Bihar Startup Policy: Moving Bihar Startups and Ecosystem to Next Orbit
Bihar Startup Policy 2022 and its implementation led from the front by Sh. Sandeep Poundrik, Secretary, Department of Industries and his team has energized the startup ecosystem and interest in Bihar which was missing for 25+ years.
Creation of a co-working space at Patna (B-HUB), Zero Lab, Incubators at leading academic colleges and a generous seed grant awarded to nearly 600+ startups in 2+ years (the policy created a Rs. 500 crore corpus for 5 years) and constant engagement on social media through startup events, investor meets, expert workshops, engagement with angels and ecosystem enablers has created significant momentum, duly recognized by the Startup India by rating its work as top 3 in the nation for 2023.
Many of Bihar’s startups have also grown to national prominence — Jhaji Stores is well known for its “Taste of Mithila” pickles and products; one-way-fare taxi startup RodBez and its founder Dilkhush Kumar made the entire country sit up an notice him on Shark Tank season 3; Manish Anand of Mithila Naturals has built the world’s largest integrated makhana processing plant in Arer (Madhubani); Hanuman Ambulances is a top 5 player in the hospital ambulance outsourcing category; Vaimanika Aerospace is quickly building a name in the drone segment; and AgriX is slowly getting to significant scale on the agri side.
Many founders from Bihar have also scaled their startups at national level and have been playing a strong supporting role towards the growth of startup ecosystem. Shashank Kumar from DeHaat, Rajesh Ranjan from Krishify come to mind.
Some senior professionals have been also helping nurture the startup ecosystem growth through their efforts. Ms. Anubha Prasad, GM SIDBI, founded KareKeBa Ventures which has successfully raised funds for many of the Bihar startups; Prabhas Nirbhay started Jharkhand Angels; Shri OP Singh at Cognify is a huge believer and supporter of Bihar startups and yours truly founded Mithila Angel Network that raised the seed funds for RodBez.
Bihar’s incubators and leading educational institutes have contributed immensely towards the ecosystem. CIMP, IIT Patna have led the way and encouraged startup cells across the state. Industry bodies such as BEA, BIA have contributed as well.
The Next Orbit
With a new minister and perhaps a new secretary in the Industries Deptt., this seems like a good time to ask — how can the Bihar startup ecosystem move to the next higher orbit and help its startups to get noticed by VC/PEs from other regions. What policy changes and new components are needed to accelerate from here.
We present 10 ideas to take Bihar ecosystem to the next orbit.
1. Fix Policy Gaps / Misses — Matching Grant mismatch
While the Startup Policy 2022 has many positives, it has missed to provide easy access to capital to Bihar startups that have raised funds from Angel Groups and Angel Networks. By denying its “matching grant” to startups that have raised seed funds from Angel groups and poor decision making in resolving this issue, they have inadvertently choked the growth of their best startups while waiting for SEBI registered AIFs to invest in Bihar.
With the Bihar startup ecosystem in early development stage, it is my considered opinion that VCs/PEs and angels/angel groups from outside Bihar are yet not ready to commit to Bihar startups. They are as yet learning about the ecosystem, opportunities, startups and scale of businesses. They are looking at regular 10x-100X returns on the “investments” and many Bihar startups don’t qualify. However, local angels / angel groups have a “vested” interest in supporting the ecosystem, the social impact potential and are happy with even 2X-5X returns. It is significantly more likely that investors in Bihar startups will come from Bihar diaspora for this reason. Excluding the startups who are supported by the passionate community from matching grants seems counterproductive to objective of growing the startup ecosystem and helping Bihar startups achieve “scale”.
2. Fix Policy Gaps / Misses — mechanism to register Angels in the state
While the policy mentions state recognized angels, there is no provision made for registration of “state angels”. Who can qualify? How does one register? How many angels are registered presently. In the absence of the basic registration process, all the policy benefits due to registered angels becomes ineffective.
While the policy provides for success fee @2% of investment raised to be provided to start-ups for mobilizing investments from state registered angel investors towards early-stage funding, there is no mechanism to register angel investors in its portal or program. How do startups take advantage of this. This is a simple fix but ignored by department.
A large number of Bihar diaspora are keen on recognition within the state. Providing a mechanism for registration as angels will create a pool of angels who can offer seed funding support to Bihar startups.
3. Fix Policy Gaps / Misses — investment in AIF that will invest 2X into Bihar startups
The policy envisages investment into an AIF by the startup monitoring and investment committee (SMIC) where the AIF commits to invest 2X into Bihar startups. This is a great idea as it will make AIFs take interest in and mentor Bihar startups. However, till date no AIF has been identified or has been prepared for such investment.
This reduces the options available for Bihar startups and keeps funds idle with the SMIC which could have been deployed into scaling of top Bihar startups.
4. Strengthen Capacity / Capability for Mentoring — engage senior professionals
One of the biggest challenges faced by startups in early stage is right mentoring. From product design, business model, GTM selection, early sales, financial guidance, legal advice etc, founders, especially young first-time founders struggle to understand business complexities, regulatory frameworks and dealing with the larger ecosystems.
Seasoned mentors can play a big role in helping founders navigate through early-stage challenges, decisions, hits and misses. However, senior professionals will also need some compensation for their time, skills and efforts. Purely social engagement will be limited and with limited impact.
The seed grant of Rs. 10 lakhs is not enough to cover expenses of a senior professional. As such, if the policy extends the grant to Rs. 12 lakhs, with Rs. 2 lakh budgeted to hire a senior advisor / mentor and compensate the mentor for the time and skills; setup business goals and incentive for the mentor to achieve the targets with the founders, it will create a big pool of senior professionals who will enter mentorship area.
Details of this can be worked out but there is an urgent need to engage with successful Bihar diaspora, professionals, founders, businessmen and businesswomen and build a platform for them to nurture and mentor startups.
5. Engage Successful Founders in key decision-making bodies — BSFT, SMIC, PSC
The best mentors and spotters of good startups, good founders and good businesses are successful startup founders, leaders who have scaled their businesses and who live and work with startup challenges 24x7.
The Bihar policy is presently too heavily weighted towards bureaucrats and academics for the key decision-making roles. All the key bodies under the startup scheme are filled with top level officers and academic leaders. This should be reversed. For example, the policy provides for 2 special invitees who are experts in startup domain (out of nearly 11) to the Bihar Startup Fund Trust but so far none has been invited. This needs to be fixed.
A policy that puts the onus on professionals will pay far better dividends than the current approach. A more balanced approach to engage founders, successful businessfolks, lawyers, finance professionals, ecosystem enablers is the need of the hour to curate policy, nurture startup ecosystem and strengthen execution.
Bihar Startup Policy should invite some of our Unicorn founders, Successful Bihar founders and even Bihar origin successful corporate captains to lead the policy and implementation in the next phase.
6. Strengthen Capacity / Capability for Incubation — encourage professional collages / universities to start startup incubators as Sec 8 companies and give them bootstrap grants
At a Bihar Industries Association hosted startup event (Bihar Startup Conclave 2024) the minister for Industries, Sh. Nitish Mishra, challenged the deptt to raise the number of Bihar startups given the Rs. 10 lakh grant from 600+ to 6000+ by 2025.
One way this can be done is build a grassroot scale of incubation capacity across all the state’s professional colleges and universities. The policy should create a fund to support creation of startup India mandated incubation companies (Sec 8) with 10,000 sq ft of space and support to incubate 10–25 startups. This will unleash the creative energies of the youth and give them a constructive channel to turn into job creators.
7. Provide market access for Bihar startups — enable government purchases
One of the toughest challenges for startups is market access and customer acquisition. Many Bihar startups are working to bring traditional handicrafts, textiles, agri products to national markets.
The government itself is a big buyer of such goods for its multiple events, promotions, conferences and workshops. Creating an easy mechanism (like GEM) to enable Bihar startups to sell to government departments, public sector companies will help grow the startups to a scale where they will be able to take on national competitors and compete in national and international markets.
The Bihar startup policy must create channels to accelerate the market access for its startups.
8. Create Advisory board of Bihar diaspora overseas to offer global marketing advise
Thousands of professionals from Bihar are successfully running businesses in US, UK and Europe and/or leading large corporations. They can be a great resource for offering global market access and advise to Bihar startups.
The policy should create a global advisory board and connect these diasporas to the Bihar startups. They are actively looking for a platform and can become huge assets to the initiative even for fund raising.
9. Create Partnerships with Global Incubators in UAE, US, Singapore, UK
Establishing partnerships with global incubators will offer access to global experts, fund-raising resources and opportunity to partner with global startups for co-development, joint marketing and other opportunities.
10. Create a Venture Fund focused on Bihar
KITVEN, a VC firm was established by Karnataka in 1999. The corpus of the fund can be contributed by the state public sector, financial arms etc. The fund has been very successful and played a key role in development of IT sector in Kartanaka.
By creating a state-owned VC fund, Bihar government can earmark funds for development of critical sectors in the startup ecosystem — agritech, edtech, fintech, biotech where the need to invest and scale startups is felt deeply. Even a Rs. 100 cr fund will have long lasting impact.
The VC fund is different from the Fund-of-Funds scheme that is currently planned with SIDBI. In the FoF case, SIDBI grants funds to VC firms/SEBI registered AIFs who will then invest in startups. In the VC Fund case, the VC itself invests the funds into targeted startups.
