Jama-Kharchi and the Conversion of Black to White

For the uninitiated among us (and I am one) it seems there’s this concept called “Jama Kharchi”, which is about converting black money to white. Jama-kharchi , of “accomodating entry” companies which basically make two kind of entities meet:

  • One that wants to reduce its profits (and thus, taxes) by showing purchase entries
  • Two, that that wants to shore up sales because they will get higher credit

The Jama-kharchi companies will “accomodate” accounting entries that help both these companies and charge a 2% to 4% commission to be the go-betweeen.

Let’s say a company A wants to reduce profits but still wants to have the cash. It buys something from a Jama Kharchi company B, and that company (through conduits into other companies or directly) gives an unsecured loan, or buys shares of Company A. That way the company still has the money and managed to reduce its sales.

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By |September 12th, 2014|StartupTax|2 Comments

Off-Topic: RIP, ESOPs. Thank you, Redbus.

Livemint has an inside story on the sale of Redbus.

The development is very sad for the startup ecosystem – because Redbus, at the time of exit, did not let its ESOP owning employees make money. Instead, their ESOPs were converted to ESOPs of the acquirers (Ibibo).

Read this article for more detail.

Update: I have received multiple inputs on this issue, and it seems the details are murky; it’s not entirely true that top management didn’t get anything. The deal they got, as per the above LiveMint article, was that the payout would be as their original vesting schedule (no cliff, no acceleration) but at the end of each financial year. That means Goel, the COO, who joined in October 2012, would only see his first vesting (10% of his allocation of ESOPs) in April 2014. And 20% in April 2015 etc.  While this is not great (why wait?) it is also not as bad as saying they […]

By |July 17th, 2014|Startups|4 Comments

What I’d Like To See in the Budget For Startups

The Government Budget should not have any real meaning for startups. But startups – and here I mean small and micro enterprises – generate most of the employment in the country. They are also responsible for most of the corpratUnlisted, small companies and entrepreneurs are the backbone of the Indian economy.

We tend to think of startups as the technology startup types. The guys that built Whatsapp. Or Facebook. But these are only one kind of startup; the entrepreneur mindset extends from the local kirana shop to the stockbroker to the fancy we-are-the-next-Flipkart. In general when we talk of startups being important, it is because they build value, and in the process generate employment, increase productivity and solve real problems.

In that context, we should encourage them. But in that context, we should also understand the limitations they work with.

  • They don’t have much cash. Not enough to throw at corporate lawyers, […]

By |July 4th, 2014|Budget2014, Startups|3 Comments

The largest industry is the one that’s the least disrupted: #FinTech hackathon

This is a guest post by Mukund Mohan, on an event in Bangalore that involved technology and finance. Mukund is the Director of Microsoft Ventures, which runs a fund, an accelerator and startup engagement programs globally. You can follow his blog on startups at Best Engaging Communities.

Mukund is first from the right

 

On Sunday I had a chance to judge the #hackafin hackathon at the NASSCOM 10K startup warehouse. While many other industries are going through immense disruption globally, (Books – Kindle, Cabs – Uber, Hospitality – AirBnB) the innovation in Finance is largely at the fringes (Second Market, Angel List and smaller companies).

The Yodlee team provided a set of API’s and training for the 100+ entrepreneurs and hackers that attended the 2 day […]

By |February 13th, 2014|GuestPost, Startups|4 Comments

SEBI Finalizes Angel Fund Regulations

SEBI has notified final regulations for angel funds. I have noted many of these in the past, so for background:

In brief, angel funds are now only allowed as an “Alternative Investment Fund” which requires registration.

  • Angel funds must pay Rs. 200,000 to register.
  • Such funds can raise funds of at least 25 lakh (2.5 million) per investor, and a minimum corpus of Rs. 10 crores. (100 […]
By |September 17th, 2013|Startups, StartupTax|Comments Off

Links: Potash De-Cartels, IIP Shadiness, Redbus-ted Exits

Pavan Srinath tells us about the breakup of the Russian-Belarusian Potash Cartel:

Two big cartels control the global potash trade: the first being BPC, a joint venture formed by the Russian company Uralkali and Belarusian Belaruskali. The second is Canpotex: an association of three Canadian mining companies. Together they controlled about two-thirds of the supply and ensured reasonably high prices in the global market. This is now under threat after BPC broke apart. Any rapprochement between Uralkali and Belaruskali was ruled out in late August when Belarus detained Uralkali’s chief executive officer and charged him with abuse of office. This has since escalated into a diplomatic row and a trade war with Russia, with the latter causing disruptions in oil and milk supplies to Belarus.

On the other side of the world, the Canadian cartel Canpotex is in trouble from another source. BHP Billiton, the world’s largest mining company, is looking to […]

By |September 13th, 2013|IIP, Links, Startups|Comments Off

The Failure Of Financial Web Startups

This is going to be a long post.

Investopresto, a finance portal, shut shop a couple of days back. They follow other illustrious startups to create financial web sites and eventually run out of steam, like paisa.com , moneysights, moneyvidya and many others. This is tragic, and even more to me as I co-founded and shut down Moneyoga three years ago.

Hasn’t Anyone Succeeded?

Some may say the lack of success is the no product-market-profit fit, and others will say it was the lack of funding. These are strong contenders for reasons, but let’s stop right here and look at the successes.

  • Moneycontrol has won the media battle. With decent , video from its group company CNBC-TV18 and an enormous amount of publicity. While I’ve heard that they are independently profitable, the company they are in (Web18) has been unprofitable for most of the last six years. And they can raise money at the drop […]
By |July 13th, 2013|Startups|16 Comments

Angel Fund Guidelines: Helps the Superangels, Keeps Out Smaller Investors

SEBI has introduced new guidelines for Angel Funds. As I’ve said recently, this is an absolutely important requirement in order for startups to avoid the “Startup Tax” (, a tax regulation that classifies investment as “income” if it is at a premium to the “par” value of a share of a company.

(Read the free Startup Tax e-Book)

The tax laws allow angel funds to skirt this rule, but what an angel fund actually means was left to SEBI. And this is what SEBI has said, in simple terms:

Angel funds a sub-category of SEBI AIF Cat-1, Like Venture Capital Funds with Only 25 Lakh Minimums

The SEBI Alternative Investment Fund (AIF) regulation is what allows pools of capital to be used in India to invest in anything. AIFs include Venture Capital Funds (VCFs) as a Category 1 player. An Angel fund will be a sub-category […]

By |June 26th, 2013|SEBI, Startups, StartupTax|Comments Off

Speculation: SEBI Angel Fund Rules Could Help Ease Startup Tax

The Finance Minister had in his budget speech mentioned that:

SEBI will prescribe requirements for angel investor pools by which they can be registered as Category 1 AIF venture capital funds.

(Read: Startups in Budget 2013, a Mixed Bag)

CNBC has the news that SEBI might announce the requirements on July 25 (speculation):

In an exclusive to CNBC-TV18, sources say the Sebi board may announce rules for angel funds on June 25. Some of these rules may include angel fund investment to be limited to Rs 50 lakh- Rs 5 crore; angel funds to be invested in a company for at least three years; angel investors to invest in companies not older than three years; investee company to be unlisted and with a maximum turnover of Rs 25 crore; the investee company may not be related to a group with a revenue of greater […]

By |June 20th, 2013|SEBI, StartupTax|Comments Off

Flipkart Won’t Deliver Orders More than 10K to Uttar Pradesh

The online retailer Flipkart has, it seems, decided to stop delivering goods to the state of Uttar Pradesh above Rs. 10,000, including the National Capital Regions of Ghaziabad and Noida, says TOI.

While Flipkart said the decision was "purely business oriented", insiders said there were numerous instances of customers ordering expensive goods on the cash on delivery scheme and refusing to accept their orders. There have also been cases of fraud in which lost or stolen credit cards were used to book orders online.

The portal’s shipment delivery staff in Lucknow, however, gave insight, saying there were incidents in which customers ordered expensive goods and then refused to accept them. Sources said many people logged on to Flipkart and ordered "just for fun".

"It takes a minimum of 10 days to ship a product to a customer and back to the company if it’s […]

By |June 9th, 2013|Startups|12 Comments

OT: Are Non-Competes Legal in India? Mostly, No.

Employers routinely hand out pre-drafted agreements that contain clauses like: You will not be employed in a firm that competes with [Company] for a period of two years after the termination of this agreement.” These clauses are supposed to deter employees from joining competition and taking away years of effort in training and what not.

Some startups are trying to get over this by creating non-compete agreements their employees have to sign.

Not Enforceable?

While this may be legal in some parts of the US, such contracts are almost definitely not enforceable in India. There is an “Indian Contract Act” in which there is a Section 27, which states that you can’t deny a person the right to livelihood. Restricting a person from working, even with a competing firm, for a few years, is a restriction on that right, as many judges have ruled.

You can read these two links to see case history […]

By |May 10th, 2013|Startups|1 Comment

The Earth is Shaking for E-Commerce in India

Is there something really bad happening with e-commerce companies? Recent developments indicate that the space is now going through a massive correction, and a crisis of confidence.

In Trouble

Arindam Bose, founder of TimTara.com has been arrested along with the company’s CEO, Harish Ahluwalia, for supposedly defrauding customers who paid for orders through their credit cards, but didn’t receive goods. The scale of the fraud isn’t very big – just Rs. 82 lakh from one source. (It has appalling English, but you’ll get the point)

The curtains have begun to close on SeventyMM, the online retailer that started off as a movie rental service and ended up selling pretty much everything they could. It’s raised over $21 million till date, but with the lack of further funds, might shut down soon, reports a site.

One of the oldest players in India, Indiaplaza, seems to be in trouble and needs $5 million to stay alive. I used to buy from it over […]

By |May 6th, 2013|Startups|7 Comments

Five Myths of Being A Financially “Lean” Startup

I was a mentor at a “Lean Startup Machine” conference recently, where people got together, formed teams and do a first layer of customer validation (“Get Out Of The Building”) for their idea. One of the key concepts of “Lean” seems to be that you don’t spend too much time imagining what can be; instead, you get to the market and if you have to, fail early. Or “Pivot” into new strategies after you hear from your market.

The teams were excellent; one was formed to get doctors for quick advice, another to sell excess stock of IT products that vendors grapple with, and yet another was a local search engine. The businesses weren’t, sometimes, apparently scalable, but they had potential and many of them pivoted even before their own presentation a couple days later.

I presented about being lean – financially. Like a complete dumbass, I didn’t consider time properly and couldn’t finish what I started out […]

By |April 25th, 2013|Startups|6 Comments

Using your Credit Card at Foreign Sites? Get an EMV Chip-based Card

RBI has introduced new regulations on Feb 28, 2013 that mandate changes to all credit and debit cards issued by Indian banks. All these are applicable from Jun 30, 2013.

  • All new credit and debit cards will only be valid in India, except if you specifically ask for international use. This is a no-brainer and I expect everyone to check the option.
  • All international cards can only be “EMV” Chip and Pin enabled – that is, there will be a “chip” in the card, and merchants with appropriate machines will have to “dip” the card in, and let you type in your 4 digit pin before the card is authenticated.
  • Magnetic strip cards (the ones you currently have) will have a limit on international usage, which depends on the bank’s analysis of the customer profile. If you’ve used the card internationally earlier then you might get a higher […]
By |March 12th, 2013|Banks, Startups|9 Comments