Noting that every start-up has to face a ‘valley of death’ as returns from innovation processes are skewed, President Pranab Mukherjee said new-age financing options like angel investors, venture capitalists and crowd funding can meet the special needs of such projects in the formative stages.
Addressing a round table on “financing of innovations” with leaders of the banking and finance industry at Rashtrapati Bhavan here, Mukherjee said the country cannot allow innovations at the grassroots level to languish for want of financial support and noted that the banking sector remains crucial for an innovation culture.
Returns from innovation processes are skewed. Every start-up has to confront the valley of death. It is that early phase comprising the ‘seed’ and ‘start-up’ stages in which a novel idea or a concept is developed, its technical feasibility, market potential and economic viability are determined, a product prototype is designed and a formal business organisation is established.
“These early stage activities result in sunk costs being incurred, leading to negative cash flows for the nascent firm. Innovation start-ups having lesser developmental expenses to incur upfront — like website and smartphone applications — have a higher chance of surviving the ‘death valley’,” the President said.
He said there has to be a hybrid model rather than a one- stop solution for financing of innovations.
“New-age financing options like angel investors, venture capitalists, crowd funding, seed finance, and ‘innovation on technology’ funds can meet the special requirements of innovation projects at formative stages,” he said.
The President said innovation is the harbinger of socio- economic development and facilitates growth and creates job opportunities.
“A novel idea, if transformed into a useful product, can usher in progress for the society. But the path to convert novelties into new products or services is riddled with challenges,” the President said.
As per a study, 90 per cent of new ventures that are unable to attract investors fail within three years. Investors prefer a proven business model before investing and scaling it up and innovation-based projects have a high degree of uncertainty.
“Many potential innovators require technical expertise to take their novel ideas to the market. Banks and other financial institutions, over and above their financing function, can also play a facilitatory role in this regard,” he said.
Mukherjee also praised the National Bank for Agriculture and Rural Development (NABARD) and Small Industries Development Bank of India (SIDBI) for their role in the country’s development.
The President also launched an online platform, ‘SIDBI- Startup-Mitra’ that will act as a one-stop solution for meeting the financing and other needs of early stage and start-up enterprises.
“The integration of start-ups with investors, angel funds, mentor funds, and other service providers will help create an inclusive innovation eco-system in the country,” he said.
Source: The Economic Times
Image Courtesy: NDTV
