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Moneycontrol Masterclass: Decoding the startup funding boom in India

In the latest edition of Moneycontrol Masterclass, Zerodha CEO Nithin Kamath, Edelweiss AMC CEO Radhika Gupta, Meesho CEO Vidit Aatrey and Sequoia India Managing Director Rajan Anandan-talk about the startup funding boom, what it means, and future for startups, listed companies and more.

April 16, 2021 / 08:24 PM IST

India is in the middle of an unprecedented startup funding boom. This year has already seen as many unicorns- billion-dollar firms- as all of last year, with many more to come. In the latest edition of Moneycontrol Masterclass- Ideas for a New India- founders and investors alike opened up about what this boom means, why this could be India’s decade, and more.

The speakers were Zerodha CEO Nithin Kamath, Edelweiss AMC CEO Radhika Gupta, Meesho CEO Vidit Aatrey and Sequoia India Managing Director Rajan Anandan. 

India currently has 47 unicorns, with eight created in the last couple of weeks alone, and it is easy to believe that a billion-dollar startup is the new normal. “India has 47,000 startups and only about 47 are unicorns, so it is still a very very rare achievement. We have come a long way but we have a long way to go,” said Rajan Anandan, managing director at Sequoia Capital India.

Although large internet startups are getting created increasingly quickly in India, nearly none of them is profitable yet, and only some of them are showing signs of getting there. Profits are also traditionally the key to companies going public in India today, something that a slew of internet startups also want to challenge.

“There is so much private capital chasing startups with no pressure on companies to show profit. Life as a public and private company are very very different,” said Radhika Gupta, MD and CEO of Edelweiss AMC.

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While it also seems like every other startup is raising large rounds, why a company needs capital, and if at all it needs capital also needs to be asked, the speakers said.

“Raising capital depends on the objective. If we can grow really really fast, and achieve in 2 years what would otherwise take 7 years, we should raise money for that,” said Aatrey, whose Meesho became a unicorn last week.

Becoming a unicorn also means that there is more responsibility towards all your stakeholders, including employees, customers and investors, and that excitement along with the responsibility drives Aatrey.

However, there does seem to be some reason behind the madness, given the record low interest rates in the US, improving unit economics of companies and a rise in internet users, among other things.

“This is India’s decade for the startup ecosystem...today our startups are not just consumer apps. We have startups building across the whole suite. In 2015 we had no SaaS (software as a service) unicorns. Today we have six,” Anandan said.

“The fundamentals in startups look better today. This is different from earlier. Companies are not diluting 40 percent to raise money. They are not desperate. Investors are more convinced about bets,” Aatrey said.

The funding boom has also led to a wave of funding offers for bootstrapped companies, most prominently Zerodha’s Kamath.

“A lot of people said that our competition is raising (Groww), that they are advertising, and why aren’t we. Being able to say no to money is a privilege. But you also have to tell everyone why you aren’t raising,” he said.

The leading question on everyone’s lips is whether the startup ecosystem is in a bubble, with unsustainable valuations for unproven business models. “It feels like a bubble not just in private but also public markets, contrary to what’s happening in the economy,” Kamath said.

Startups led by Zomato, Nykaa, Policybazaar and Delhivery are also eyeing an Indian listing this year, where retail investors could get their first slice of India’s startup pie.

“Honestly retail investors have no business investing in companies or funds without a proven track record. Public capital demands a different set of rules. The Indian retail investor is far less sophisticated than we imagine, especially compared to global counterparts,” Gupta said.

Retail investors could however benefit from a NASDAQ-like platform where tech listings are prominent and need less regulatory requirements, she added. 

Indian startups are also currently not allowed to directly list abroad, restricting capital from many overseas investors, something investors and companies have been clamouring for.

“Indian startups are at a handicap. Our best companies will be able to access capital from abroad if they can list abroad. I am hoping this can change,” Anandan said. 
Moneycontrol News
first published: Apr 16, 2021 08:24 pm

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