India’s reputation as a global hub of science and technology has long been established. Our science and technology sectors have given the world many highly skilled and talented individuals who have made significant contributions to innovations in the domain at the national and international levels. In recent years, we have also seen the boom of the startup culture in the country, as entrepreneurs and investors from around the world seek to tap into our human resource potential.
Thousands of indigenous startups have also emerged, in many cases growing to become global competitors of international startups. The number of startups in India had risen to 84,012 in 2022, from 452 (2016), a growth of over 18,486 percent in 5 years! Over 100 of these are ‘unicorns’, companies with a valuation of $1 billion or more, disrupting production and service delivery in a wide range of sectors from edtech to foodtech. As far as health is concerned, India is now home to 3,548 active healthtech startups, which are helping streamline healthcare services delivery on-ground and contributing to the development of high-quality and affordable diagnostic and medtech products.
The Rise Of Flipping
However, over the last few years, India’s old challenge of ‘brain-drain’ of highly skilled and educated professionals has re-emerged to plague the startup sector as the phenomenon of ‘flipping’. The phenomenon refers to the transferring of ownership of a startup to an overseas entity. Effectively the Indian company transforms into a 100 per cent subsidiary of a foreign entity, with the founders and investors retaining the same ownership via the foreign entity. While flipping is a common strategy in many countries, it has become particularly prevalent in India due to a variety of factors.
One, the sheer size of India’s startup ecosystem means that there are thousands of startups competing for market and funding. This makes flipping an attractive pathway to quick monetisation of ideas and market exit. The entrepreneurs are able to realise a substantial return on investment and move on to new ventures. Second, our venture capital industry is still growing and developing, creating funding challenges for startups when they look to scale their businesses. By flipping their companies, entrepreneurs are able to bypass the funding gap and access the resources they need to further expand their businesses. Third, promises of higher valuations by foreign private equity firms create a strong pull factor for early-stage startups in the country.
India’s Loss
Once a startup has flipped, the country loses out on its intellectual property, data, research, taxes, and any market cap that could have accrued if it had been listed in the Indian stock markets. This loss is particularly pronounced in the field of health and biomedical research, wherein R&D and technological innovation is a long-drawn and expensive process, which if successful, can have transformative effects on public health and wellness. Further, the growing concern around new health challenges such as antimicrobial resistance and climate change-induced illnesses has increased the demand for R&D and innovation in health, worsening the impact of losses from flipping in this sector.
This is the new ‘brain-drain’, wherein Indian talent and innovation are transferred seemingly overnight to a foreign entity, generating wealth overseas, impacting the process of growth and development and resulting in a lack of creativity and innovation within the country. In the long run, this affects the health and sustainability of the startup domain as a whole in India.
Reversing Flipping
To address these concerns, we need to strengthen the startup ecosystem in the country and inculcate sustainable approaches to their growth and development. This can include greater investment in the early stages of startups, increasing support and funding for R&D, especially in fields like health and biomedical research and streamlining tax structures and reducing compliance liabilities can play a significant role in curbing the brain-drain and helping retain our indigenous talent.
Fostering Indian startups will be a critical part of India’s entrepreneurial journey. Particularly in the domain of health, startups will play a pivotal role in developing innovative and affordable solutions to major health issues and emerging health challenges like climate change and antimicrobial resistance and streamlining healthcare delivery on-ground. Promoting the growth and development of startups and taking active interventions to curb flipping is now necessary to retain our position as the global hub for science and technology. The Budget of 2023 has given impetus to this cause and has given particular focus to tackling the phenomenon of flipping. Through such measures, we can strengthen our resilience to the socio-economic and health challenges of the future.
In this globalised village of the world, there are several new bilateral initiatives being undertaken on fostering and investing in cutting-edge start-ups. However, India has to guard against losing such jewels in her crown to foreign shores.
Balram Bhargava is President of The National Academy of Sciences, India and the immediate past Director General of the Indian Council of Medical Research. Views are personal, and do not represent the stand of this publication.
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