Introduction:

 

Have you ever considered the reason of start-ups failure, why the founders of these small businesses couldn’t make it like other thriving businesses, which were at one point of time started with scratch but now they are standing proudly in the market. We ask these questions frequently. In 2014, a study done by Fortune.com, it found that out of ten start-ups nine fail, and they are unable to bring their board to the real world. This study also reveals that shortage of funds is the main reason for failure of 30% start-ups and another reason is not enough market demand. So, it is necessary for a start-up that before implementing any business plan or process, it has enough capital for its success. But the situation is changing, because of the success and hard work of many Indian Start-ups, their new ideas, in the last decade and its prosperous environment; they are gaining the attention of foreign countries. Foreign Direct Investment is growing in India and it continues to grow and the result is that the majority of the stakes in Indian start-ups are held by foreign stakes. Because of the innovative ideas of India start-ups, foreign investors believe in their idea and supply the necessary capital required for the growth.

 

Meaning:

To allow the flow of foreign investment in India Start-ups, the Government of India made provisions in the consolidated FDI policy 2017, which made possible for the Foreign Venture Capital Investors to subscribe up to 100% of the capital of Start-ups, under the automatic route. It allows them to invest in equities or equity-linked or other debt instruments issued by the start-ups and if the start-ups are Partnership or LLP, they can invest in capital or profit sharing. Before moving forward, for better understanding it is necessary to understand some terms like what is start-up, what do we understand by Venture Capital and Foreign Venture Capital Investors?

 

• What is a Start-up: As its name suggests start, the term simply means the starting of a business venture; it refers to a company which is in its initial stages of operations. These start-ups are founded by one or more entrepreneurs, who have studied the market, its needs and on the basis of that study they develop that product or service which is in demand. These entrepreneurs in the earlier stages of the company invest themselves but due to the schemes of the Government like Start-up India, to promote the idea of start-up they have been given certain benefits like tax exemption, rebate in patent application and investment through alternative investment funds etc.

 

• Meaning of Venture Capital: When start-ups require initial capital or seed capital, then Venture capital plays an important role, this type of funding is different from other conventional sources as Venture capitalist funds those small businesses that have innovative ideas and their ideas have potential for growth in the competitive market. Venture capital funds give risk capital to such businesses, as they know these start-ups have high risk exposure but there is a chance of growth and profit, so in simple words Venture capital is a high risk and high return investment. They don’t provide loans but in exchange of provided capital, equity stake or ownership in the business is offered.

 

 

• Who are Venture Capitalists?: They are limited partnerships who have pooled investment capital, and they invest that capital in a number of companies. They are different in size; they can be a small group of investors or subsidiaries of a large investment bank, commercial bank or may be outside investors. These Venture Capitalists have enough experience and they utilize their expertise to finance those companies who have potential to bring in considerable return on the Venture Capitalist’s investment.

 

• Definition of Foreign Venture Capital Investor (FVCI): The term “Foreign Venture Capital Investor” investment by a non-resident or a foreign investor. They invest in Indian Venture Capital Undertakings (IVCU) or Venture Capital Funds. The term has been defined in both SEBI’s FVCI regulations (Regulation 2(g)) and Foreign Direct Investment Policy, 2020, both the definitions are same, which says that the foreign country which invests in India’s Venture Capital is known as Foreign Venture Capital Investor and there are three conditions which must be satisfied by them, 1. Must be incorporated outside India. 2. Must be registered with SEBI, 3. Must follow SEBI’s FVCI Regulations.

 

 

FVCI Regulations in India:

• Eligibility Criteria to get FVCI Certificate from SEBI: According to the regulations 4 of the FVCI regulations, a foreign investor or an applicant has to conform to certain conditions, which are given below:
• The track record of the applicant person or company; Professional skill or knowledge;
• Applicant should be financial sound in order to apply for certificate;
• Must work with integrity and fairness;
• Mention if applicant is governed by an appropriate foreign regulatory authority or is an income tax payer or present a certificate from its banker or its promoter’s track record, where applicant is neither a taxpayer or a regulated entity;
• According to the Schedule 2 of the SEBI (Intermediaries) Regulations, 2008, the applicant must be a “fit and proper person, and there are many other important conditions

 

 

If the above mentioned conditions are fulfilled then the board will grant a certificate of registration as FVCI to the applicant, if the application is incomplete or necessary conditions have not been met then after giving some time to get rid of objections or an opportunity of being heard, the application will be rejected by the board.

 

• Types of Investment Made by an FVCI: In India FVCI can enter in to 2 types of Investment:
  • Indian Venture Capital Undertaking: These are newly incorporated private companies which are so new that they are not completely established in market, they are in need of finances and advice from the investors:
  • Venture Capital Fund: It is a fund, as its name suggest set up as a trust or a company:

 

• Restrictions on Investments: According to the Rule 11 of the FVCI regulations, the investment must be made in the given manner:
  • It is mandatory that a minimum percentage of funds to be invested must be invested in the unlisted equity shares or equity-linked instrument of a VCU and the minimum percentage is 66.67;
  • The other condition is not mandatory, it says that the remaining portion of the investible funds can be invested in the IPO of a VCU, Debt or debt instrument of a VCU, Preferential allotment of equity shares but there is condition of 1 year lock-in period, etc.

 

It must be kept in mind that whatever the investment strategy chosen by the Foreign Venture Capital Investor and its life cycle must be communicated to the board before any investment is made in India.

 

Need of FVCI: India has tremendous potential for growth of knowledge based industry, and this potential is not limited to one sector of economy, some relevant areas are bio-technology, pharmaceuticals and drugs, telecommunication, education, food, agriculture, services etc. Due to the innovative ideas of many entrepreneurs, we can say India has inherent strength which reflects in its skilled and competitive manpower, its technology, research based skills, studying the market and all we need a proper environment investment and policy support, with this India can achieve growth and competitive global strength. There is huge gap between the capital requirements of technology and knowledge based start-ups and funding or investments available from conventional banks, reason being is that these business are new and there is high risk exposure, they are based on intangible assets such as human capital and Indian investors don’t want to lose their funds, from the point of view of the traditional banks, neither they have physical assets nor a low-risk business plan so we need a flourishing venture capital industry which can fill this gap.

 

 

Benefits of Investment in Start-ups to Foreigners:

 

• Foreign investors are exempted from any pricing restrictions during entry and exit;
• When the investee company goes public, the foreign investors are exempted from the condition of lock-in period;

 

• Advantage of Population: India has a huge population, that means variety of taste and preferences, which is helpful for the start-ups to come up with new innovative ideas according to the demand of the people and it is less problematic to start a business in such a market and which promises to be a magnet for foreigners.

 

• More control on Start-ups: The reason being is that foreign investment acts as an easy capital raise and technological investment for the start-ups, that’s why Indian Start-ups easily accept them. Due to the need of the capital, sometimes start-ups give away huge stakes in the company, which proved beneficial for the foreign investors. It gives them important decision making power, critical rights, return on the investment, control on the consumer market of the country.

 

• Efficient Tax System: With respect to the tax on venture capital we must adhere to two sections, one is sec 10(23FB) of Income Tax Act, 1961, which says that when income of a person in a previous year is calculated, any kind of income of a venture capital fund or company in a VCU shall not be included, another section is sec 115(U), which says that if a person receive any income from the investment made in venture capital fund or company then such income shall be charged to income tax in the same method as if it were the income which received by the person had he made investment directly in the venture capital.

When these two sections are read together, they give the meaning that income received from investment by the fund or company is exempted from tax, but when the income is dispersed between the investors, it becomes taxable. In simple terms, income’s nature determines its tax liability. It says that dividend is free, when it is in the hands of the shareholders but it is subject to tax at the rate of 16.99% when a company is distributing the dividend. Otherwise, when shares of the investee company are sold, capital gain tax is also charged. The result is that there is no distinct tax exemption for FVCI. But it can take benefit of DTAA agreement like India has a agreement with Mauritius, and according to the article 13 of that treaty, when a resident of Mauritius make a transfer for Indian capital asset, any benefit from such transfer will be taxable only in Mauritius, this treaty give relief from double taxation.

 

• Reduced Operational cost: The cost of internet, labour, salaries, infrastructure, etc is very low in India and India has very moderate tax policies as compared to the other countries which results in low cost of business operations. And it is one of the reasons why foreign investors invest in India.

 

• Friendly Laws: The bill of Goods and Service Tax has made the cross border movement of products and some other business friendly law like Direct Tax Code Bill, Land Acquisition Bill, Companies Bill etc these made easy for the foreign investors to enter Indian market.

 

• Initiatives of Government: 1. In December, 2020, the guidelines for Direct-to Home (DTH) services have been amended with the approval of Union Cabinet, because of these changes, 100% FDI in the DTH broadcasting services market is made possible;

2. In June, 2021, the G-7 countries has attained a contract on taxing multinational firms, it says that the minimum global tax would be at least 15%, this move was made to boost the foreign direct investment in the country.
3. In September, 2021, India and UK agreed to boost investment; this step will strengthen the bilateral ties for “Enhanced Trade Partnership”.

 

Conclusion:

In the recent years, there has been an extraordinary growth in the foreign investment of India at a massive rate. India has come out as the fastest-growing start-up eco system and the third largest in USD 81.7 billion foreign investment in the financial year 2020-21. According to the World Bank of Ease of Doing Business 2020 survey, India has jumped 14 ranks and now its position is 63^rd across the globe. All this could happen due to the foreign policies made by the India to attract the foreign companies and foreign investors and which resulted in growth of the Indian Start-ups, more job opportunities and wealth creation of the Indian economy.

 

But the investment by foreign investors is a double edged sword; foreign investment in the start-ups is also termed as “easy capital”, but it comes with a cost, there is always a catch. As India entrepreneur makes their business model which are attractive to foreign investors, this may result in giving more stake in the ownership, more critical rights in their businesses, taking troublesome obligations etc. Due to these control deals foreign investors get the full power to, monitor and manage portfolios of the companies, more control in decision making, implementing strategies which are foreign investors friendly. As investors’ main goal is to expand, so they have a opportunity to exit with a handsome gain, they don’t invest for a long period, so Indian promoters must be conscious of these factors before making foreign control deals.

 

References

1. https://www.letscomply.com/foreign-investment-in-indian-start-up-and-its-advantages/
2. https://www.investopedia.com/terms/s/start-up.asp
3. https://www.ahlawatassociates.com/blog/a-primer-on-foreign-venture-capital-investments-in-india/
4. https://www.fdi.finance/blog/foreign-investment-in-indian-start-ups/
5. https://smefutures.com/key-promoter-considerations-foreign-investment-in-indian-start-ups/

It is been said that the India has the third largest ecosystem in this world after after the US and China and the pace of growth is keep increasing. The US tops the list with 396 unicorns, while China is at the second spot with 277 observed from the data from Hurun Research Institute. India’s unicorns are currently worth $168 billion. In the midst of the startup boom India took up the Unicorn Tally to 54 replacing UK to third place in the world.

What is Unicorn?

Unicorn is the term most closely associates with startups describing any privately held company that has touched the valuation of more than 1 billion dollars. Startups are the one which focus on proposing innovative solutions which sometimes creates entirely new business model like ride-hailing service UBER.

How many Unicorns does India Have?

In the August 2021 bulletin of RBI, It was observed that India has estimated 100 Unicorns. Ut of which 10 new ones created in 2019, 13 in 2020 and 3 a month in 2021. It has been observed that FinTechs, including e-commerce, have been leaders in the Indian Unicorn Landscape and make up about 30 percent of the value of the Indian Unicorn System.

However not only FinTech Sector, but also Indian startups in sector like education technology, food delivery and mobility have also gone unicorn.

The Next Rising Unicorns

Apart from Unicorns, the number of future unicorns called Gazelles and Cheetahs in India is also growing at an aggressive pace. Gazelle is startup founded after 2000 with the potential to go unicorn in two years with estimated valuation ranging from 500 million to 1 billion dollars. Whereas, Cheetahs may go Unicorn in four years with estimated valuation ranging from 200 million to 500 million dollars.

Benefits Given by Indian Government to Startups

 

1. Recognition of Startups

Government had launched Startup India Scheme in the year 2016, to boost the domestic startup ecosystem. This scheme helps startup to register with the government and get recognised by the government and avail the benefits mentioned therein.

 

A startup registered with DPIIT that is Department for Promotion of Industry and Internal Trade enjoys the benefit across the range of laws and regulations along with fiscal and infrastructural support.

 

 

Till date, around 50000 startups have been recognised as startups by DPIIT, present across 623 districts with atleast one startup in each State and Union Territory. While Maharshtra, Karnataka, Uttar Pradesh and Gujarat has the highest thnumber of startups. Moreover, states and union territories also have announced specific policies to support them.

 

2. Block Chain based validation framework.

Currently, Strartups need to make separate submission to regulators, intermediaries and authorities that increases not only the time related to compliance but also leads to duplication of efforts.

 

Therefore, in order to reduce the compliance burden on startups, The Indian government is focusing on making blockchain based validation frameworkthat could simplify the submission of documents in various agencies.

 

With the help of this framework, the government agencies can instantly access the documents for authentication and verification of documents available on the chain.

 

This framework will enable multiple agencies such as the Central Board of Direct Tax, banks and public sector undertakings to access, authenticate or approve documents and data available to all stakeholder on chain.

 

3. Funding

On of the biggest challenge startup faces in its initial year is funding A startup may require funding for purposes such as prototype creation, product development, team hiring, working capital, legal and consulting services, raw materials and equipment, marketing and sales, and more.

 

This is where Indian Venture Capatalist comes into play. A venture capitalist is an investor that financial A VC is an investor that financially supports a startup that has the potential to reshape markets and grow rapidly in return for an equity stake. Apart from this, a Venture Capitalist also provides startups with mentorship and guidance at different stages of their journey to really unlock the company’s potential.

 

It has been observed that the top 10 Indian Venture Captalists have backed more than 420 ventures and participated in nearly 600 funding rounds till date and the numbers still keep increasing. Apart from Venture Capitalists, Startups can also avail the benefits of Alternative Investment funds in which The startups will be eligible for Rs.10000 crore funds of funds from the Alternative Investment Funds. Or Credit Guarantee Funds wherein The startups can avail Rs.2000 crore Credit Guarantee fund through the National Credit Guarantee Trust Company or SIDBI over 4 years. Provided, the startups have to register with DPIIT or can also avail the benefit of Start Up India Seed Funding Scheme.

Other Benefits for DPIIT Recognised Startups

• Self-Certification:

After obtaining DPIIT Certificate of Recognition of Startup, the entity will be allow to self certify the compliance under environmental and labour laws.

 

• Start-Up Patent Application:

The DPIIT recognized startup are required to pay only 80% of the fees on Patents, trademark, copyrights and design, and the fast-tracking of a patent application will be available for startups.

 

• Easier Public Procurement Norms:

The DPIIT recognized startups will get an opportunity to list the product on Government e-Marketplace.

 

• DPIIT recognized startups are exempted from submitting Earnest Money Deposit

Exemption from Prior Experience/Turnover is provided for Start-ups in all Central Government ministries and departments.

 

• Easy winding up of Company:

According to the Insolvency and Bankruptcy Code, 2016, the company can be wound up within 90 days of applying for insolvency

 

• Tax Exemptions

The startup can petition for tax exemption under section 80 IAC of the Income Tax Act after receiving the Certificate of Recognition.

Angel Tax Exemption is available to startups that have been recognised by the DPIIT. Furthermore, after receiving tax exemption approval, DPIIT-recognized startups are excused from paying income tax for three consecutive fiscal years out of the first ten years of operation..

Concession to Startups regarding labour laws

 

The Ministry of Labour & Employment has issued an advisory to the States/UTs/Central Labour Enforcement Agencies for a compliance regime based on self-certification and regulating inspections under various Labour Laws in order to promote the startup ecosystem in the country and incentivize entrepreneurs in setting up new start-up ventures and thus catalyse the creation of employment opportunities through them.

It has been suggested that if such start-ups provide self-declaration for compliance with nine labour regulations during the first year from the date of the start-up, there will be no inspection under these labour laws, wherever applicable. The Labour Laws to be covered under this are:

• The Building and Other Constructions Workers’ (Regulation of Employment and Conditions of Service) Act, 1996
• The Inter-State Migrant Workmen(Regulation of Employment and Conditions of Service) Act, 1979
• The Payment of Gratuity Act, 1972
• The Contract Labour (Regulation and Abolition) Act, 1970
• The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
• The Employees’ State Insurance Act, 1948

Such start-ups are required to file self-certified returns from the second year onwards, for a period of up to five years after the units are established, and will only be inspected if a credible and verifiable complaint of violation is filed in writing and approval has been obtained from higher authorities. The nine labour laws, included are:

• The Industrial Disputes Act, 1947;
• The Trade Unions Act, 1926;
• The Building and Other Constructions Workers’ (Regulation of Employment and Conditions of Service) Act, 1996;
• The Industrial Employment (Standing Orders) Act, 1946;
• The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979;
• The Payment of Gratuity Act, 1972;
• The Contract Labour (Regulation and Abolition) Act, 1970;
• The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; and
• The Employees’ State Insurance Act, 1948.

State and Union Territory Startup Policies

A state’s startup policy is key in providing startups with the necessary finance, mentorship, and market access support they need to thrive as important revenue and job-creating contributors to the state’s economy. It also includes provisions to incentivize important startup stakeholders such as incubators and institutes of higher education, among others, in order to encourage India’s startup ecosystem’s holistic development. The Startup India team assists states with the creation and implementation of respective startup policies.

• A specialised Startup Policy is now in place in 30 of the 36 states and union territories.
• After the start of the Startup India initiative in 2016, 26 of these Startup Policies were produced.
• Each of the 36 states and union territories has at least one DPIIT-recognized startup, and each of the 623 districts has at least one DPIIT-recognized startup.

Apart from State and Union Territory policies, Central government of India has given around 124 more scheme for the benefits of startup which one can get from the startupindia.gov.in website.

India Becoming the Next Tech Hub

India as a nation ranks highly among the countries and jurisdictions that show the most promise developing innovative technologies. The Fact that India ranks high, for which, the credit goes to few handfuls of cities that showcased tremendous potential and room for growth.

New computer and software policies were established in India in 1984, and hardware and software imports and exports were liberalised. This made it possible for companies like Wipro and Infosys to be established in Bengaluru and hire Indian programmers. Ties were also formed with American firms that provided superior systems that Indian software firms benefited greatly from. Texas Instruments Inc. was the first multinational corporation to establish a development centre in Bengaluru in 1985, setting the path for many MNCs to follow in the years and decades that followed.

As trade tensions between the United States and China continue, India has an opportunity to attract technology-led investment as a viable option. Furthermore, increased government R&D investment and improved skilled labour quality could put India in a better position to compete with China for technology-driven market domination.

Conclusion

While foreign investors have previously been hesitant to invest in Indian companies due to the country’s high risk rating, India’s rapidly growing start-up ecosystem, combined with strong policy reforms, improved investment facilitation, and increased ease of doing business, has resulted in over $80 billion in foreign investment in the 2020-21 fiscal year. Domestic investment is also increasing, as Indian businesses become more aware of the opportunities presented by the country’s rapid digital transformation. Thus one can rightly say that the best place for founder to startup their place is India.

Reference

• https://www.outlookindia.com/website/story/business-news-are-venture-capitalists-acting-as-a-catalyst-for-the-startup-ecosystem/406244
• https://economictimes.indiatimes.com/tech/startups/indian-government-readying-info-bank-for-startups/articleshow/84914151.cms
• https://timesofindia.indiatimes.com/business/india-business/govt-recognises-50000-startups-across-india/articleshow/83222389.cms
• https://theprint.in/opinion/us-and-china-trade-disputes-are-an-opportunity-india-could-become-the-next-tech-hub/775920/
• https://www.news18.com/news/explainers/explained-what-are-unicorns-and-why-rbi-thinks-they-are-bringing-in-a-new-era-for-india-4107692.html
• https://www.thehindu.com/business/Industry/india-adds-33-unicorns-in-one-year-displaces-uk/article38016079.ece
• https://inc42.com/buzz/government-turns-to-blockchain-to-ease-startup-compliance-hurdles/
• https://www.businesstoday.in/latest/corporate/story/centre-working-on-blockchain-enabled-info-bank-for-startups-302954-2021-07-31
• https://www.indiafilings.com/learn/dpiit-certificate-of-recognition-for-startups/
• https://www.startupindia.gov.in/

Introduction

India has had a long history of toy manufacturing going all the way back to the Indus Valley Civilization when the toys used to be made from wood, mud and stones. Around 8000 years later, this toy making tradition seems to have found a new lease of life driven by huge demand and technological advancement. Even before Covid 19 struck, Indian toy industry had started showing signs of improvement and innovation. There is a change in the type of toys that are in demand now, moving away from the traditional cloth and wooden toys to more electronic versions of the same. With a massive growing population and a lot of technological innovation happening, Indian toy Startups have numerous factors in their favor going forward.

 

Driving factors for Toy Start-ups in India

 

Prime Minister’s Mann Ki Baat broadcast in August 2020 was an important moment for this sector. He asked the young Indian entrepreneurs to strive to make India world’s toy hub using his popular “Vocal for Local” slogan which has gained even more importance ever since the pandemic broke out and the resultant lockdowns causing supply chain disruptions, primarily from China. Talking about the small share of India in the global toy industry worth 7 lakh crore, he stressed on the need to work to increase this. The Prime Minister urged the young entrepreneurs to make toys in India and about India.

However, even apart from the call by the PM, there have been factors which have driven the indigenous manufacture of toys. Some of them are:

(1)India has a huge population base of around 1.3 billion people and almost half of that population falls in the age group of less than 25 years. This means a lot of potential for toys and games industry and a large market base to make use of.

(2)The incomes of average Indian household have risen steadily over the past few decades resulting in a rise in the disposable income. A good rate of GDP growth has ensured this and it has been observed that people are more willing to spend now than they were a few decades ago. The change in spending habits presents another good opportunity to the toy and gaming sector of India.

(3)The change in spending patterns has also meant that people are willing to spend more on the modern technological toys and games than traditional wooden and mechanical toys. This bodes well for young entrepreneurs who want to make use of technology in their businesses.

(4)A large variety of toys are now available in the market and people have a very diverse range of types and prices to choose from. The families can buy the toys or games according to their economic capabilities and still get a very good deal. Puzzles, dolls, building toys, war tanks etc. are available at very low and very high prices making them affordable for every income group.

(5)The growth and penetration of internet has also meant that another distribution channel, namely online, has opened up new avenues for those involved in toy businesses. Like every other business, the toy and games sector has also benefitted immensely from online distribution.

 

Players in Indian Toy industry

 

The emerging demand has motivated the toy companies to manufacture more and new toys and games and be more innovative.

Chennai based Ariro has all wood toys made for children under 8 years of age. These types of toys pose very little risk to children and the toys are not very complex so the children can play and enjoy . General Knowledge based card games by Skillmatics have also become very popular and can be enjoyed by the whole family. It can turn out to be a great learning exercise where kids get to know more about animal kingdom, ports, cities etc.

Ariro has seen phenomenal growth ever since the pandemic hit. Their toys are tailormade for demands by parents of keeping their children away from screens and technology. Their wooden toys keep the children busy while also ensuring that they are also exercising. Their 16 categories of products range from stackers and nesters helping children learn about shapes. They are looking to expand more in the upcoming years.Funvention, on the other hand, is about plants and seeds.  Their kit lets kids set up a germination stand where easy to plant and easy to grow crops can be grown and these activities of the children can be monitored by the parents of the children. This is a unique concept and is getting popular with kids. The owners c,liam that sales have skyrocketed in the last year or so.

Apart from this, there has been a recent rise in toy companies focusing on ethnic toys and Indian history. Startups like Mumbai based Toiing, Bengaluru based Vrnam and Chennai based Kreeda games are the prominent ones providing kids a slice of their own history through toys and games. This is in sync with the PM’s call to make more toys about India and its rich heritage. Toyiing, for instance, has a lot of do-it-yourself toys to offer. Many of these teach kids about Indian mythology and have Ganesha, Krishna and Ravan.

Kreeda games is looking to do something similar albeit in a different manner. They are attempting to familiarize Indian kids with mythology through games featuring Jambavan and Kumbhakarna. Games like Battle of Lanka and Search for Sita have added value because of the knowledge they give to the kids.

Founder of Varnam states that, wooden toys have always been a hit, but parents have been skeptical nowadays because of poor paint or unclean finishing. Varnam tries to correct this by making child friendly baby walkers and stackable dolls. Kreeda is also planning to launch a very ancient game soon. All these developments make the Indian toy sector very interesting and a thing to watch out for in the coming years.[i]

With the big players like Lego, Hot Wheels, Mattel Inc and Mega blocks still going strong and retaining their positions as top players in the Indian toy market, it is going to be very interesting to see if and how the upcoming Indian manufacturers can compete with these global giants.

 

Toy Startups raising money

 

 

In 2018, New Delhi based, Smartivity Labs announced that it had successfully raised 2 million dollars from Lucky Securities and others. Smartivity is a STEM edtech toys company and the investors had confidence in its growth. The investors thought that technology in toys is a big revolution and is going to build a force of tech savvy kids which the parents would love.[ii]

Skillmatics, in 2021, raised 6 million dollars in a series A funding round ked by Sequoia capital and others. Founded in 2017, this startup has seen a lot of growth over the years and sold 3 million toys from approximately 15 thousand retail stores. While they have primarily been limited to North America and India, they said that they will use these funds to expand their reach and operations into other parts of the world. Funds raised will be utilized in strengthening the online and offline presence in US as well. Affordability is the edge with Skillmatics, since they have priced their products in a range of INR 299 to 999.

PlayShifu, an early learning toy company, raised a whopping 17 million dollars from Inventus Capital and Inflexor Ventures joined in as a new investor confirming the growing confidence of investors in Indian toy sector. The company has seen its user base increase from 250,000 in 2019 to 600,000 in 2020.It attempts to reduce the screen time of children and has, for this reason, gained popularity among parents.[iii]

Imagimake Play Solutions, a startup in the toys and gaming sector, has raised 4.4 crore rupees in a pre series A funding round from Roha investment. Imagimake provides an innovative range of products that cater to art & hobby, educational toys, puzzles and 3D model-making sets, facilitating holistic child development. It has established itself as one of the leading players when it comes to artist supplies and construction games and is only expected to grow more from here.

 

Procedure for setting up a Toy Start-up in India

Quality Control order has been issued by the Department for Promotion of Industry and Internal Trade (DPIIT), for standardization and quality adherence of Toys. The order came into effect from 1^st January, 2021. It exempts goods manufactured & sold by artisans registered with Development Commissioner (Handicrafts) and also exempts products registered as Geographical Indications.[iv]The Toy Quality Control order, which came into effect from January 1, 2021, requires all toys and materials designed or intended for use in play by children below 14 years of age to be certified by the Bureau of Indian standards (BIS) and therefore requires all toy manufacturers to comply with BIS to receive the certification. The new QCO also requires all toymakers to set up quality control labs to test their toys, and then have them inspected by BIS officials.

The purpose of introducing this Quality Control Order is to ensure safety of children and is also in sync with the government policy of keeping non-essential import items under check. The critical Indian Safety Standards for toy in the Toys (Quality Control) Order are summarized below:

l.No	Indian Standards	Details
1	IS 9873 (Part 1): 2019	Mechanical and Physical Property
2	IS 9873 (Part 2): 2017	Flammability
3	IS 9873 (Part 3): 2017	Migration of Certain Elements
4	IS 9873 (Part 4): 2017	Slides, Swings and Similar Activity Toy for Outdoor and Indoor  Domestic Use
5	IS 9873 (Part 7): 2017	Finger Paints
6	IS 9873 (Part 9): 2017	Certain Phthalate Esters in Toy and Children’s Product
7	IS 15644:2006, reaffirmed the year 2016	Safety of Electric Toy

 

You can choose to enlist with the Startup India Program. Being a part of the Startup India Program entitles you to get funds with a lot more ease and also get some tax benefits for your startup, all of which will help you get through the initial difficult years. An entity shall be considered a startup if:-

(1)   It has been incorporated either as a Partnership firm or a  Limited Liability Partnership or a Private Limited Company.

(2)   10 years have not passed since the incorporation.

(3)   If the turnover of the entity for any of the financial years has not crossed INR 100 crores.

(4)   If the entity is working towards any innovation or is a scalable operation capable of wealth creation.

                                   Conclusion

To reiterate, the toys and gaming industry is set to boom in India in the upcoming years. If the government policies remain favorable, it can be a very lucrative business choice for many young entrepreneurs. We have already seen how the confidence of investors has been growing and they are willing to invest big amounts. Part of the reason of this growing confidence is the innovation of the new startups and the large untapped market to explore in India.

With a mix of technology and traditionalism, toy start-ups have found the perfect recipe to succeed in India. The affordability of these toys gives an added incentive to the parents to buy these toys considering a huge middle class in India. Foreign giant corporations have enjoyed success in this sector for a long time owing to the technological edge and the funds they have had at their disposal. Slowly, but surely, this is changing for the better for Indian manufacturers and it can be a great time to take the initiative and enter the industry.

                                    References

[i]https://timesofindia.indiatimes.com/trend-tracking/these-startups-are-bringing-to-life-ethnic-toys-ancient-games/articleshow/67151290.cms

[ii]https://bfsi.eletsonline.com/stem-based-toys-startup-smartivity-secures-2-mn-funding/

[iii]https://www.business-standard.com/article/companies/ar-based-toy-startup-playshifu-raises-17-mn-in-inventus-led-series-b-round-121040600942_1.html

[iv]https://investmentguruindia.com/IndustryNews/Handicraft-GI-Toys-exempted-from-Quality-Control-Order

 

What is Arbitration?

Arbitration is a process to help parties resolve a dispute and come to an agreement. Arbitration is one of several forms of ADR designed to be cheaper, faster, and less formal than litigation, or going to court to try and settle the matter. In an arbitration, the disputing parties present arguments and evidence to an independent and impartial third party – a dispute resolution practitioner known as an arbitrator – who makes a determination. Similar to court, this arbitrator’s decision is binding.¹

The main reason why many businesses including well established businesses opt for arbitration in the first place instead of litigation is that arbitration is a faster and more flexible approach towards resolving a dispute. Also, it ideally ensures that both parties are made to understand what a particular outcome of an arbitration process is and why such outcome is concluded. Essentially arbitration is an out-of-court-settlement procedure that enables both parties to a dispute to resolve their dispute faster without spending a lot of time and money on litigation.

As such, startups having no or little money may take advantage of this procedure. It will help them get many disputes resolved without having to take the hassles of litigation which includes extensive paperwork as well as a lot of expenditure of money and is time consuming as well.

 

 

  Arbitration Process

 

The following is the process that is usually followed in arbitration¹²:

1.     Filing and Initiation: An arbitration case begins when one party submits a Demand for Arbitration to the AAA. The other party (the respondent) is notified by the AAA and a deadline is set for a response.
2.     Arbitrator Selection: The AAA works with the parties to identify and select an arbitration based on the criteria determined by the parties.
3.     Preliminary Hearing: The arbitrator conducts a preliminary hearing with the parties, to discuss the issues in the case and procedural matters, such as witnesses, depositions, sharing information, and other matters.
4.     Information Exchange and Preparation: The parties then prepare for presentations and exchange information.
5.     Hearings: At the hearing, both parties may present testimony and evidence to the arbitrator. Unless the case is very complex, this is usually the only hearing before the arbitrator.
6.     Post-Hearing Submissions: After the hearing, both parties may present additional documentation, as allowed by the arbitrator.
7.     The Award: Finally, the arbitrator closes the record on the case and issues a decision, including an award, if applicable.

 

    Where can arbitration be held?

The venues where arbitration can be held are usually specified within the contract of the disputing parties itself. Nonetheless, according to the type of contract, the nature of transaction entered into, the business of the parties and the jurisdiction, arbitration may be held at places according to the type of arbitration purported within the contract itself. As such, the following are the various types of arbitration proceedings. These effect the place of arbitration accordingly.

1.     Domestic Arbitration
2.     International Arbitration
3.     International Commercial Arbitration
4.     Institutional arbitration
5.     Ad hoc arbitration
6.     Fast track arbitration
7.     Voluntary & Mandatory Arbitration
8.     Binding & Non-Binding Arbitration

 

    Current Domestic Scenario of Arbitration

Arbitration in India is regulated by the Arbitration and Conciliation Act, 1996. The Act is based on the 1985 UNCITRAL (The United Nations Commission on International Trade Law) Model Law on International Commercial Arbitration and the UNCITRAL Arbitration Rules 1976.⁴The history of Arbitration dates back to the British Era. The last Arbitration Law that was codified during that time was the Indian Arbitration Act, 1940. The Indian Arbitration Act, 1940 dealt solely with the previously uncodified body of law concerning domestic arbitration proceedings. The objective of the 1940 act was to consolidate and amend the law relating to arbitration.

Thereafter, after the adoption of the UNCITRAL model of the International Arbitration Law, the Arbitration and Conciliation Act, 1996 was enacted. The Arbitration & Conciliation Act, 1996 repeals the Arbitration Act, 1940; the Arbitration (Protocol and Convention) Act, 1937; and the Foreign Awards (Recognition and Enforcement) Act, 1961 and reformulates the law in one consolidated statue. It also seek to amend and consolidate the law relating to domestic arbitration, international arbitration and the enforcement of foreign arbitral awards.⁵

As per Section 5 of the Arbitration and Conciliation Act, 1996 the court cannot interfere in the arbitration proceeding except wherein provided by the act in the following situations:

1.     Where an arbitrator needs to be appointed when the parties cannot appoint a mutually independent arbitrator.
2.     In cases of taking the shreds of evidence.
3.     Where the court is ruling in the cases as the arbitrator is terminated due to incapacity or other sufficient reasons mentioned under the Act.

Section 8 is a companion section which says “where a party has approached the judicial court to dissolve a dispute and it is exclusively to be trailed by the arbitrator, then the court must direct the person to start the arbitration proceeding first without any delay and may come later to the court when arbitration award has been made.”⁶

 

    Frequent Issues in Arbitration

Arbitration is not an option to choose if problems are to be avoided totally. Arbitration faces some issues such as:

1.     Delay due to clashing dates for the legal representatives of both the parties.
2.     Delay due to non-availability of Arbitrator.
3.     Issues relating to administration and management of arbitral institutions.⁷
4.     There is a small scope of appeal in the arbitration award. The very fact that there is less scope of appeal in awards is one of the most glaring disadvantages of arbitration. whenever there is a problem with the award, there would be no scope of appeal or correction.⁸
5.     In some countries, there are different statutes for domestic and international arbitration. This makes it difficult to ascertain the applicability of the laws relating to international arbitration.⁹
6.     One of the major issues faced during arbitration is the cross-cultural language barrier. There is always a discrepancy in the language and culture of the two regions. It becomes very difficult to bridge the gap and come to a unified solution.¹⁰
7.     There is no jury to decide the outcome of a dispute, but rather, the decision rests solely in the hands of the arbitrators, whom usually consist of one individual or a panel of three persons, that may or may not be able to remain entirely impartial during all proceedings regarding all matters.¹¹

 

 Conclusion

In a country like India, where there is a high pendency of cases and the Courts are usually taking up only urgent matters due to the pandemic, it becomes a very attractive option for many disputing parties to opt for arbitration instead of going to the Court. Also, recently the Legislature passed an Act establishing an International Hub for Arbitration at New Delhi. Thus, the Government is also inclined to encourage arbitration matters. As such, going for arbitration becomes even more reasonable.

  References

1.     https://biztechlawyers.com/arbitration/.
2.     https://en.wikipedia.org/wiki/International_arbitration.
3.     Supra at point 2.
4.     https://www.clearias.com/arbitration-in-india/.
5.     Uzair Ahmad Khan, Concept of Arbitration in India, iPleaders BLOG, (Oct. 13, 2021, 8:20 PM),

https://blog.ipleaders.in/conceptarbitration/#:~:text=%20Concept%20of%20Arbitration%20in%20India%20%201,repeals%20the%20Arbitration%20Act%2C%201940%B

%20the…%20More%20.

6.     Shreya Tripathi, An Overview of Arbitration in India, iPleaders BLOG, (Oct. 13, 2021, 8:30 PM), https://blog.ipleaders.in/an-overview-of-arbitration-in-india/.
7.     https://www.clearias.com/arbitration-in-india/#:~:text=Issues%20relating%20to%20administration%20and%20management%20of%20arbitral,trained%20administrative%20staff%2C%20lack%20of%20qualified%20arbitrators%2C%20etc.
8. https://www.legalbites.in/advantages-and-disadvantages-of-arbitration/#:~:text=Disadvantages%20of%20Arbitration%201%20No%20Appeals%3A%20There%20is,language%20and%20culture%20of%20the%20two%20regions.%20.
9. Ibid.
10. Ibid.
11. https://www.lawfirms.com/resources/lawsuits-and-disputes/arbitration/disadvantages-arbitration.htm.
12. https://www.thebalancesmb.com/what-is-the-arbitration-process-how-does-arbitration-work-397420#:~:text=%20How%20the%20Arbitration%20Process%20Works%20%201,prepare%20for%20presentations%20and%20exchange%20information.%20More%20

Young businesses may, in an attempt to cut legal, spend, rely on free online template to as their base document for contracting. Whilst the idea of cutting costs certainly tickles one’s ears, relying too heavily on dubious or inappropriate online free templates could ironically result in larger costs. It may be prudent to engage a lawyer to draft the contracts that you need instead.

Before addressing why, you should have a lawyer draft a contract for you, it would be helpful to discuss contracts generally. Quite simply, a contract is a promise, or set of promises, which the law will enforce.

There is no requirement that contracts be in writing. People are often surprised to hear that oral contracts are just as enforceable as written ones. For example, if your neighbor told you he would pay you 500 Rs. to mow his lawn, and you[i] then mow his lawn, that would make a valid contract. If your neighbor then refuses to pay you, he would be breaching his promise to pay you 500 Rs.

However, it is often best to get an agreement in writing simply because it is much more difficult, and costly, to prove the existence and terms of a verbal contract than it is a written one. In the above example, if you had to go to court to get the 500 Rs, your neighbor could say he offered 50 Rs not 500 Rs. or he could conveniently deny saying that he would pay at all.

The contract is a legal document. The two sides are making a legally binding agreement in which the law will be enforceable. There are legal consequences for the side that fails to keep its promises. The contract must not only memorialize the agreement, but it must be written in a way that makes the agreement enforceable in court.

 

That is the reason that a well drafted contract is very important for your business. Understand it more by following points;

 

THE IMPORTANCE OF WELL-DRAFTED CONTRACTS FOR YOUR BUSINESS

Everyone knows the value of a contract. It enables parties to come to mutually beneficial agreements which facilitate innovation, creativity, and business expansion. But drafting a contract is easier said than done. A layperson could draft something that looks like a contract, but is woefully inadequate. It may even contain provisions that are not enforceable. A poorly drafted contract creates ambiguity, confusion, and misunderstandings that can derail business and other deals.

To write an effective contract, you need to understand that it must accomplish several different things. The contract must protect your interests so that if there are any issues later, you have the law on your side. The contract must accurately describe not only the deal but also what each side is exactly promising to do. At the same time, the contract must be written in a way that the other side will be comfortable signing it and moving forward with business. Contracts that are completely lopsided and unfair can be challenged in court.

Almost every relationship between your company and others – and among entities within your company – should have a contract. Most people realize this, but they either don’t reduce agreements to contracts or they attempt to draft their own. Without an understanding of Indian contract law, either of these is risky.

The objective of entering into a contract is to clarify the parties’ obligations while providing them with legal protections. To do that, you need a contract that is customized for the exact needs and nature of your business. A good contract makes litigation less likely by providing enforceable rights and remedies upon breach.

 

CAN I DRAFT MY OWN CONTRACT?

 

It’s possible to draft your own contract. However, you should hire contract lawyers to draft your contracts for the same reason most people don’t fix their own cars. They will take on the liability of avoid legal mistakes while ensuring that your agreements are valid and enforceable.

 

WHY HAVE A LAWYER DRAFT A CONTRACT?

Having a lawyer draft your contracts gives you following distinct advantages:

• Lawyers give you an invaluable outside perspective on the terms of the deal. In addition to their legal skills, contract lawyers are also detailed oriented and excellent problem solvers. Having a lawyer prepare your legal documents gives you an outside perspective on your business dealings. Sometimes the people involved are too close to the negotiations to notice potential problems with the structure of the deal.

 

• Lawyers make sure the end product is a legally enforceable agreement. Contract lawyers have a specialized knowledge. They have seen firsthand why the exact language used in a contract matters. It might seem silly but something as minor as the placement, or misplacement, of a coma can make alter the way a particular clause in the contract might be interpreted by a court. When there are only two sides in a deal and things go south, there can only be one winner and one loser.

 

• When you hire a contract lawyer to draft a legal document you are getting the expertise of someone who understands how the courts will interpret and enforce the different terms of a contract. Having a lawyer draft your contracts is the best way to make sure that a court will view your contract the same way you do. Contract lawyers add stability and predictability to financial and personal agreements.

 

• When it comes to contracts, “close enough” is not good enough. The contract must be precise if it is to give you the maximum protection of the law. Because a contract has several technical legal requirements, if your written document leaves out a single key element, you will be left with something that describes the intentions of the parties, but is not legally enforceable. It leaves you unprotected in the event the other side fails to make good on their promises.

 

DANGER OF USING FREE ONLINE TEMPLATES?

There are many dangers that come from writing your own contracts without the input of a contract lawyer;

• One of the functions of a contract is to prevent future disputes between the two sides. This requires that the contract use precise language to describe the duties and responsibilities of both parties. When people create their own contracts, they often do not realize how vague their language is. For example, one common contractual term is “timely.” If timely is not defined in the contract, this one word can lead to expensive litigation. One side may feel that a delivery within 30 days is “timely” while the other side may face economic ruin because it understood “timely” to mean within a week. This vague term could land the two parties in court facing an uncertain outcome.

 

• Another danger of DIY contracts is that they almost always fail to adequately address a number of potential issues that might come up, particularly in the event things do not go according to plan. Most people and businesses write contracts as if nothing will ever go wrong between the two parties because the deal is too important. Contract lawyers have seen enough deals go bad that they draft contracts to address common issues in commercial relationships.

 

 

• When something bad happens down the road and the parties have not addressed it in their contract, one side usually gets it in the bum.

 

• Another commonly seen issue with self-drafted contracts is that they may not be enforceable at all. Additionally, they may contain provisions that are enforceable in one state, but not enforceable in others. A contract lawyer will ensure that all of the essential elements for an enforceable agreement are present in the document.

 

 

• These online contracts are boilerplate forms, which may not have been drafted with INDIA in mind. A lawyer who has never even practiced contract law in INDIA may have created the template you are thinking about downloading. This is a problem because not all countries/states have the same rules and laws when it comes to interpreting different contractual terms.

 

• Another issue is that these templates do not take into account the specifics of your situation. No two people or businesses are exactly alike. If you are using a form contract, you may find yourself in serious trouble when a contract dispute arises. It is during contract disputes and resulting litigation over form contracts that people and businesses learn that it is much more expensive to edit a form contract than it is to have one drafted correctly in the first place.

 

 

• Nor are these contracts tailored in any meaningful way to the specifics of your agreement. Instead, they usually spout a bunch of flowery legal gibberish that older attorneys or lay people think are significant. The modern trend in all legal writing, including contracts, is to write in plain, clear, and easily understood terms.

 

It is completely understandable that many people and businesses want to save money on legal costs and succumb to the temptation to grab a few form contracts off Google. However, the cost to hire an attorney, who properly prepare a contract is likely surprisingly cheaper than you might think. Moreover, the cost to litigate a contract dispute over poorly worded clauses will certainly cost much more than having a professional write the contract in the first place.

When you hire an attorney to draft a contract you are getting a custom document that was drafted specifically for your situation and to protect your specific interests.

 

CONTRACT DRAFTING AND LEGAL DOCUMENT PREPRATION

 

If something is important enough to create a contract, you should invest in making sure the contract itself actually protects your interests. Experienced contract lawyers understand that when drafting a contract for their clients, they must create a legal document that serves both the business and legal needs of the person or company.

 

A legal firm has written thousands of legally binding contracts, in plain language, for a variety of personal and business situations. They use their extensive contract law experience to draft contracts that serve the purposes of your business, seek to avoid disputes, and in the event litigation becomes necessary, will be enforceable in court.

Often businesses use free online contracts for partnership agreements, employees, consultants, vendors, etc. Since these are such important relationships, you need to be confident those contracts indeed benefit and safeguard you and your business.

 

NEED & PURPOSE OF CONTRACTS

Your need for contracts can arise in several circumstances. With the growing demand for your service or products, you may need to expand your team. This necessitates employment and independent contractor agreements. If you’re offering a service, you have clients and you need to have a client service agreement to avoid problems. Same goes for products, if you’re selling products you need Terms and Conditions, a Privacy Policy, and a Refund and Exchange Policy.

 

The purpose of written contracts with partners, shareholders, employees, contractors, suppliers, vendors, and customers is to:

• Solidify your relationships with these parties,
• Clearly describe each party’s rights and responsibilities,
• Avoid liability
• Avoid payment disputes or non-payments by clients and customers
• Avoid future disagreements in general, and Preemptively agree on how to handle disagreements.

Your contracts can only do their job if they accurately reflect your situation and intentions. If you use a free contract template that you found online or got from a friend or another business to save money, you end up in agreements that may not fulfill their purpose or worse, harm you because you have clauses you don’t fully understand that the other party can take advantage of, placing your business at risk for costly disputes. You may save money now only to be forced to spend a lot more later.

 

QUESTION TO ASK YOURSELF BEFORE DOWNLOADING A FREE CONTRACT

Let’s say your startup is expanding and you want to improve your organic and social search traffic. You hire an SEO strategy consultant because you want more people to find you online. You now need an independent contractor agreement, and your first thought is to pull one from the internet, seriously!!!!

There is no shortage of free or low-cost independent contractor agreements online. However, broad issues with free contracts can be summed up with these questions:

• Do you know how each provision affects both parties?

Many online business contract templates are full of gibberish in terms of art. You may see terms like “represents,” “warrants,” “indemnify,” “joint and several liabilities,” “damages,” “caveat emptor,” “de facto,” and the list can go on. If you lack experience with legal jargon, then there are times when you may not make the best guess as to what certain provisions mean. If you cannot understand how each provision impacts your business, your consultant, and your business relationship, then you need to speak with an attorney before signing.

• Do you know if each provision is enforceable?

There are many restrictions to what you can agree to in a contract. A good example is an arbitration provision. Many online contracts include a boilerplate mandatory arbitration clause. This typically requires parties to submit a dispute to arbitration instead of immediately filing a lawsuit. There’s nothing inherently wrong with an arbitration provision, but you may not want to be at the mercy of someone else to make one final decision on who wins the case and the amount. You may want to be able to appeal the decision and request much more in damages though litigation.

There is also the question of whether the arbitration provision in your contract enforceable in your state or chosen venue? If you aren’t sure, then the arbitration provision in your free contract template can do you more harm than good. If your relationship with your consultant goes south, you could find yourself in costly litigation regarding whether the other party must abide by that provision or not.

• Do you know what you’re missing?

You obtain an independent contractor agreement from the internet, read it over, and everything makes sense. There is a provision that makes it clear the person is an independent contractor and not an employee. There is a clause regarding your ownership of the work product. There is a place to insert duration and payment terms.

 

Everything looks ready to go, but do you know if the agreement is missing something essential? Is there a clause you should have in the agreement that is not there? Is there a part of a provision that should be clarified or expanded? One of the dangers of using online contracts is that you don’t know when something isn’t there that should be and how that could hurt you in the future.

 

BENEFIT FROM A LEGAL FIRM

If you answer one or more of these questions with a “no,” then it is best to work with an experienced attorney to negotiate and draft your contracts. Whether you’re a startup or a small to mid-size company, you need to protect the business as much as you can. By working with an attorney experienced with contract drafting, review, and negotiation instead of utilizing free contract templates, you obtain a clear understanding of how an agreement impacts your business, how the contract mitigates the risk of disputes, and how it controls the resolution of a potential disputes.

 

References

https://www.contractscounsel.com/b/contract-drafting

https://www.rosenbaumtaylor.com/well-drafted-contracts/

https://gulisanolaw.com/why-you-should-have-a-lawyer-draft-a-contract/