Healthcare, education, retail need more entrepreneurs: Jayant Sinha
Jayant Sinha has been passionate about promoting entrepreneurship as he admits that Indian culture of scarcity has rendered most of us risk-averse and forced us to focus on steady-income. Most recently he has been involved as a committee member for Planning Commission’s report on “Creating a vibrant entrepreneurial eco-system in India."
Sinha works as partner and managing director of impact fund Omidyar Network India Advisors which believes in a fine balance between investments and grants to promote entrepreneurship for social benefit. With a degree in engineering from IIT Delhi and an MBA from Harvard Business School he has spent over twenty years in investing and strategy consulting, including a 12 years stint with McKinsey & Company as a partner at Boston and Delhi. Edited excerpts of an interview with Abhineet Kumar.
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Talking about the entrepreneurial culture in India, what makes Indian middle class so averse to taking risk?
We come from a country where there has been tremendous poverty for thousand of years. It’s a culture of scarcity. All of us are very scared of being in a situation where there is tremendous amount of risk related to one's income. If you are not earning a steady income you are starving on the street.
We are very focused on stability and security. Unless you come from a business family that can really support you through the ups and downs of entrepreneurship, it is tough being an entrepreneur. Most of us who come from middle class and do not come from business family are extraordinarily anxious and nervous of risking our life and career.
That is not the case in the West because of the strong safety-net that exists or abundance of jobs that exists. So there it is not a culture of scarcity as much as it is a culture of affluence and abundance. People are willing to take risks with their life. Here no body is willing to take risks with their life. Here stakes are too high, if you fail you risk your life.
What are the key recommendations that the Planning Commission committee has made to promote entrepreneurship?
The recommendations are basically for the entire entrepreneurial eco-system which largely constitutes of the government, academic institutions, businesses and the supporting firms of venture capitalists and angel investors. All these play roles of various actors in the eco-system.
In general there are five set of recommendations. One is the catalytic policies that the government can think about and then there is set of recommendations around providing more capital to the sector.
Another set of recommendations are around businesses which should think of themselves as being entrepreneurial hub and for academic institution to promote entrepreneurship. Finally there are recommendations to develop platform where the whole ecosystem can collaborate.
So the set of five recommendations cover different actors. Of this the first and the second are the most important advice to the government.
Where the maximum support from the government is required?
There are supportive tax policies in Israel, the US and the UK to encourage startups. Here the angel groups do not get any tax support. We have made recommendations on how angels should be treated both as individuals and as groups. We have suggested benefits to funds on pass through taxation, long term capital gains and transfer of unlisted securities.
For individuals if they are making angel investment, then they should get tax reduction with certain cap every year. There are a lot of things that the government can do.
What are the recommendations for facilitating funding?
This are recommendations on how domestic financial institutions should be thinking about supporting venture capital funds in terms of equity contributions. So right now virtually there is no domestic venture capital industry. Ninety per cent of the money that comes to India comes from outside sources. Sovereign wealth funds, Harvard Endowments, University of Pennsylvania endowments. These people are funding innovations in India. That’s not right.
If you want to fund innovation that should be supported by financial institutions whether it is an insurance company, pension funds or banks in India. So we have to encourage our domestic financial institutions to be willing to support domestic venture capital funds, domestic seed funds.
Similarly there are recommendations for venture debt which is special by being not asset backed but cash flow backed. This requires to have sophisticated understanding of how to support small businesses.
Which sectors do you see would attract these funding in India?
There are many sectors which are already active but can be scaled up. Health care, education, manufacturing of various kind, retail, on line commerce these are all sectors where we can have a lot more entrepreneurs.
Large corporates are feeling that License Raj is back as approvals and resources are increasingly becoming difficult for businesses. How do you see these kind of initiative getting a traction?
We have suggested that we create small business parks like STPI we created 15 years ago. Small business that sets up in small business park should start through self certification or single window clearance. A lot of regulation whether it is getting incorporated, getting environment clearances and so on there should be clear regulatory structure. Below a certain employee size start ups should get all those certifications done very quickly.
Small companies are created and when they are not successful they need to be shut down. Liquidating and shutting down businesses in India is incredibly cumbersome. What we have suggested is small business parks will enable small companies to start up quickly and see whether they can scale up quickly or not. And if they can’t that should be able to shut down quickly as well. We need small business park to encourage this kind of initiative.
Innovation is a game of numbers. You never know from where the great innovation is going to come from. But if we create barriers to innovation we create a lot of impediments to creating companies. So the experiment will not happen.
How is your fund performing in India how is its presence increasing?
Our fund got physical presence when I joined three years back. We have capital from Omidyar and the goal of the capital is to achieve social impact.
We can achieve social impact in two different ways. One is through supporting for-profit businesses with operating at the base of the pyramid and helping innovate product and services. And secondly by helping non profit organizations that can also scale up, grow and develop. These are philanthropic investments and our goal is not to generate financial returns as such.
For profit companies can also have social impact. For profit companies that we have backed is having tremendous social impact. For example in micro-finance industry we have put more than $300 million globally. Our total investment is over $500 million globally in which over $100 million is in India.
What is the break up of for-profit and not-for-profit firms in your investments?
We have committed over $100 million across for-profit and not-for-profit organizations since we set up the India operation in 2009. The portfolio split between these two is 50:50 but in terms of dollar investments it 75 per cent in for-profits and 25 in not-for-profit.
Also any return that is generated is again ploughed back. So our goal is not to generate financial returns, our goal is to have huge social impacts.