The cost of Y Combinator backing? Meesho, Razorpay, Groww to cumulatively pay $600 million in taxes

Similarly, fintech unicorn Razorpay, which also plans to go public in India over the next two years, is on the hook for around Rs 1,245 crore ($150 million) in tax liabilities. In October 2024, stock broking and investment platform Groww had paid around Rs 1,340 crore ($160 million) to complete its reverse flip.

Together, the three startups have paid, or are in the advanced stages of paying almost $600 million to undo their Delaware-based corporate structures, a sobering price tag for having once chased the prestige of a US base.

The Delaware detour

Much of this trend traces back to Y Combinator’s standard policy: startups accepted into the programme are expected to incorporate in one of four jurisdictions — the US (typically Delaware), Cayman Islands, Canada, or Singapore.

For Indian founders, that often meant flipping their homegrown entity into a US holding company and making the Indian operations a subsidiary. Intellectual property, too, was typically held abroad, making future returns taxable there.

Higher chances of raising follow-on capital was another key point that YC made while convincing founders to incorporate in the US.

“Somewhere, there’s been this mindset among Indian founders that being American adds credibility — it’s almost like a complex,” said Anand Lunia, General Partner at India Quotient. “Even VCs have believed that founders will think bigger if they visit the Bay Area."

According to industry watchers, that line of thinking was especially common between 2013 and 2019, when many Indian startups were advised by their investors to incorporate overseas. The hope: easier access to global capital, lighter regulation, and smoother exits via secondary sales or overseas IPOs.

“Socially, it’s seen as more acceptable to fail as a US-based founder than as an Indian one,” Lunia added. “But let’s not place all the blame on Y Combinator.”

A seasoned founder-turned-investor, who requested anonymity, also pointed out that YC was not the only one to blame and even venture capitalists often drove the push to flip.

“Founders would listen to their investors, and incoming global investors often preferred an overseas domicile. The tax and regulatory regimes abroad were perceived to be more founder-friendly at the time,” this investor told Moneycontrol.

Lunia agreed: “Do you really think these high-quality founders flipped their domicile just for YC’s $250-$500K? It wasn’t just that. Many of their VCs also pushed them to shift overseas.”

For a while, the strategy worked. But as the US IPO window narrowed and Indian public markets opened up to tech listings, the rationale for being US-based started to fade.

Meanwhile, Indian regulators began tightening oversight, particularly in sectors like fintech, and tax authorities grew wary of structures designed to shift IP or profits abroad.

And then, most founders eventually realised that “flipping was a very expensive mistake,” the investor, cited above, said bluntly.

What the flip?

A reverse flip involves transferring ownership and assets back to an Indian entity, often triggering tax liabilities on capital gains and valuation differentials. These liabilities can be owed either to Indian or foreign governments, depending on where the gains are recognised and where the IP is held.

Razorpay, for instance, plans to fund its Rs 1,245 crore tax outgo using internal reserves and is not raising fresh capital to cover the liability, Moneycontrol had reported earlier.

Meesho, meanwhile, will pay its entire $288 million bill to US tax authorities, standard procedure when exiting a Delaware structure, from the capital it raised in April last year.

Downturn in YC interest

The tax bills are now also prompting a rethink among Indian founders.

Once viewed as a coveted badge of honour, an acceptance into Y Combinator no longer holds the same cachet — especially if it comes with a multi-million-dollar headache years down the line.

In 2021, YC’s summer and winter batches saw 74 Indian startups make the cut.

By 2024, that number had dropped to just nine across both batches — an 88 percent decline in three years, according to Y Combinator's website.

So far in 2025, only four Indian startups have been accepted into the program.

“Founders are aware now, and this problem is becoming less acute,” Lunia said.

“I expect far fewer cases of Indian startups flipping early and then paying huge tax amounts to come back.”

The San Francisco shift

Still, exceptions remain.

AI-focused startups, many of which rely heavily on US capital, cutting-edge infrastructure, and deep talent pools, are bucking the trend. In fact, AI-first founders are actively moving in the opposite direction, and not just on paper.

As Moneycontrol reported earlier, several SaaS and AI entrepreneurs are not only setting up overseas entities but physically relocating to San Francisco to be closer to the epicentre of the AI boom. Founders like Arvind Parthiban (SuperOps), Vijay Rayapati (Atomicwork), Soham Ganatra (Composio), Vignesh Girishankar (RocketLane), Siva Rajamani (Everstage), and Vengat Krishnaraj (Klenty) are among those packing their bags — some permanently, others for extended stints.

The gravitational pull of artificial intelligence is simply too strong to resist.

But for those with India-first markets and IPO ambitions, the message is clear: flipping comes at a cost, and it’s often paid in millions.