Foreign wave in Indian start-ups

The thriving start-up sector in India is increasingly getting an international touch, look and feel. Last month, Twitter co-founder BizStone invested in a New Delhi based healthcare start-up Visit, which connects patients and doctors through an artificial intelligence powered chatbot. And now the atmosphere has been ripened for brick and mortar retailer Walmart, which is buying a 75 percent stake in India’s ‘erstwhile’ startup-turned-e-commerce giant Flipkart for a staggering $15 billion. This deal, which was the talk of the startup town for a while now saw Walmart battling it out intensely with another US headquartered brand, e-commerce behemoth Amazon, which too had evinced interest in buying out its biggest rival in India.

These deals by Twitter and Walmart are not exceptions. MNCs have for a while now seemed much interested in investing or buying out home-grown startups. In the recent past, Apple acquired Hyderabad based machine learning startup Tuplejump, Twitter acquired Bangalore based missed call marketing platform ZipDial, and Google bought out Halli Labs, another Bangalore based startup focused on building deep learning and machine learning systems. While Facebook made one of the first MNC inroads into the Indian startup space by purchasing Little Eye Labs, a maker of testing analytics tools way back in 2014.

This trend, say entrepreneurs and investors, is highly favourable for Indian startups and the ecosystem on the whole.

According to Apul Nahata, mentor-in-residence, Brigade Real Estate Accelerator Programme (REAP), foreign investor interest in India can be attributed to consumer growth backed by the mobile revolution. “Several startups have entered the industry either unearthing an entirely new market or through gaps in existing markets or product lines. Foreign investors see this as a great way to not only expand their global footprint but apply the startup’s solution in other countries.”

Moreover, says Nahata, by partnering or investing in Indian startups, MNCs can leverage their own technological expertise to create disruptions in the economy, “thereby target a huge and growing market. MNC interest is on the rise since they see deepening internet access in India and initiatives like Digital India that favour the startup ecosystem.”

For startups, a deal with an established and renowned entity means higher valuations, and often, greater global recognition of the work that was carried out. The positives are multiple.

Says Harsh Shah, co-founder of online fashion platform Fynd, which recently received investment from Google, “Overall it is a big positive for the Indian startup ecosystem. More risk capital allows startups to be bolder in their ambition and vision and this is what really drives the ecosystem forward.”

With more funds, entrepreneurs get the freedom to implement riskier plans. “The lack of funding has meant most Indian startups remained small, without a chance to benefit from a robust capital market and strong IPO offerings. With MNCs finding Indian startups worthy, it creates substantial exits for entrepreneurs and allows for the conversion of ESOPs to hard cash. These can make the ecosystem more bullish,’’ says serial entrepreneur and angel investor Sandeep Aggarwal, who is also the founder of ShopClues and Droom.

According to Nahata, even if MNCs do not acquire, they can invest in a bigger scale in tech startups. “In this setting, start-ups can benefit hugely, not just from the availability of new sources of funding, but also from working within the folds of larger firms who could invest heavily in R&D and innovation.”

Furthermore, this trend significantly enhances investor confidence towards the sector, says Aggarwal. “It enables entrepreneurs to make bolder moves and the ecosystem moves from strength to strength.”

Also, when startups exit, the founders can give back to the ecosystem, says Nahata, “not only by investing in younger startups but also by sharing their knowledge and insight.”

And most importantly, say experts, job creation in the sector receives a boost. Foreign investment helps to create new jobs across verticals like operations, customer support, technical product management, marketing, business development, legal, etc., says Aggarwal.

GLOBE-TROTTING

• MNCs have for a while now seemed much interested in investing in home-grown start-ups
   
• If MNCs do not acquire, they can invest in a bigger scale in tech start-ups
   
• With more funds, entrepreneurs get the freedom to implement riskier plans
   
• Experts are of the view that job creation in the sector receives a boost