• Mohandas Pai warned that Indian startups are struggling due to low domestic funding and restrictive policies, risking the country's global innovation standing.
• He urged regulatory reforms to allow insurance companies, pension funds, and universities to invest in startups, and called for an increase in the government’s fund-of-funds program.
• Pai criticized India’s business culture for exploiting startups, urging a change in mindset to better support smaller ventures.

Indian startups are finding it difficult to scale up because of low domestic funding and restrictive policies by the government, cautioned industry veteran Mohandas Pai, Chairman of Aarin Capital, urging immediate policy changes and higher R&D spend to enhance the ecosystem.

He cautioned that even as India is the world's third-largest startup ecosystem, the country may slip in innovation globally if current problems go unaddressed.

"We have 1,65,000 registered startups, 22,000 are funded. They generated USD 600 billion in value. We achieved 121 unicorns, perhaps 250-300 soonicorns", Pai spoke.

"The greatest concern for startups is inadequate capital. For instance, China has invested USD 835 billion in startups and ventures during 2014-2024, US has invested USD 2.32 trillion. We have just invested USD 160 billion, out of which perhaps 80 per cent has been from abroad. So domestic capital is not coming in", he further stated.

He also pointed out that though American insurance companies and university endowments heavily invest in start-ups, Indian rules rule out endowments from investing and insurance companies are also not interested due to the lack of regulatory framework.

He suggested regulatory reforms so that insurance companies can participate in fund-of-funds and proposed that the government's fund-of-funds programme must be doubled to Rs 50,000 crore from Rs 10,000 crore.

Moreover, he mentioned that India's pension funds worth Rs 40-45 lakh crore cannot invest in startups because of conservative policies and regulatory constraints.

Pai stressed the necessity of significantly enhancing research funding in Indian universities and exhorted institutions like DRDO to make available their technologies to the private sector. He stated that existing expenditure on research in public universities is far below international standards.

"We have to eliminate obstacles for startups to sell business to the government and public sector units.despite the fact that the government has liberalized it, it's still not happening in practice. It needs to be opened up, and I believe that has to be a mindset change", the industry veteran added.

Pai also criticized India's existing business culture, saying that, "The problem in India is that all the big companies try to beat down the small startups and give them less money, and force them to sell the technologies and use them, and often don't pay them on time".

"This culture of hurting the small people should change", Pai said.

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