HOW TO START A

STARTUP?
CA Shubham Maloo

WIRC of the INSTITUTE OF CHARTERED

ACCOUNTANT OF INDIA
Introduction
Startups
Innovating for India
Innovating from India
 Why as a CA, you should learn about
this topic?
Understanding the financial aspects of a startup

Experience with risk management

Understand the Ecosystem

Diversify your career path

Impact on society

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Nirmal Jain Rajesh Dhruv Shringi,
The founder of Magow, co- Co-founder and
India Infoline founder of CEO of Yatra
Group Aman Gupta MakeMyTrip Online

CA’s In start- ups Ecosystem

 Executive Summary
The US
87K + 100+
is the biggest source
Active Startups in Total Number of
of foreign Investment
India Unicorns
in Indian Startup

$70 Billion
Fintech 711
raised by 3436 M&As between 2015
The Top Startup
Startups Between and 2021
Sector
2014 and 2020

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 What is a
Unicorn?
Privately held startup
company valued at
over US$1 billion
(Appx. 7600 Cr.)

Which was the first

Unicorn Startup of
India?
Inmobi in 2011.

@ca.shubhammaloo
 Executive Summary
The US
87K + 100+
is the biggest source
Active Startups in Total Number of
of foreign Investment
India Unicorns
in Indian Startup

$70 Billion
Fintech 711
raised by 3436 M&As between 2015
The Top Startup
Startups Between and 2021
Sector
2014 and 2020

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 8 Differences Between Startups And
Business

How soon business will be

To what scopes your How fast will your
Innovations paid off and how much it
business will come up to? business grow?
is possible to earn?

And the last one but not

Are there any least in our list of main
How much are you to For how long will your
technologies used running differences between
invest? business run?
a business? startups and small
business is exit strategy.

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Factors Fuelling
The Growth Of
The Startup
Ecosystem In
India
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 Government Schemes launched to develop and
encourage entrepreneurship in India :
Aatmanirbhar Bharat Credit Guarantee Fund Trust for Micro and Small Entreprises (CGTMSE)
App Innovation Challenge Software Technology Park (STP) Scheme
SAMRIDH Scheme The Venture Capital Assistance Scheme (VCA)
Startup India Seed Fund
Loan For Rooftop Solar Pv Power Projects
Startup Leadership Program
NewGen Innovation and Entrepreneurship Development Centre (NewGen IEDC)
ASPIRE
Single Point Registration Scheme
Pradhan Mantri Mudra Yojana (PMMY)
Chunauti Modified Special Incentive Package Scheme (M-SIPS)
Qualcomm Semiconductor Mentorship Program (QSMP) Stand Up India Scheme
Digital India Bhashini High Risk - High Reward Research
Digital India GENESIS IREDA-NCEF Refinance Scheme
India Water Pitch-Pilot-Scale Startup Challenge Dairy Entrepreneurship Development Scheme
Ministry of Skill Development and Entrepreneurship
Drone Shakti
ATAL Innovation Missione
Zero Defect Zero Effect (ZED) Certification Scheme
Biz Portal
Sub-M ission on Agricultural M echanization (SM AM )
Dairy Processing and Infrastructure Development Fund (DIDF)
Support for International Patent Protection in Electronics & Information Credit Linked Capital Subsidy for Technology Upgradation (CLCSS)
Technology (SIP-EIT)
Multiplier Grants Scheme (MGS) Design Clinic Scheme for Design Expertise

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 Start- up India
Eligibility

Company Age < 10 Years

Company Type – Registered Partnership Firm, LLP and Private Limited

Company

Annual Turnover < 100 Cr.

Original Entity

Innovative and Scalable

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How to start a startup? By CA Shubham Maloo
 Benefits
Easy access to Funds -
80% Reduction in cost of
Simple process 10,000 crore rupees
filing patents
fund

Apply for tenders - self- certify compliance

Tax holiday for 3 Year -
“prior
Inter-Ministerial Board - 9 labour and 3
experience/turnover not
(IMB) environment laws.
required”

Easy exit - within 90

days

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HOW TO BUILD A
START UP ?
Step by Step Process
 Start with a Great Idea
Make a Business Plan
Secure Funding for Your Startup
Surround Yourself With the Right People
HOW TO BUILD Make Sure You’re Following All the Legal Steps
A START UP ?
Develop a Marketing Plan
Build a Customer Base
Plan to Change

@ca.shubhammaloo
@ C A .S H U B H A M M A L O O
 Start with a Great Idea

PROBLEM SOLUTION

@ca.shubhammaloo
 M ake a Business Plan

Describes your products and services

Should include information on your industry, operations,

finances and a market analysis.

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 Secure Funding for Your Startup

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 TYPES OF STARTUP INVESTMENTS
Investor perspective

PRE SERIES A DEBT

PRE-SEED SEED INV
& BEYOND FINANCING
• Idea Stage • MVP Stage • Revenue & • PRE-SERIES A &
• No MVP • Minimum Business Model ABOVE
• No Revenue Revenue proven • Production/
• Strong Founders • Strong Founders • Business Synergy Service proven
• Stronger Idea • Business Synergy • Equity • Decent Revenue
• Equity • Equity investments • Conversion to
investments investments • Convertible debt Equity later
• Convertible debt • Convertible debt • 5 cr to 20 cr Convertible debt
• 5 lacs to 3 crores • 1 cr to 5 cr • Trifecta, Alteria
funds

@ca.shubhammaloo How to start a startup? By CA Shubham M aloo

 Surround Yourself With the Right
People

BUILDING THE RIGHT STARTUP TEAM IS EARLY ON THE MAIN FOCUS SHOULD A BIG TEAM WILL LEAD TO CHAOS AND
ESPECIALLY IMPORTANT IN THE EARLY BE COST REDUCTION AND INCREASING UNNECESSARY EXPENDITURE
STAGES OF SMALL BUSINESSES PROFITABILITY

“You don’t build a business, you build people, then people build the business.”

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 M ake Sure You’re Following All the
Legal Steps

Applying for
Founders
Trademark Legal Structure start-up licenses
Agreements i.e DPIIT

Non- disclosure Agreements with

Agreements or Regulatory Customers and Security
NDA’s Compliances Vendors Agreements

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 Develop a M arketing Plan
Establish • Establish a brand identity

Stand out • Stand out from competition

Create • Create customer relationships and build loyalty

Increase • Increase visibility, which attracts new customers

Strengthen • Strengthen your company’s reputation

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KEY CHALLENGES
Hindering the Indian startup
ecosystem
 Inadequate
Ecosystem For
Hardware Startups

Low Investor
Confidence Towards
Deeptech Startups

@ca.shubhammaloo How to start a startup? By CA Shubham Maloo

The State Of IP Regulatory Myopia
Patents In India

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Angel Tax
Challenges for the Startup Ecosystem
 Schema

What is Angel Exemption What is a Exemption

from Angel
Tax Start-up qualification
Tax

Consequences
of non- Caveats Way forwards
compliance

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 WHAT IS ANGEL TAX
Angel tax Is the term used to refer to the income tax payable on capital raised by
unlisted companies via issue of shares where the share price is seen in excess of
the fair market value of the shares sold resulting in an effective tax of over 30%

Recipient : Company not being a Company in which the public are substantially interested
i.e Private Ltd Company
Consideration for : Issue of shares

Received from : Resident

Conditions : Issue price > Fair Value of shares (i.e. issued at a premium) AND Consideration
> FMV of shares
Taxability : IFOS = Consideration - FM V

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 EXEMPTION FROM ANGEL TAX
Where the consideration for issue of
share is received
By a venture capital By a company from a class or classes
of persons as may be notified by the
undertaking form a VC Central Government in this behalf:
company or a VC fund or a
• Start- ups recognized by DPIIT,
Specified fund* subject to conditions

*Fund established or incorporated in India which has been granted a certificate of

registration as a Category II AIF and is regulated by SEBI

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 WHAT IS A START- UP?
An entity shall be considered a start-up up to a period of ten years from the date of
incorporation/registration if the following 3 conditions are fulfilled :

It is registered/incorporated in India either

as a private limited or a registered or a limited liability
company partnership firm partnership

Turnover of the entity for any of the financial years since incorporation/
registration <=Rs 100 crores

Entity is working towards innovation, development or improvement of

products or processes or services, or it is a scalable business model with
a high potential of employment generation or wealth creation

An entity formed by splitting up/reconstruction of an existing business shall not

be considered a start-up
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 ELIGIBILITY FOR EXEMPTION
FROM ANGEL TAX
Aggregate amount of paid up share capital and share premium of the start up after issue or
proposed issue of share <=Rs 25 crores

The Rs 25 crores limit shall not

include amount paid by
Specified Company-Listed co. whose
VC • Net Worth on the last date of FY preceding the
Non- company FY in which shares are issued >Rs100 crores or
resident or VC • Turnover for the FY preceding the year in which
shares re issued >Rs 250crores
Fund
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 ELIGIBILITY FOR EXEMPTION
FROM ANGEL TAX
Subject to the condition that the start-up should not invest, within 7 years from the end of the
latest financial year in which the shares are issued at a premium, in any of the following:

Building or land for the purpose For advancing loans (other than
(other than own use or as stock in where the lending of money is the Capital contribution to any other
trade or for the purpose of substantial part of the business of entity; Shares and securities;
renting); the start-up);

M otor Vehicle, aircraft, yacht, or

any other mode of transport, the
actual cost of which exceeds INR Jewellery (other than that held by
10 Lakhs (other than that held by the start-up as stock in the
the start-up for the purpose of ordinary course of business);
plying, hiring, leasing, or as stock- Archaeological collections &
in-trade, in the ordinary course of Artifacts etc
business;

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 Consequence of Non- Compliance
If any eligible start-up fails to comply with the conditions as referred in the Notification, the
exemption from Angel Tax allowed to such start-up earlier shall be revoked.

The effect of the revocation is that any consideration received before

failure by such start-up which is in excess of the fair market value of shares
will be deemed to be the income of the start-up for the financial year in
which exemption is revoked.

Further, it shall be deemed that the start-up has under-reported its income
and shall be liable for consequences u/s 270A i.e. penalty equal to 200% of
the amount of tax payable on under- reported income.

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 CAVEATS
Start-ups that invest in shares and securities are not eligible for angel tax exemption.

Since most new ventures tend to invest in debt mutual funds to multiply their fund, this hinders their growth.

A blanket restriction on investment in shares and securities impairs the ability of a start-up to expand its
operations through acquisitions or the setting up of subsidiaries.

The embargo on downstream investments as well as on loans and advances are far too
constraining.
Start ups that have given salary advances or loans to employees are not eligible for the
exemption from angel tax.

It is imperative to revisit these end-use tests to limit investments into sin-use goods.

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 CONTD
Section 68 (unexplained credits) provides relief only for VCC or VCF in terms of share
capital money received

The officer may still tax the premium under Section 68 if the resident does not provide
proper justification of nature and source of such sum invested

Start-ups are barred from making a capital contribution to any entity.

This again creates obstacles for companies that operate in certain sectors that
require licenses with other firms to sustain long-term growth.

The start-ups may now be forced to raise funds over the permissible limit of Rs 25 crores
by way of debt.

This will not only dilute the net-worth of the start-up but also fasten a possible interest
burden on the business which may not necessarily be profitable enough to absorb the cost.

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 Investment and
Exit
Taxation and more

@ca.shubhammaloo
 M odes of investment
Domestic Foreign
► Equity Shares ►Foreign Direct
Investment (FDI)
► Preference Shares
► External Commercial
► Debentures COM PANY Borrowings (ECB)
► Loan

Domestic LLP Foreign

►Foreign Direct
► Capital
Investment (FDI)
► Loan

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@ca.shubhammaloo
@ca.shubhammaloo
 Future is here
Startups that shocked the world

@ca.shubhammaloo
@ca.shubhammaloo
@ca.shubhammaloo
@ca.shubhammaloo
Thank you
Shubham Maloo (FCA)

[email protected]