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Twelve Years of Indian Startups – Part II

After landing in India, I realized the bureaucracy was going to make it really difficult to get started. I won’t bore you with the details but it took me eight months from the day I landed in India to having all of the required papers in place in order to setup a Private Limited company (or corporation). I’m sure the process is much easier today to set up a company but it is definitely not easy to shutdown a company in India.

The view from my balcony

Once I got the company registered, I started looking to hire a few people. I used headhunters, job boards, and, of course, asking people I had been meeting in Delhi. I tried pretty much everything under the sun that I could think of. I hired two interns, one of which was the younger brother of another founder I had met. A few weeks went by and I hired my first full-time hire.

To be honest, though my long-term vision for a reverse auction platform serving the labor force in India was something clear, I had no idea what the magnitude of the problem was and the kind of people I needed to hire. I thought I needed developers so that’s what I tried to hire before anything else.

I interviewed anyone that was desperate enough to to work at a startup (in 2007 working at a startup was definitely not where the cool kids were). Finally, I found another developer who was a Microsoft dev and didn’t quite have the technical background in LAMP technologies. I made a bunch of mistakes in the interview. I should have asked more in-depth technical questions but, instead, I was satisfied with theoretical answers to my questions. I wound up letting this developer go on their first day, partly because of my own mistakes in interviewing and hiring and, in part, because the developer only had theoretical knowledge and wouldn’t be able to contribute to building the product for a long time.

A few months later (probably around April 2008), I was out of town for a funeral. The two interns were working on an important piece of the project. Unexpectedly, I got an email that they were both quitting. Together. Effective immediately.

Most interns didn’t get paid in India back then. I was paying them from day one and relative to what other recent college graduates were getting paid, these college students were getting paid very well. Needless to say, I was furious and shocked at the lack of professionalism by these two interns. They quit right in the middle of an important deadline with an email while I was out of town. I have the email they sent me and my response. Perhaps I will redact some of the emails and share them.

At this stage, I was completely and utterly dejected. I had no idea what I was doing. I was beaten down and there wasn’t a day that went by where I didn’t want to throw in the towel and head back home, to New York City.

I Kinda felt like this truck…or what was left of it.

I still had enough money left to continue bootstrapping this small company, so I continued to push ahead (completely uncertain in which direction I was actually going). The same acquaintance whose younger brother bailed on me was working out of small incubator in Okhla, Delhi. I went to check it out and see if I can get some space. I moved in with my sole developer. I was more confused than ever about how to build out a team that could build the product I needed. I dusted off the cobwebs and started teaching myself PHP while looking for a designer to join us. Eventually, I found a designer and hired him. He wasn’t too thrilled about using Gimp instead of Photoshop but I wanted to see what he could do before spending the money for a product no one else knew how to use. I never really got the chance to find out. After multiple absences during his first week of work (on one instance, his mother called to tell me he wasn’t feeling well), I had to fire him as well.

I’m a little hazy on the time lines now but somewhere around the middle of 2008, I got involved with organizing BarCamp Delhi and that eventually led me to co-founding the HeadStart Network and launching Startup Saturday Delhi. My initial reason for getting involved was to broaden my network and find good people to hire. Also, around this time, I met two people from IAN (Indian Angel Network). They both wanted me to come and pitch IAN but I wasn’t ready to raise money. I viewed raising money from outsiders as something I should do only after I figure out the basics of building this business.

I can’t find any screenshots but we did a soft launch of Semblr in August of 2009. It was a rough and rocky road getting there but we got there. Building a two sided market was much harder than I thought. I quickly found that not having background checks in India was going to be a problem and scaling the process of doing “police verifications” across the city was going to cost a lot of money.

By December, I was almost out of money and I decided to start doing some services to generate a little cash to pay my employees (I had hired a few folks again). That didn’t work out so well. Our first client didn’t pay me for the work we did and instead, hired away my employee that was working with them.

That was pretty much the end of Teknatus Solutions. More or less, that day, I decided to shut it down. I told my last employee (also my first full-time hire) that I would help him find another job but I was done. He was the last person to walk out of the office and turn off the lights. I still try to see him whenever I’m in the same city.

Running a startup in India was an incredibly difficult and it forced me to reexamine a lot of what I had learned about doing business and running operations over the previous 10-15 years. It was more importantly, extremely adventurous, exciting, and educational experience. I wouldn’t trade it in for anything. I learned a lot more about doing business in India than I ever would have in a MBA program or at a job. The experiences gave me a lot to digest and learn about myself which I may not have had the chance to learn had I not taken the leap. The opportunity for introspection that “failing” in a startup gave me has been invaluable but most of all, the people I met and the relationships I built over the last twelve years is something I will always cherish.

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Seven Steps to Starting a Company in India

Picture Copyright of claudiogennari

This is part I in a series of posts about issues faced by Teknatus Solutions Private Limited in India from 2007 – 2010. Being the first part, I’m going to look at the steps needed to get a business registered in India. I’ll examine the case of a foreign national/foreign company looking to setup an Indian subsidiary.

Rules in India for registering a company a quite onerous and time consuming. However, shutting down a company is even more difficult so make sure you need to register a Private Limited company or a LLP before going down this road.

Disclaimer: This is not legal or financial advice. Consider this nothing more than an explanation of what I did, and why I did it this way.

Find a Recommended Chartered Accountant (CA) and Lawyer

As with any country, when starting a business, it’s advisable to have a good accountant and lawyer working with you. In India, CAs provide a great deal of legal advice as well as accounting advice. I suggest finding a CA and lawyer in your city that is recommended by someone you know and trust. It took me some time to find a good one that fit into my budget but when I did, his firm took a great deal of burden off me in setting up the company and dealing with the various bureaucracies.

Apply for a PAN (Permanent Account Number) Card

The first thing required to do anything in India is to get a PAN Card if you don’t already have one. If you’re a foreigner or NRI, you probably don’t have one. If you’re a foreigner or NRI moving to India, apply for a PAN Card as soon as possible. The Indian government recently announced that they will begin accepting PAN card applications at embassies and consulates so please check with your local consulate/embassy first. If you’re in India already, the best thing would be to call the IT (Income Tax) Department Hotline and ask them where the closest PAN card processing center for foreigners and NRIs is. Some centers, do not accept applications from foreigners or NRIs. If you’ve already found a good CA or lawyer then they can probably take care of this for you. However, I found that Chartered Accountants, Agents, and Brokers in India were not very effective in obtaining a PAN Card for foreign nationals, though, they were always very confident that they could get it done quickly and easily. Instead, calling the IT Hotline and going in person to apply can be much cheaper and quicker.

  1. Call the IT Hotline for the closest processing center
  2. Go to the processing center with 2 passport photographs (Indian size passport photos, not US size passport photos), a proof of address such as an MTNL/BSNL phone bill, bank statement, or passport copy with your address on it.
  3. Submit the application and if all is in order, you should have your PAN card within a week.

Apply for a DIN (Director Identification Number)

A DIN is required for any and all Director’s of an Indian company. The DIN number is used by a Director for various government and official correspondence as well as opening up bank accounts, etc. As soon as you receive your PAN Card, you should apply for a DIN if you are going to be a Director of the company.

  1. Apply for a provisional DIN
  2. Pay the DIN application fee as described
  3. Print out and mail in the DIN Application within 60 days of applying for the provisional DIN. It should be noted here that foreign nationals will need to provide a copy of their passport with the application. The passport will need to be notarized by the local Indian Embassy or Consulate. Before they will notarize the passport, you will also need an apostile from your local city or state government. If you already in India, you will need to go to the Ministry of Foreign Affairs or the local FRO office and have them notarize your passport copy before it can be submitted. If you get the passport notarized by your country’s embassy, you have a 50% chance of being rejected and you’ll need to apply again.

Apply for a DSC (Digital Signature Certificate)

The Indian Ministry of Corporate Affairs has a pretty good explanation of how to obtain the DSC and the approved issuers or certificate authorities from whom you may obtain a digital certificate.

Apply for a Company

This step is probably one of the more complicated ones and I do suggest having your CA handle this step. I found that having my CA get the DIN, DSC, and submit the application of incorporation to the RoC (Registrar of Companies) was fairly cost effective and saved me a great deal of time and aggravation. However, if you choose to go ahead and do it yourself, you should look into the MCA offices in your area and follow the steps necessary to form a Private Limited company in India.

In either case, you must do the following:

  1. Find four possible names, in order of preference, that you would like to use for your company. The company names cannot be in use already and the company name must end in “Private Limited” for a privately held company.
  2. Once a name has been approved by the RoC, submit the Memorandum of Association and Articles of Association. These two documents are critical and for the most part, they are fairly standardized. Your CA will provide these to you for filling in the blanks and then submit them to the RoC on your behalf. Your CA will also guide you in what other supporting documents are necessary.
  3. If everything is in order, you will receive the Certificate of Incorporation

Apply for a Company PAN Card

Once you receive the Certificate of Incorporation, you will need to apply for a company PAN Card. You will not be able to open up a company bank account without a company PAN Card. Typically, you can apply at the place where you submitted the application for your personal PAN Card or your CA/lawyer can usually handle this for you.

Apply for a Company TAN (Tax Account Number)

The TAN will be used for collecting or depositing tax deducted at source (TDS). Like most forms in India, you can fill out the form online, print it out and send in a hardcopy. A list of processing centers can be found here. Consider having your CA or lawyer handle this along with the company PAN card.

The steps I’ve outlined here are pretty general and one thing to note is that the rules and requirements for many things in India change depending on who you speak to you or who’s got your file on their desk. For example, my DIN application was rejected because my passport copy was notarized by the embassy and NOT the Indian consulate or the Indian FRO office. However, the other Director’s DIN applications was successfully processed. Hence, you should know the requirements and know the process but it makes life much easier if you have a trusted resource to handle the bureaucracy for you. If you’re having trouble finding a lawyer or CA in India to handle things for you, post a comment and hopefully, we can get you the right person.

Resources

  1. Ministry of Corporate Affairs
  2. Director Identification Number
  3. Digital Subscriber Certificate
  4. DSC Issuers
  5. MCA Steps to Incorporation
  6. Indian Income Tax Department
  7. DoingBusiness.Org

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