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Karnataka

Startup Policy
2015-2020
To give wings to startups in the
state through strategic
investment & policy interventions
by leveraging the robust
innovation climate in Bengaluru.
INTRODUCTION

As per the Global Startup Ecosystem Small businesses have been in fact the
Ranking Report 2015,”Bangalore is home largest job providers and a vibrant start-
to approximately 3,100 to 4,900 active up ecosystem driven by innovation can
tech startups and has achieved the be a key to better employment opportu-
second highest growth rate for exit nities for the youth and have widespread
volume and VC investment among the positive impact on the economy. Social
top 20. As a result, Bangalore moved up innovation could have wide-ranging ben-
four positions to #15 in 2015, advancing eficial impacts on quality of life as it could
from #19 in the 2012 ranking”. As per this improve accessibility to health care; intro-
report Bengaluru is the only Indian city to duce environmentally-friendly technolo-
be ranked within the best twenty start- gies etc. Karnataka is poised for the next
up eco systems across the world. The phase of growth in startup sector as the
State’s long and sustained leadership in potential to leverage the existing ecosys-
driving the IT economy and conducive tem in Bengaluru and build similar
R&D ecosystems have contributed to this. eco-systems in two-tier cities is tremen-
The existing policy framework of dous. With the projections of being the
Government of Karnataka, mainly the i4 largest conglomeration of IT profession-
(IT, ITES, Innovations and Incentives als by 2020, Bangalore is well placed to
Policy 2014-2019), ESDM, AVGC policies also be amongst the top 5 startup eco-
and the Industries Policy 14-19, systems in the world in the near future.
recognized the importance of promoting The objective of the State is to ensure
startups and the need to give the that Bengaluru maintains the lead posi-
necessary impetus to tech- tion in the country and to develop other
entrepreneurship early in the day, and has important cities as startup destinations
invested on building incubation spaces in on par with top 30 international startup
partnership with industry bodies; hubs.
encouraging innovation in educational
institutions through its New age Vision: To create a world-class startup
incubation network; providing seed ecosystem in the state through strategic
capital and other incentives. In 2015, investment and policy interventions
close to 35% of Indian startups leveraging the robust innovation climate
functioned from the state, making it the in Bangalore.
single largest startup hub in the country.

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Goals
a) Stimulate the growth of 20,000
technology based startups including
6,000 product startups by 2020 in
Karnataka

b) Achieve creation of 6 lakh direct and


12 lakh indirect new employments in
the sector

c) Mobilize Rs. 2,000 Cr funding for


investment in startups through
Government intervention alone, by
leveraging the Fund of Funds
proposed to be put in place by the
State Government

d) Facilitate generation of at least


25 Innovative Technology solutions
with a social impact in sectors like
Health care, Food Security, Clean
environment and Education for all
etc.

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Strategies
Encouraging
Entrepreneurship
in Education
through NAIN
Innovation is second nature to
man. This policy document
recognizes the fact that the
seeds of entrepreneurship and
the innate ability to innovate
must be nurtured in academic
institutions. It is the need of the
hour to develop a culture that
produces innovators who dare
to dream an original idea and
pursue it till fruition. The State
would therefore work towards
creating such an ecosystem in
academic institutions as
follows:

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New Age Incubation Network (NAIN)
The new age incubation scheme under geography. They shall be mandated to
implementation in engineering colleges will incubate projects through competitive
be expanded to all professional and selection process among students,
post-graduate institutions in two-tier cities in alumni as well as local entrepreneurs.
a phased manner. At least 50 academic
institutions shall be covered under this g) Students of such institutions will also be
program during the Policy Period. The encouraged to intern with startup
selected academic institutions would be incubators recognized by the state
assisted to establish an incubator in the government to do their mini-projects or
given discipline and encourage student summer/ winter projects or internships
projects. All such incubators would be that are done during vacations. The
networked and connected to a common incubators may be mandated to run
portal to facilitate exchange of thoughts, selection programs throughout the state
ideas and collaboration across institutions to ensure students have access from any
and disciplines. All selected institutions college in Karnataka. Such projects can
would be graded on the basis of Key then also be converted to final year
performance indicators. Financial Projects where the university and college
assessment will be provided for three years must involve an external project guide/
to the selected institutions for setting up the mentor as identified by such incubators.
incubator and other activities. Institutions GoK shall allocate 20% of the total
that excel would be further supported for program cost additionally towards
another two years. setting up a PMU (Program management
unit) in KBITS that shall be entrusted with
Each NAIN institution will be assisted as follows: the job of capacity building of
a) Grants for supporting operational institutional personnel responsible for
expenses in their incubator e.g. Salaries management of the program at
of Regional Coordinators, mentoring institution level, conduct networking and
programs, networking meetings, mentoring events for the benefit of
conducting Hackathons etc. participants and other related activities
e.g. student stipend for internships. The
b) Annual Financial support for projects PMU shall also be responsible for
for upto Rs. 3 lakhs per project assisting in the monitoring and
management of the programme.
c) Training and Capacity Building for
Faculty and students

d) Exposure to Support and Network


Programs conducted by the
departments concerned

e) Opportunity to visit international startup


destinations

f) Internship Stipends NAIN institutions


shall act as hubs with other academic
institutes in the district acting as spokes
driving the innovation ecosystem in the

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Fostering strong partnerships
between R and D institutions
and Industry

Technology business incubators Information & Communication


(TBIs) in institutions of higher Technology (ICT)/Internet of Things
learning: (IOT)/Software Products

The State Government would assist in Manufacturing including Electronics


the setting up of TBIs in institution of systems design, Robotics and 3 D
higher learning with well-developed Printing, manufacturing 4.0
Research and development facilities
to foster a strong link between R&D Healthcare and Bio Pharma
and commercialization of
technologies so developed. TBIs are Agriculture and allied fields
proposed to be promoted in
following selected thrust areas that Clean-Tech
have potential for faster growth like
(the list is not exhaustive): Energy

Water and its recycling

Education

Nanotechnology and Composites

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The host institution must provide land
and built-up space for TBI and must Providing early
also share available facilities and
expertise for setting up of the TBI. The stage/Idea2PoC
TBI must be run as a society or a
section 8 company with strong (Proof of Concept)
academic-industry collaboration. The
eligible funding would be decided on
case to case basis. The state support
funding
To encourage innovators who may
would be for the initial capital cost for
need early stage funding to stimulate
equipments and facilities, and
commercialization of research
recurring costs of management of TBI
discoveries and to help in validating
for three years period, extendable by
proof of concept and subsequently to
another 2 years based on
assist them to cover costs like
performance, at the end of which the
certification, manufacturing pilot
incubators are expected to become
devices etc., the State will set up an
self-sufficient. The existing TBIs would
Ignition fund on the lines of BIG fund
be eligible for assistance for scaling
of BIRAC, GOI. Funding will be in the
up or for expanding into niche areas
form of Grant-in-aid limited to a one
with the condition that a single TBI
time grant of upto Rs. 50 lakhs to be
may not focus on more than 2-3 thrust
released in tranches based on the life
areas.
cycle of the business plan. The state
may at its discretion choose to
For the purpose of this policy, a TBI is
administer this Grant in Aid Fund
an incubating facility in an institution
through TBI s (as defined earlier) or
of higher learning and provides
identified incubators of excellence.
services such as business advice,
This may also help incubators to work
financial counseling, assistance with
as accelertors. Startups need not
business management and
necessarily be incubated in the
accounting, legal and regulatory
incubator for being eligible for such
guidance, access to mentors etc., in
assistance.
addition to physical infrastructure
appropriate for the thrust area for the
Recognized Incubators which are
incubator.
managing Seed Fund Scheme of
Government of India will be given
matching seed funds to further
increase the amounts available for
startups by 200%.

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Creating Incubation
infrastructure through PPP
The State would invite the private incubators or for implementing other
sector including globally and startup initiatives. These incubators in
nationally well known accelerators Tier II cities and Bangalore shall play
and incubators to set up world class the role of mentor institutes for NAIN
incubation centers and accelerators colleges. The incubators/accelerators
or expand existing facility /operations shall be assessed on KPIs such as
on PPP basis. Such centers must number of companies incorporated,
provide all necessary infrastructure no of funding transactions facilitated,
for the given sector such as R&D Labs, mentor interactions facilitated etc.
common centre for prototyping, The Incubators/accelerators shall
common testing/QA/QC labs, design administer the following schemes to
studios and tool rooms, Fab labs, be rolled out for incubatees:
Biotech Wet Labs, Green Houses,
Animal Houses, Office Spaces, Small a) Full facilitation for establishment
and Large Conference Rooms, Office of an entity (a company or other
Spaces for Skunk Works and other such entity) by obtaining requisite
modern amenities as required and information in a single form, and
shared services like legal, accounting, facilitating filing for regulatory
patents, investment banking, compliances in prescribed format.
community events and mentoring and
promotional and marketing support b) Subsidized seats up to Rs. 3000
for startups. Land or built-up space per seat per month limited to 5
would be provided at the applicable seats per incubatee for a
rates in Industrial/ITparks/SEZs maximum duration of a year
developed by the Government in depending on market discovered
two-tier cities. The support from the rates which vary from city to city.
Government for the PPP partner Other assistance like Legal,
would be determined through price Accounting and mentorship on
discovery through open bidding. The regulatory compliances shall be
support shall be for a period of 3 provided.
years. In addition, the Government
may partner with Industry bodies, c) Virtual incubation of incubatees
trade associations, think tanks or where incubatees are not
similar non –Profit organizations physically
working for the promotion of the plugged into the facility through
relevant sector for setting up mentorship, funding etc.

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Startup funding through
Fund of Funds

A fund of funds shall be allocated for


Networking and Aggregation of
investing in venture funds that invest
Common Instrumentation
in startups in various sectors. The
Facilities (CIFs):
fund of funds would be in addition to
GoK and GoI have established Labs any sector-specific venture funds
and Common instrumentation already being operated by the State
Facilities like IMTI etc across the state. through its entities, and could also
Efforts shall also be made to maintain invest in future venture funds
list of all such CIFs (Government or
promoted by the State. A portion of
Private) that are available for public
the fund of funds may be utilized for
use. Efforts will be made to develop
and use a single online application to Angel stage funding. A professional
reserve lab and equipment time on fund manager shall be selected
pay per use basis for all incubatees on through open bidding process.
priority, through a MOU with such Investment committee with Officers
institutes. Common instrumentation from the Government, industry and
facilities shall be set up in identified academic experts with sector-specific
areas like Electronics, Mobile,
domain knowledge, financial and legal
Animation and Gaming, IOT,
background etc with no conflict of
Analytics, Design Engineering etc on
PPP or under GoI schemes under interest will be constituted.
MSME, Deity etc. The testing and
product evaluation facilities should be
of international standards.

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Channelizing Innovation for Promoting Capacity Building
Social Impact through exposure visits and
workshops
The State intends to use the vibrant
startup environment to drive A corpus fund will be created to
innovation through use of technology conduct training workshops and
to find workable and scalable organize exposure visits to both
solutions to challenges faced by it. national and international startup
Under its Social innovation challenge ecosystems/innovation hubs for
competition, the State will use the faculty, students and incubatees in
model of Grand challenges to focus GOI/GOK recognized incubators.
attention and effort on specific Ideathons and Startup festivals would
problems. Each year, 5 challenges will be organized to create an exhilarating
be identified by a committee with climate to inspire innovation.
representatives from Government, International and National Exposure:
subject specialists, NGOs etc. Each A programme would be setup to send
year challenges would be posed in 5 selected startups, college and school
identified areas and solutions selected students, faculty etc., to leading
through a rigorous selection process startup destinations in the country
shall be awarded an initial grant and a and abroad for getting exposure as
follow on funding and may be taken well as an opportunity to meet and
up for implementation as a pilot converse with industry leaders,
project at an appropriate scale. The thinkers and innovators. Provision
winners will also automatically qualify shall be made to ensure 1/3rd
for incubation space in the incubators representation of women
supported by the State Government entrepreneurs, students and teachers
as per the prevalent norms. etc. Existing programmes of the
Government like the Market
development assistance scheme of
VTPC would be also accessed for
some of these purposes.

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d) The Contract Labour (Regulations
Providing State & Abolition) Act 1970

support in the e) The Payment of Wages Act, 1936


form of incentives f) The Minimum Wages Act 1948
& concessions
g) The Employment Exchanges
(Compulsory Notification of
The startups that qualify the eligibility Vacancies) Act 1959
conditions in Karnataka would be
entitled to the incentives and h) General permission shall be
concessions provided in the i4, ESDM, available for 3-shift operations
AVGC, BT, Industrial policy etc., as with women working in the night
well as to additional incentives and for startups, subject to such units
concessions as specified in taking the prescribed precautions
annexure-2. Please see annexure-1 for in respect of safety and security of
the definition of startup for the employees in addition to providing
purposes of this policy. the required welfare and health
amenities as prescribed under
Startups signed up in recognized applicable labour laws and
incubators/ accelerators including obtaining the necessary approvals
through virtual incubation will be from the competent authority of
permitted to file self-certifications, in the Government under the
the prescribed formats under the Karnataka shops and Commercial
following acts and rules framed there Establishments Act and Rules or
under barring inspections arising out the Factories Act 1948 and
of specific complaints. The same shall Rules, there under as the case
be facilitated through the startup cell may be.

a) The Factories Act 1948 Applicability:

b) The Maternity Benefit Act 1961 This policy is applicable to all startups
satisfying the eligibility criteria set
c) The Karnataka Shops & forth in the policy in the sectors of
Commercial Establishments Act Manufacturing, ICT, BT and other
1961 sectors.

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Enablement a) Service Providers
CA, Lawyers, IP Protection, real estate
agencies
Startup Cell:
New ventures, mostly started by young b) Organizations
people with little prior knowledge of
TiE, NASSCOM, iSpirt, Coffee Meetup
corporate affairs, have many hurdles to
face during the early stages. Rather than c) Programs/Events
worrying about how to get their business
Consrukt Festival, TiE-Con,
floated, concerns of IP Protection,
Hackathons
navigating through state and central
regulations and incentives, tech
d) Incubators/Accelerators/co-working
entrepreneurs should be able to focus on
space
building the right product and seeking
early customer validation. Further, there e) Investors/investor organizations
are numerous informational and
awareness needs of startups that should f) Incoming trade delegations
be addressed in a business friendly
environment. To facilitate such
g) Policies Regulatory environment etc
handholding, Startup Cell will be
established in KBITS to act as a one stop
Promotion:
shop that enables easy flow of
The Startup cell shall promote Bangalore
information and assistance to needy
and Karnataka as a startup destination
startups. The cell shall also act as a single
through participation in international and
connect with Government departments
national events, sponsoring the
where the Startup needs to implement
participation of local startups in such
pilots of their projects e.g. facilitate
events and various other means. The cell
clinical research through coordination
must also sponsor the visit of delegations
with Hospitals through the Health
of startups to promotional and marketing
Department.
events in India and abroad.

Startup Portal and Hotline:


Startup council:
The startup cell must network with
A startup council shall be set up under
Industry bodies, TBIs, academic
the chairmanship of the Chief Minister
institutions, other incubators etc and
with the relevant ministers and senior
thus, provide a common interface where
officers of the government and 10
the symbiotic components of the startup
industry experts as members to review
ecosystem could interact more closely
the implementation of the startup policy.
and effectively. The cell shall manage a
Attempt shall be made for equal
common startup portal and hotline,
representation of various domains like
which could provide information on
ICT, Animation and Gaming,

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Agri-Biotechnology, Health, BFSI, ESDM This Policy is valid for a period of 5 years
and other manufacturing. The council from the date of its notification or till a
shall meet at least once a year. A Startup new policy is formulated.
Policy Monitoring and Review Committee
shall be set up under the Chief Secretary Review mechanism
with Principal Secretary, IT, BT and ST, This policy shall be reviewed once a year.
Commissioner, Industries and Commerce; A status report shall be commissioned by
Managing Directors of KSIIDC, KSSIDC, the State to critically appraise the
VTPC; Director, IT & BT and two-three usefulness of the policy, the ease of
outside experts with the Managing implementation and the outcomes
Director, KBITS as the convenor. achieved. The report shall be placed
before the Startup council.
Operational Guidelines
Detailed operational guidelines shall be
put in place for administering all the
programs under this policy and the same
shall be reviewed annually.
Validity

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Annexure-1
Definition of a Startup
a. Should be Technology Based: The a. Employment: The company employs at
facilitation under this policy is intended least 50 (fifty) per cent of its total
for only technology based startups, i.e. qualified workforce in Karnataka, which
one that creates a technology based shall not include contract employees.
service or product or uses technology
for enhancing functionality or reach of Note: The term “qualified” may be
an existing product or service. understood in connection with the
National Skills Qualification Framework,
b. Tenure: The startup must not have been issued by the Ministry of Skill
registered/incorporated for more than 4 Development and Entrepreneurship,
(Four) years from the date of such Government of India (“NSQF”). Under
application for any incentive applied NSQF, the term “qualification” has been
under this policy. The same shall be 7 defined as: “a formal outcome of an
(seven) years for BT companies. Though assessment and validation process
the startups may not have to be which is obtained when a c o m p e t e n t
registered or incorporated for receiving body determines that an i n d i v i d u a l
various incentives or benefits under the has achieved learning outcomes to
policy, any funding beyond early stage given standards”
funding shall require necessary
registration or incorporation. b. Exit Clauses: A startup will cease to
receive benefits under this policy upon
c. Location: The company/entity be the following:
registered in Karnataka under the Revenue Criteria: Upon the
Karnataka Shops and Commercial company reaching a revenue of Rs.
Establishment Act, 1961 ; and 50 Crores

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f. Exclusions: A company in order toqualify
as a start-up under this policy should not
have been
Annexure-2
1. Formed by the demerger or
Incentives and concessions to startups
reconstitution a business already in
would as per existing policies in addition
existence;
to incentives available under various state
and central government policies. Startups
2. A subsidiary of a firm in the State,
shall be eligible for following additional
except subsidiary of a start-up itself –
benefits:
that still qualifies as startup and the
combined entity also satisfies the
1. Reimbursement of Service Tax paid
start-up criteria;
by startups incubated in GoK
supported incubators and CIFs whose
3. A merged entity in the State, except
annual turnover does not exceed Rs.
if the combined entity satisfies the
50 Lakhs for the first three years or till
criteria listed above;
the incubator becomes DST certified
whereby the services given by the
4. A franchisee of an existing business in
incubator and the incubatees become
the State;
exempt from service Tax.

5. Promoted or sponsored by or related


2. Reimbursement of VAT/ CST: Annual
to an Industrial group in the S t a t e
Reimbursement of VAT/CST paid in
whose group turnover exceeds
Karnataka, upto a maximum of Rs. 50
Rs. 300 crore;
Lakhs turnover by incubated startup
companies within a period of first
6. A holding company or should not
three years of being incubated.
derive more than 50% of its
income from investments and loans
3. Reimbursement of VAT/ CST: Reim
bursement of VAT/CST on goods
7. A holding company or should not supplied to the Incubator or
derive more than 50% of its income
incubatee.
from investments and loans.

4. The tax incentives shall be modified


once G.S.T is introduced in the state.

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5. Financial Assistance as Matching Many of these benefits shall be
Grants: The Government would match administered through identified
the funding raised by the Incubator incubators as implementation
from Government of India on a 1:1 basis partners in order to speed up the
as matching grants. process without compromising on
due diligence in disbursal of fiscal
6. Marketing Incentives to Startups: incentives. At the same time
Government shall provide reimburse- incubators shall not insist on physical
ments of 30% of the actual incubation of mentee incubatees so
costsincluding travel incurred in as to ensure greater touch points for
international marketing through trade incubators being supported by the
show participation. This incentive will Government.
be subject to a maximum of Rs.5 Lakhs
per year per company.

7. Patent Filing Cost: The cost of filing and


prosecution of patent application will
be reimbursed to the incubated startup
companies subject to a limit of Rs. 2
lakh (0.2 million) per Indian patent
awarded. For awarded foreign patents
on a single subject matter, upto Rs.
10 lakh (1 Million) would be reimbursed.
The reimbursement will be done in 2
stages, i.e., 75% after the patent is filed
and the balance 25% after the patent is
granted.

8. Promoting Entrepreneurship among


women: All Government supported
startups shall be mandated to allocate
minimum 10% seats for startups
with women co-founders on
preferential basis.

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STARTUP
KARNATAKA

@Startup_Kar

www.facebook.com/StartupKarnataka

startupcell@karnataka.gov.in

For information and assistance please contact:

Principal Secretary to Government


Dept.of Information Technology, Biotechnology and
Science & Technology.
Government of Karnataka.
VI Floor, 5th Stage
M.S.Building, Ambedkar Veedhi
Bangalore - 560 001

Email ID: itbtsec@gmail.com

Managing Director
Karnataka Biotechnology & Information Technology Services
BMTC- Central Offices Building
TTMC 'B' Block, 4th Floor, Shanthinagar, KH Road,
Bangalore 560 027

Email : mdkbits@gmail.com