President Pitches for New-Age Financing to Drive Startups

Noting that every startup has to face a 'valley of death' as returns from innovation processes are skewed, President Pranab Mukherjee Thursday said new-age financing options like angel investors, venture capitalists and crowd funding can meet the special needs of such projects in the formative stages.

Addressing a round table on "financing of innovations" with leaders of the banking and finance industry at Rashtrapati Bhavan here, Mukherjee said the country cannot allow innovations at the grassroots level to languish for want of financial support and noted that the banking sector remains crucial for an innovation culture.

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"Returns from innovation processes are skewed. Every startup has to confront the valley of death. It is that early phase comprising the 'seed' and 'startup' stages in which a novel idea or a concept is developed, its technical feasibility, market potential and economic viability are determined, a product prototype is designed and a formal business organisation is established.

"These early stage activities result in sunk costs being incurred, leading to negative cash flows for the nascent firm. Innovation startups having lesser developmental expenses to incur upfront - like website and smartphone applications - have a higher chance of surviving the 'death valley'," the President said.

He said there has to be a hybrid model rather than a one- stop solution for financing of innovations. "New-age financing options like angel investors, venture capitalists, crowd funding, seed finance, and 'innovation on technology' funds can meet the special requirements of innovation projects at formative stages," he said.

The President said innovation is the harbinger of socio-economic development and facilitates growth and creates job opportunities.