Entrepreneurship Industry News

‘Start-ups in India need Chapter 11 equivalent’

Serial entrepreneur cites need for dignified exit in start-ups

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There is an urgent need to have a Chapter 11 equivalent in India for the start-up ecosystem to flower without Stayzilla-type mishaps, according to R. Ramaraj, a serial entrepreneur who was also a co-founder of Sify, the first private ISP (Internet service provider) in India.

This chapter of the U.S. Bankruptcy Code provides for reorganisation, usually involving a corporation or partnership that owes more than it can repay. A chapter 11 debtor typically proposes a plan of reorganisation to keep its business alive and pay creditors over time.

“It is still early days for start-up entrepreneurship in India,” Mr. Ramaraj said. “Some are bound to go belly up,” he added. He felt that it was wrong to label every start-up closure with the same brush. Mr. Ramaraj was of the view that the ecosystem should provide a dignified way out for everybody in the start-up game.

His views must be read in the context of the recent happenings at Stayzilla, a start-up venture, which saw its founder put behind bars in the wake of a criminal complaint filed by a vendor for non-payment of dues.

He said that the start-up ecosystem in the country was still in its infancy and evolving.

The start-up investor community (comprising private equity players, venture funds and angel investors) was still maturing, he said. He admitted that there was a sense of hurry in the start-up ecosystem to grow faster. “There is a hurried push to grow faster than their ability in some cases,” he said.

To a question, he indicated that investors’ ability to fund a start-up wasn’t infinite, after all. “You don’t expect them to put more good money after bad money,” he added.

Mr. Ramaraj said the entire community — comprising investors, owners, vendors — should ‘grow up’ a bit so as to facilitate a healthy and robust ecosystem for businesses to survive and move forward.

Read More: thehindu.com