Creating $1 billion firms in India

November 21, 2014 12:28 AM

Many aspects need to change and evolve to bring the country up to speed

With a valuation of over $1 billion, Razer, a gaming company in the US, has crossed a very important threshold. Razer isn’t an isolated case. There are 40+ US companies that have broken the billion barrier over the last ten years and there are other wonderful examples across the world. Alibaba is one of the most recent to have hit the headlines with the largest IPO in Nasdaq’s history. In London, Index Ventures has announced it has $5 bn valuations in its portfolio, including takeaway guide Just Eat, advertising platform Criteo, customer services tool Zendesk and gaming firms Supercell and King Digital (makers of Candy Crush Saga).

Within India, we consider about five companies going through this landmark valuation, namely, Snapdeal, Flipkart, Inmobi, justdial & zipdial. This may be a small cluster, but they’ve achieved a great deal and have got the ball rolling nicely. Now. e-commerce in India has the chance to make its mark.

The industry is widely speculated to grow exponentially from an estimated $10 bn through to $40 bn+ inside a five-year window. This kind of rise is rocket fuel for technology entrepreneurs.

So, where will the next inspirational $1 bn+ companies come from? Has the ecosystem got what it needs to see this happen? In a fast growing market, will the serious investment ever go to the innovators, or will it always linger near the biggest incumbent? Is it more likely that India will see a lot of stifled/failed startups and only a few players will really capitalise on this amazing opportunity?

Looking around at what I see in Bangalore, the talent and passion to create Billion Dollar companies does exist. Perhaps some enhanced filtering of early stage ideas would be a good place to start. This might help divert a concentration of energy into what the market wants to see.
But low valuations and early dilution for founders when raising money inside India ensure a constant pull to the valley for raising funds. Maybe that’s not such a bad idea, but perhaps development would be a little faster if this could be done without flying halfway across the world to “show pony” investment.

I embrace the dream of India becoming a product nation. I feel much more comfortable with the idea of an India that solves its own problems rather than an India that is wholly reliant on the productive output from outside its borders. To make the dream a reality, many aspects need to change and evolve. Here are my personal top 5 ways to bring us up to speed:

Taxation change: Government support doesn’t need to be much more than making things cheaper through tax changes. Adopting an approach akin to the aggressive policies seen in the UK for early stage funding could provide a step change in the ecosystem.  There, up to 50% of money invested in early stage companies can be written off in the annual tax return of the investor(s). Also, if held for 3+ years, the shares are exempt from capital gains tax upon divestment.

Equity crowd-funding: India is probably one of the best countries in the world to facilitate equity crowd-funding of early stage companies.This needs legislation and it needs (light) regulation- factors that a new, pro-business government might be able to plough through with zeal.

New mentors: Experience counts. If you are a successful tech entrepreneur then mentoring someone who is 18 months to two years behind you is the perfect way to give back to the ecosystem. The market changes so fast that aligning with it can only come under the domain of recent experience and insights.

Diversification: Fast growing companies need diversification in their ownership, board level and team structures. To bring wave after wave of growth and innovation, not only do start-up teams need different backgrounds, and a healthy gender balance, they also benefit directly by encouraging international diversity. This is going to become increasingly important as the scale of investment multiplies and the reach of companies extends beyond geographical boundaries.

A major/massive exit: When tech firms go public they distribute wealth across many people. Companies like Microsoft, Google, Yahoo, Amazon and Facebook have made thousands of multi-millionaires in the USA and we need more of this in India. Each time a really big exit happens, it will bring the whole industry forward by a leap of several years.

If we can get evolutions like this right in the next 12 to 24 months, we can catapult the ecosystem to further support the goal of India becoming a product nation. In other words, we can support the goal of creating $1 bn+ harbingers of change. As we often say at TechHub: “If not now, then when?”

By Stewart Noakes
The author is co-founder, TechHub-Bangalore

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