Setting up a business and complying with regulations are big concerns, say startup founders.
Seed funding for new startups has dramatically fallen by 50 per cent this year because of an unfriendly taxation regime, industry body NASSCOM said on Thursday, even as India has just recently broken into the top 100 countries in the Ease of Doing Business rankings of World Bank.
At NASSCOM's product conclave in Bengaluru, where the body released its report, one of the participants was Hyderabad-based Hug Innovations, which makes low-cost fitness trackers and safety products, and a zombie-killing game that uses hand motions that do not need to be captured by a camera. However, Raj Neravati, the Founder and CEO of Hug Innovations said, that 'killing zombies is much easier than getting seed funding'.
"For three years I tried to get funding but all my work experience in technology and my achievements counted for nothing. I wanted $10 million but got zero. I finally had to go to family and friends and got together $1 million after three years. It hurt that my own investments were taxed," Mr Neravati told NDTV.
NASSCOM President R Chandrashekar said angel investors were discouraged by the current tax rules. "Investment in startups is taxed like income. Indian companies should have the same ease as companies abroad . Elsewhere, companies can start in a day and can even be started remotely. That is not happening here."
Startup founders said that setting up a business and complying with regulations remain big concerns.
"I started a company within 24 hours in the US - without leaving India. Each month, complying with the many regulations is a nightmare. GST (Goods and Services Tax) is still not understood. It is not easy to function in this environment," Mr Neravati added. GST is the unified taxation regime that was implemented by the government from July 1.
The report also put the year-on-year growth of startups working on social challenges at 18 per cent. These startups are working on a range of issues like education, health and clean technology.
The number of women entrepreneurs is also growing, although by a modest 1 per cent a year, stated the NASSCOM study. The number of campus startups is also increasing.
India remains the world's third largest startup hub - but actually getting a funding for a new startup and negotiating rules is no cake walk.