Startups Must Self-Regulate, Says India-Led G20 Group

The engagement group for startups created under India's G20 presidency has suggested self-regulation, instead of government intervention, as multiple cases of alleged misgovernance have been reported at some Indian ventures.

Startup20 India has designed a governance framework aimed at equipping startups with a "practical guide for adhering to corporate governance and financial management best practices", said a communique by the Startup20 Engagement Group released on Monday. It has been created based on research and consultation with experts and can accommodate the "unique needs of startups across various industries".

Companies including UpGrad, MakeMyTrip, and PayTm and venture capital funds Blume Ventures and Avendus Capital were part of the consultations.

Investor sentiment in India's startup ecosystem has been hit by a string of corporate misgovernance incidents at BharatPe, Trell, Zilingo, GoMechanic, and most recently, Byju's and Mojocare. That has only increased investor scrutiny, making due diligence longer. Funding is only coming to the firms that are lean and have demonstrated free cash flow or a path to profitability.

Financial propriety and governance are very important and startups must focus on self-regulating, said Amitabh Kant, India's G20 Sherpa, at the Startup20 event on Monday.

"The government must remain at an arm's length. If the government gets into startup regulations, they'll finish off these startups," Kant said. "So founders must act towards being self-regulating."

The Startup20 Engagement Group, the first such initiative established under India's presidency, also urged G20 leaders to raise the joint annual investment in startups to $1 trillion by 2030.

It urged G20 nations to:

• Create and adopt a global startup definition framework.

• Ease access to global capital, markets, mentors and talent for startups. 

• Emphasize the inclusion of under-represented groups and communities in startup ecosystems.

• Cultivate mechanisms to identify and scale startups of global interest.

• Establish a networked institution across G20 nations.

G20 nations must establish a fund of funds, which will enable capital flow to startups, said Kant. "Each country should open a fund of funds which enables money to flow to VC funds," he said referring to the government-backed National Investment and Infrastructure Fund.

Countries must add more incubators and credit enhancement schemes to boost capital for startups, he said. "In a lot of these countries, the government must become the first buyer of some of these startups. The government must be the first buyer to create a market."