerce company they created.

Binny Bansal and Sachin Bansal (Source: Flipkart)
Binny Bansal and Sachin Bansal (Source: Flipkart)

Sachin Bansal has registered a new venture—BAC Acquisitions Pvt. Ltd.— with a friend and former investment banker Ankit Agarwal, according to a Inc42 report citing filings with the Registrar of Companies. Reports had earlier surfaced that Sachin would establish a holding company to run new businesses and make venture investments.

The new venture is expected to invest in agritech and fintech sectors, according to the news report.

Binny Bansal, on the other hand, is finalising a $25 million investment in digital insurance startup Acko, according to a report in The Economic Times which cited three people familiar with the matter. Acko is also backed by Jeff Bezos’ Amazon.

The ET report said that Acko had earlier engaged with Sachin Bansal for a similar fund infusion but that deal wasn’t sealed. The source said that Binny would help in scaling up Acko at a time when the startup is already growing.

The two Bansals, who are not related, had both left Flipkart earlier this year following a $16 billion takeover by retail giant Walmart.

Sachin had quit just a day after the deal’s announcement in May, saying he wanted to take some time off to finish a few personal pending projects and brush up his coding skills. Binny stepped down as Flipkart CEO last month after an investigation into alleged “serious personal misconduct” even as he denied the charges.

In their personal capacities, both have remained active investors in the startup ecosystem. According to Crunchbase, Binny has invested in 27 startups that include names like SigTuple, CureFit and Avail Finance. Sachin has seven investments that also include SigTuple, scooter startup Ather Energy and news aggregator Inshorts.

Angels And Demons

Last week, India’s startup scene was flooded with debates over the angel tax to be levied by the country’s tax department on funding received by startups from an early stage investor.

Startup founders and entrepreneurs took to social media over the last few days to express their anguish over the tax which many termed “draconian”. One of their main complaints was with the “angel tax” notices that they kept receiving from the tax department.

Here’s BloombergQuint’s coverage of the issue.