Gurugram is North India’s Bengaluru for startups, but a quota law enacted by the Haryana government could soon cause a mass exodus of startups, and with them, talent and investment. Karnataka meanwhile is tapping the rich and famous to set up a Rs 100-crore fund for startups. Talk about a contrast.
Also in today’s letter:
- Three days, four unicorns
- Bytedance to keep up legal fight
- 24×7 food delivery in Mumbai
Most startups in Haryana are ‘rethinking plans’
More than 60% of startups based in Haryana are rethinking their investment plans in the state following the enactment of the job quota law.
The law: The New Haryana State Employment of Local Candidates Act, 2020, stipulates 75% job reservation for local residents with a monthly salary of up to Rs 50,000 in the private sector.
The impact: 67.3% of startup employees in the state earn less than Rs 50,000 a month.
- Startups will look at shifting or expanding operations to other states, which do not have such laws, according to a Nasscom survey.
- More than 40% of the startups in Haryana are involved in either deeptech or edtech. These sectors need highly skilled talent, which is lacking in the local pool.
- The move would impact nearly 150,000 current jobs in the IT-ITeS sector, and given the industry’s high attrition rate, could have a “severe” implication in 1-2 years.
The fix: Startups want the government to either completely do away with the law or exempt them from it. They have also suggested lowering the quota to 10-30% or reducing the salary threshold to below Rs 20,000.
“Unintentionally, this law is likely to undermine Gurgaon’s position as the north India hub for startups. The government should consider these aspects.” — Ashish Aggarwal, Head of Public Policy, Nasscom
Karnataka plans Rs 100-crore
Karnataka will tap family offices and high net-worth individuals (HNIs), including prominent filmstars, for its Rs 100-crore startup fund, according to a senior government official.
Driving the news: In his budget speech on March 8, Chief Minister BS Yediyurappa said that the state government would set up a new venture capital fund to support emerging technology firms and cement Karnataka’s pole position in innovation. While the government will provide Rs 25 crore, the remaining will come from institutions, including private investors.
Investment criteria: “The new fund will be sector-agnostic and will invest in startups that show potential to scale up,” EV Ramana Reddy, additional chief secretary in the state’s IT/BT department, told ET.
- The Karnataka state government currently operates three venture funds focused on biotechnology, semiconductors and electronic manufacturing, and animation, visual effects, gaming and comics.
Tweet of the day
Bytedance ‘will continue to litigate’
TikTok’s parent firm Bytedance Ltd., which won a reprieve from the Bombay High Court on Tuesday, intends to continue challenging the tax department’s allegations of tax evasion, two sources told ET yesterday.
What happened on Tuesday? The high court allowed Bytedance, which owns TikTok, to operate its two Indian bank accounts that tax authorities had frozen in March. But it said Bytedance must first deposit Rs 78.91 crore in a state-run bank.
The case: The issue is about whether and how the Goods and Services Tax (GST) on certain services provided by
Under the GST framework, any services that are exported from India are outside the tax net.
- But in several cases, the indirect tax department challenges the nature of services and can hold back the “export” benefit.
- This would mean that the Indian arm would owe 18% GST.
The fight: However, sources told us yesterday that Bytedance had not accepted the tax department’s position and would continue to litigate.
- “It is important to note that the company has neither made a commitment to settle with tax authorities nor agreed to deposit money to the tax authorities until the ongoing tax investigation matter is fully resolved. The company will continue to litigate its case on merits with the tax authorities,” a source said.
Next steps? Legal experts said there are only two ways forward for ByteDance: approach the tax department or move the Supreme Court.
Big picture: Tax experts said many other multinationals are also going to court on the issue of how GST applies to their Indian subsidiaries’ parent firms.
- “The coercive action raises several fundamental aspects such as taxability of services, the place of provision of services, eligibility of exports and payment under reverse charge when no consideration is paid,” said Abhishek A. Rastogi, who is arguing on the constitutional validity of the place of provision in various courts.
Three days, four unicorns
India’s startup unicorn club continues to grow, or rather, Groww.
While the first three months of 2021 saw four entrants to the coveted billion-dollar club, an equal number of startups have booked their places in just the past week. Online investment platform Groww is the latest member.
Details: Groww has raised $83 million in a Series D funding round by Tiger Global, valuing the online investment platform at $1 billion. Existing investors Sequoia India, Ribbit Capital, YC Continuity and Propel Venture Partners also participated in the financing.
Where will the money go? Groww said it plans to use the money to expand its product suite, on recruitment, and to invest in financial education and awareness initiatives.
Club unicorn: India’s startup unicorn club saw one new entrant in January, two in February, one in March, and four—including Groww—in the first week of April.
- Insurtech firm Digit, backed by Canadian billionaire Prem Watsa, became India’s first startup unicorn of 2021 on January 15.
- SaaS startup Innovaccer followed suit in late February as its valuation trebled in seven months.
- Infra.Market entered the unicorn club around the same time with $100 million funding led by Tiger Global.
- In late March, private lender Five Star Business Finance closed a $234-million funding round that valued it around $1.4 billion.
- On Monday, Meesho became India’s latest unicorn after the social commerce platform raised $300 million in a round led by SoftBank.
- On Tuesday, Credit card repayment platform Cred raised $215 million in fresh funds at a valuation of $2.2 billion.
- Also on Tuesday, Pharmeasy’s parent API Holdings raised $350 million at a valuation of $1.5 billion.
Other key deals
■ OfBusiness has raised $110 million in a Series D round led by Falcon Edge Capital, at a post-money valuation of $800 million.
■ Point of Sale (PoS) platform, ShopSe has raised Rs 40 crore ($5.5 million) in funding led by Chiratae Ventures and BeeNext.
■ Cricket commentator Harsha Bhogle-backed fantasy sports platform Fantasy Akhada has raised Rs 5 crore in funding, a week before IPL 2021 kicks off.
24×7 food delivery in Mumbai
Mumbai’s municipal corporation said yesterday that food delivery and supply of essentials via e-commerce platforms would be permitted round the clock, seven day a week.
U-turn: The new directive from the Brihanmumbai Municipal Corporation (BMC) reverses a recent state government order restricting all such deliveries to between 7 am and 8 pm.
In one quote: “All online home deliveries of food and essential supplies (e-commerce) through all online service providers like Zomato, Swiggy, etc., are allowed 24 hours on all days in the week,” according to the order issued on Wednesday. “During the weekend lockdown, takeaway from hotels in person are not allowed; however, home deliveries are allowed.”
Mumbai is one of the largest markets for food delivery firms such as Zomato and Swiggy.
Oyo Hotels founder Ritesh Agarwal took to Twitter yesterday to reject reports that the lodging and vacation home rental startup has filed for bankruptcy after a supplier’s Rs 16 lakh claim. He tweeted that his company disputed an unidentified supplier’s claim for the money but eventually paid it “under protest”.
Agarwal, also Oyo’s chief executive officer, was responding to a document widely circulated on social media that appeared to claim Oyo had sought bankruptcy protection, which he called “absolutely untrue”.
Top Stories We Are Covering
RBI’s fintech moves: The central bank has announced a slew of measures for payments, such as allowing fintech companies to process RTGS and NEFT transactions, and also set new norms on interoperability and cash withdrawal facilities for digital payment wallets.
More funds for startups: Trifecta Capital is looking to start an equity venture capital fund of Rs 1,500 crore to invest in leading startups that are likely to launch an initial public offering in the next three years.
Policybazaar’s listing plans: The SoftBank-backed online insurance firm is planning to file a draft prospectus as soon as next month for its Mumbai initial public offering (IPO), which could raise about $500 million. The company is seeking a listing before the end of this year at a valuation of more than $3.5 billion.
Global Picks We Are Reading
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