Not valuation, value creation true measure of business growth; here’s what India can do to take on US

Published: December 29, 2019 1:32 PM

The World and India, in particular, is on the cusp of another information revolution. India is witnessing a tremendous opportunity to create new value, as we can bypass the industrial economy to leap-frog into the information age.

Success should not be measured by valuations but value creation.
  • By Rohit Goyal

India is now third on the list of nations with the largest number of startups and first in terms of the number of startups adding every day. In this phase, we have witnessed many mission-driven founders taking their ventures to the $1-billion valuation mark. Today, 75 per cent of the unicorns come from Bengaluru and the Delhi-NCR region, and we have been adding one to the list every month in 2019. This is reflective of Tier-1 cities leading the way.

But the question to ask is, is the ‘Unicorn’ tag a true parameter of a company’s success? Success should not be measured by valuations but value creation. Valuations are merely a function of the value a startup is able to generate for its customers, shareholders, business partners, the society and economy as a whole. Many such extremely valuable companies are acquired by corporates and other strategic partners even before they reach the ‘Unicorn’ status.

Let us look at the ecosystem more maturely, let us collectively focus on value creation; because many of the startups who do that as their core objective will be propelled to the trajectory of being a unicorn. As participants of the ecosystem, we have a very crucial role to play in advancing these young companies to their next phase of growth.

The World and India, in particular, is on the cusp of another information revolution. India is witnessing a tremendous opportunity to create new value, as we can bypass the industrial economy to leap-frog into the information age. The last decade has seen many companies leveraging the power of the internet and digital technology. We believe this trend will continue and accelerate as we witness re-invention of entire industries which are driven by the young population of India, a growing digitally-native economy – who are reaching out to use more efficient digital-first products and services to fulfil their dreams.

What’s Lacking?

During this spectacular transformation, it is essential for all stakeholders- venture capitalists, governments (state & federal), educational institutes, incubators, accelerators, corporates and industry professionals to play their part. A culture of entrepreneurship has to set in for us to succeed in our endeavour to give birth to a 100 unicorns and more. Although we are a nation with the third-highest number of startups unicorns, we believe that as the largest democracy of the World we lag far behind the US and China in terms of the number of unicorns (both countries have in excess of 200 Unicorns). For this to change we need to nurture the spirit of entrepreneurship.

Also read: OYO, Paytm, Sequoia, Accel top deal makers of 2019; startup funding jumps this much from last year

The governments at the state and central levels also need to undertake initiatives to promote the cause. These will have to range from setting up of resource sharing startup hubs to allocating capital in fiscal budgets for startups and domestic VC funds. Initiatives such as NITI Aayog’s Atal Innovation Mission that provides grants to set up incubation centres across the country are a huge boost to the ecosystem. The Prime Minister’s Startup India programme is actively working towards the improvement of the space but such programmes should be complemented with direct fund infusion into startups that help them get off the ground. A tremendous value addition would be the government’s focus towards increasing the participation of domestic institutional capital in the space. The central government has allocated a corpus of Rs 10,000 crore to be invested in domestic VCFs through its Fund of Funds scheme managed by SIDBI. As the participation of capital from within the country will increase, a culture to innovate will be imbued.

Corporate and family office participation will be another booster for our mission. As we can see, many traditional industries and sectors are undergoing turmoil, this is not only due to the periodic economic cycle but also the disruption caused by technological advancements. To keep up with the changing landscape, we are witnessing active participation from corporates and Indian family-owned business houses, directly or indirectly, in the startup ecosystem. Infusion of risk capital from such groups is still missing due to disparity in tax treatment between listed and unlisted shares. Additionally, unlike in the developed economies, India sees very little participation from domestic institutions such as insurance and pension funds. We believe that if such institutional groups move to participate indirectly via VCFs in very early-stage companies then many aspiring founders will be inspired to take the entrepreneurial path.

A collective effort from all stakeholders is a necessity to give wings to the dreams of the millions of young and aspiring entrepreneurs. A decade from now, we will be looking at a new economic order in India, and startups will be the backbone. Industries and companies that focus on serving India’s next billion and millions of businesses, such as financial inclusion, electric mobility, logistics, transportation, automation technologies, healthcare & wellness, agri-tech will lead the way and we will see numerous unicorns from these areas.

(Rohit Goyal is the Managing Partner at Windrose Capital. Views expressed are the author’s own.)

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