India’s startup universe is crippled by lack of push by the country’s venture capitalists

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As of this moment, there are roughly 107 Indian unicorns with a combined valuation of 340 billion USD. That, along with a thriving startup culture, has led many to draw parallels with Silicon Valley. But there is an aspect of Indian startups that requires our reflection and attention.

The Indian startup universe is having its big bang moment, giving birth to many unicorns that have international recognition. Often discussed in the hallways of tech events and the informal gatherings of techies, this is a source of great pride. Founders are celebrities and working for a cash-strapped startup has a better appeal than a job at an MNC with deep pockets.

The Indian tech scene has lived under the banner of body shops for a long time. I was a product of such an operation. Over the years, the rise of Infosys and Wipro as respected consulting organizations has helped mitigate that tag. If the ascent of Indian CIOs and CEOs elevated the profile of the Indian diaspora, the evolution of Indian unicorns is the final testament to our capabilities.

Incredible achievements. But the glass is only half full. Take Freshworks as an example. Freshworks is high on the value chain deriving its revenues from a suite of products. It was founded in Chennai by Girish Mathrubhootham in the year 2010. He hails from Trichy and, in a short span of 10 years, took Freshworks all the way to an IPO worth a billion dollars, turning as many as 70 employees into crorepatis.

Freshworks checks all the boxes that would make India proud. But looking at it from a different perspective, shouldn’t we feel betrayed? Here is a company that was founded in India, that hired locally, built a product out of Chennai, and yet is listed on NYSE, out of reach for Indian citizens wanting to invest. The tree on our land has grown across the fence. While we enjoy its shade, the neighbor harvests its fruits.

The initial investment into Freshworks came from Accel, followed by Tiger Global, Sequoia Capital, and Google. Other than the 70 employees, the windfall largely went to US firms. As Freshworks moved its headquarters to San Mateo, the offices in Chennai became an offshore development center for a US firm. At its peak, Freshworks’ market cap had risen by 392%, but the benefits were only accessible to US investors.

A decade back, cash was king. ATMs had lines, and they ran out of cash all the time. When Paytm entered the market, it was a godsend. I watched it evolve as an accepted mode of payment for trains, buses, purchases, and bill pay. Then came PhonePe. Founded in Bengaluru, PhonePe raced into popularity, riding on partnerships with Ola, Swiggy, and Redbus.

A few techies saw a problem, left their jobs, built a solution, raised capital, and grew their companies into enterprises. The Cinderella story of Silicon Valley was finally happening in India. So when I electronically paid my bill at a roadside eatery, I walked out proud.

Paytm’s journey was financed by SAP Ventures (US), Alibaba Group (China), Mountain Capital (Taiwan), Softbank (Japan), and Berkshire Hathaway (US). The lone Indian investment was from Ratan Tata. PhonePe had a more straightforward journey. Walmart (US), through Flipkart Group, has a controlling stake. The pioneer of Indian online retailing Flipkart is considering a US listing in 2023.

BYJU’s investor page lists 18 investors. Just two are based in India. If a unicorn is privately held by international VCs, with no access to the Indian public, and with no substantial participation from Indian firms, is the Indian identity of the founders alone sufficient to call them Indian Unicorns?

I respect the risk taken by international VCs, but that does not stop me from throwing my hands up in the air in exasperation. Indian VCs, where are you? Indian corporate giants, why aren’t you taking a lead role in this futuristic space? According to an article in 2020, Infosys, TCS, and Wipro had a cash chest of USD 13.9 Billion. Is it unfair to expect Indian tech companies with a vast resource base to be lead investors in tech unicorns?

Startups create opportunities for all and raise overall living standards. But India loses when intellectual property and value are being created overseas. While both a homeowner and renter pay for property use, only the owner has a stake in its appreciation. With Indian startups, we seem to start as owners and end as tenants.

We are becoming a nation of consumers eager to hand over our innovations and innovators to western investors in return for jobs and better economic prospects. We have climbed up the value chain with great effort. It is time we aspire for ownership of the value created.

Sources:

https://economictimes.indiatimes.com/tech/ites/microsoft-reports-more-than-1-billion-in-india-revenue/articleshow/71726262.cms

https://www.gadgetsnow.com/slideshows/coronavirus-wipeout-13-billion-firepower-that-tcs-wipro-and-infosys-can-use/photolist/75398824.cms

https://www.cnbc.com/2021/09/22/alphabets-wager-on-freshworks-is-up-900-million-after-ipo.html

https://startuptalky.com/freshworks-success-story/#Freshworks_Freshworks-FoundersAndTeam

https://www.crunchbase.com/organization/freshworks/company_financials

https://www.investindia.gov.in/indian-unicorn-landscape#:~:text=Unicorns%20Of%20India,unicorns%20coming%20each%20year%2C%20respectively.

https://www.barrons.com/articles/flipkarts-ipo-value-could-reach-70-billion-walmart-stands-to-gain-51649342959

https://www.ventureintelligence.com/Indian-Unicorn-Tracker.php