Indian Tech Startup ? The Founder's dilemmas ...

Dream :

We all want to be a Mark Zuckerberg and really soon. There is fire in our belly, we are full of ideas, we are willing to take risks, we are willing to let go of well paying jobs ..... So we take the plunge and wow ! Our idea takes off and we are acquiring users at a fast pace and we have also been through the funding cycle well simultaneously. Seed Fund, Series A, B, C ... all done.

Its time now to scale up further and go Public.

Reality :

1.    Indian rules do not allow a non-profitable company to go public. It is a known fact that Flipkart and many other startups that do not make profits yet and are currently chasing revenue cannot go Public in India.

2.    Our rules require companies to be profitable for at least one out of two immediately preceding financial years before issuing a public offer of shares.

3.     For public issues of companies without a 3 year profitability record, the retail investor quota as per SEBI should be 10% of the issue size. This is to protect retail investors (those investing up to Rs 2 lakh). The Flip side is  :  Retail investors could not participate in successful IPOs such as those of Just Dial.

4.     SEBI requires companies to use proceeds from a public listing to build tangible assets or buy plant and machinery. India's fast-growing Internet and technology product companies have intangible products and services and intellectual property as their main assets !

Lets say the Government of India & SEBI change all of the above to a scenario that is favourable for Tech Startup listing.  The next question is :

Do Indian retail investors really have an appetite for such a buss model yet?   Indian capital markets, especially the equity markets are simply not deep enough. It would probably take a minimum of 10 years of fast-tracked reforms for our markets to come close to that of a developed economy's.

Investors in the US are known to chase a 'growth story' over the profit story whereas investors in India want quick gains and therefore chase the profit story.

Meanwhile :

Most of India's tech companies such as MakeMyTrip, Genpact, Rediff and EXL Services are listed on either NYSE or Nasdaq.

Nasdaq seems to be the preferred choice, considering it is  known for listing technology companies and the fact that investors in the US are known to chase a 'growth story' over the profit story.

Many cos are in / moving to Singapore because :

1.     Singapore has a 0% Capital Gains Tax, compared to India's 20%

2.     Singapore has a Corporate tax rate of 17% p.a. while India has 30% p.a.

So the Founder's Dilemma continues .........

Comments are welcome.

#facts from : ET, FP, wikipedia ......