I just made a comment about the #Budget2014 proposal involving a seed fund for startups. On a serious note, heres what I think about this proposal... While many (especially struggling entrepreneurs like me) might see this as a revolutionary step, I see it as another chunk of capital being systemically wasted. The funds would be disbursed by bureaucrats who neither have the eyes, ears & thinking hats of a VC...nor the organic accountability of their own money being at stake. Historical evidence & simple common sense tells us that this money is highly likely to fund projects rejected by the market. Funding for an enterprise doesnt come easy in the market. One needs to have a cutting edge proposal that VCs just cant afford to ignore or lose out to a competing fund. Ive personally gone through the grind (unsuccessfully) of seeking funds for enterprises and have seen several other diligent & hardworking entrepreneurs going through similar experiences. This is because a VC will fund only those projects which they see as worth investing in (with a potential to generate a far higher RoI than the market interest rate). It is the fact that their own money is at stake that makes the VCs so stingy & cautious. Even after theyve funded an enterprise, they remain actively involved...keeping the entrepreneur on his toes...making sure that no stone is left unturned in the quest for that RoI. The VCs are there in the market to invest...thats how they make money. So itll be foolish to think that theyll reject proposals despite seeing potential in them. The factors that determine the fundworthiness of a project cant be distilled into a checklist. This does not mean that there are no instances of conceptually/economically unviable projects dont get funded. Perhaps the percentage of such misfundings is pretty high too (I assume that on anecdotal evidence). But the difference is that in such cases, the only losers are the VCs themselves. When taxpayer money is used to fund any project (startup or otherwise), the organic incentive structure of the market is absent. The evaluation for the worthiness of the proposals is wrought with nonsense like quotas, nepotism, red-tape and a complete lack of entrepreneurial vision. Minimum government doesnt entail government becoming a funding agency. It involves freeing up the regulatory structure that acts as a bottleneck for entrepreneurs. In the current scenario, the government has deemed crowdsourcing (one of the most potent market tool for small entrepreneurs), it heavily regulates forex inflows, it perpetrates a protected market for lenders by way of further regulations and a monstrous license regime, it imposes a heavy paperwork compliance burdens on small entrepreneurs with scarce resources. A minimum government is supposed to dismantle this controlled business environment...but we saw none of that in the so-called futuristic budget.
Posted on: Sun, 13 Jul 2014 04:21:43 +0000
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