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startup | IST

2018 was not really a year of startups. Here's why

Though eight Indian startups crossed $1 billion mark in valuation in 2018, the highest in a single calendar year, it was still not the year of startups, if we take the sector as a whole.
A survey conducted by LocalCircles in which over 15,000 unique startups, small and medium enterprises and entrepreneurs participated, showed that the situation does not look very bright for startups and SMEs in the country, when compared to last year's survey.
While few large startups, such as Zomato and Swiggy, were able to raise big investments, most struggled on multiple fronts, as highlighted by the survey.
The Angel Tax, a 30.9 percent tax levied on investments made by external investors in startups, has made life difficult for an entrepreneur with many receiving income tax notices in 2018.
"Angel Tax continued to be a key pain point for startups where the assessing officers in many cases reject the valuation method utilised by the startup and instead treat the capital raised as income from other sources thereby raising a tax demand and penalty on the startup," the survey said
In the survey, the startup and SMEs were asked about their experiences with the income tax authorities in 2018 and 32 percent of the respondents said they received multiple notices while about 6 percent claimed of receiving one notice. The remaining 62 percent did not receive any notices. The numbers indicate that there has hardly been any wholesome development in the sectors.
The local social network forum claimed to have vouched for thousands of startups by raising the Angel Tax issue with DIPP and CBDT in December. However, the report said that even though an order was issued to not take coercive measures to recover the demand, the assessment orders continued to be issued against the startups.
A majority of the respondents, 97 percent, said the income tax authorities are required to be educated on startup valuations. A majority of the respondents, 45 percent, said that facing corruption and the bureaucratic inefficiencies were the major challenges last year.
"Angel Tax is one area that falls under corruption and bureaucratic inefficiencies as it takes the focus of startup entrepreneurs away from building a product or service to responding to tax notices and filing appeals, something that startups can clearly do without," the survey said.
With regards to funding, even though eight startups entered the unicorn league in 2018, it remains to be a major challenge for many to find long-term investors. 37 percent of the respondents said loans and funding were major challenges for them to tackle last year. The remaining 18 percent said business growth will be the biggest challenge going forward.
In 2017,  the figures stood at 22 percent for respondents who thought funding or loan was a major issue, 26 percent for those who said growth was a challenge and 52 percent for the ones who thought corruption or bureaucratic inefficiencies were major challenges.