⚡Homecoming for Indian Startups?
A lot of Indian startups that had chosen to register abroad are planning on making a comeback to India. Want to know why? ReadOn!
As the year comes to an end, here’s what we predict for 2023:
A lot of Indian startups that were registered abroad are going to be returning home.
PhonePe is the first startup to start this ghar wapasi (homecoming) trend and many others are set to follow.
Wondering why did these startups leave in the first place? And why are they coming back? ReadOn!
🇮🇳 The Indian Obsession with All Things Foreign
Well, us Indians are obsessed with moving abroad because of the great opportunities other countries offer, be it education or jobs.
And Indian startups are no different.
Over 8,000 Indian startups and around 20% of India’s unicorns are registered outside the country.
And many of these startups choose either Singapore or the US as their new homes because of better laws, lower taxes and better startup infrastructure.
For instance, Singapore’s corporate tax rate is 17%, while India’s corporate tax rate ranges from 25%-30%.
Plus, the US and Singapore rank 1st and 7th in the Startup Blink Global Startup Ecosystem Index (2022), while India ranks 19th!
So, the love for abroad makes sense, right? What doesn't make sense is why are they suddenly coming back?
According to a PhonePe insider here's the reason to come back: "Being one of the largest fintech companies, PhonePe is focused on India market and all its employees are based in the country, that is why the leadership decided to take these steps."
But the real reason could be much different.
🤓 East or West: India is the Best?
It is not the smell of desh ki mitti that brought PhonePe back to India. Rather it is the smell of profits.
You see, PhonePe is really into the financial services sector.
It has its own wealth management and insurance brokerage arm and is also the market leader in the UPI space.
Now, it has to just obtain the last infinity stone to become inevitable: a lending business.
That's because the digital lending business is set to be worth $1.3 trillion by 2030.
But with RBI now getting stricter with fintechs, especially those involved in the lending business, PhonePe probably decided it would have better chances to appease the regulator if it came back home.
So, it shifted its Singapore business and employee ESOPs to India.
Did this work? Nope.
Reports state that the RBI has refused to give PhonePe an NBFC license as Walmart, a foreign company, still holds a majority stake in the startup.
Other startups like RazorPay, Groww and PineLabs, which are registered outside India and are planning to come back, could also face a similar fate.
So, is coming back to India worthless?
Absolutely not!
🏠 The Pros of Homecoming
You see, there's yet another benefit of coming back to India: the Indian IPO experience.
For diehard stock market investors, a major IPO is no less than IPL.
And with an IPO, comes unlimited marketing. For free.
Plus, data shows that Indian markets often provide higher valuations than US markets:.
Source: The CapTable
This is another incentive for a lot of startups to come back to India.
But coming home is not all that great for them.
Because shifting their business back to Indian entities could mean huge losses for investors. Huh?
Usually these shifts are done through share swaps or asset sales.
Both these methods usually involve some sort of capital gains on which investors have to pay taxes (approximately 20% for long term gains and 30% for short term gains).
Now, for investors who have a large shareholding, these taxes make sense. But many investors with small stakes may have to liquidate their entire stake to pay off these taxes.
These investors may object to the idea of shifting bases as they wouldn't really benefit from it.
But such are the risks that come with the startup life.
However, what do you think India can do to retain these startups in the first place?
Should we also lower corporate taxes? Or relax rules and regulations?
⚡In a line: Indian startups are finally realising the benefits of being registered in India.
💡Quick question: Do you think India’s startups schemes are actually working?
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See you tomorrow :)
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