Startups facing fund crunch

Hyderabad: The software industry lobby Nasscom has once again expressed concern over the falling fund flows into startups and called for added focus to galvanise the entrepreneurial ecosystem. The National Association of Software and Services Companies (Nasscom) had last November shared its concern over the taxation issues in the startup scene, which led to a steep 50 per cent fall in angel investments and a significant decline in series A funding.

“While angel investments are the critical first piece that gets a startup going, series A fund is the one where the angel investors really make their exits and make money. That's what incentivises them to continue their investments,” Nasscom president R Chandrashekhar said. “We had pointed that out and felt that corrective measures are needed. However, we did not find that being addressed in the Budget,” he added.

It can be noted that the taxmen had demanded Rs110 crore income tax (I-T) from the e-tail major Flipkart, which the company had challenged in the appellate tribunal and has reportedly lost the appeal. The department’s claim was based on its findings that the company was showing losses by offering huge marketing discounts.

According to them, the ecommerce major had a profit of Rs 408 crore in FY16 and thus a tax liability of Rs110 crore, while the company had claimed a net loss of Rs796 crore for the year. Finance Minister Arun Jaitley, however, recently had issued directives to the income tax department to not adopt very coercive methods in respect of angel investments.

“We need to be far more focused on the things that are needed to galvanise the startup and entrepreneurial ecosystems,” he said. Over 1,000 startups were added in 2017 in the country, according to a Nasscom-Zinnov report published last November.