Digital India, Startup India and Make in India are synonymous in some sense as the visible thrust from the government has raised awareness and focus on startups. Within months of the government coming to power in 2014 there was a complete change in sentiment. Last year, IDG Ventures India saw 2,800 deals, while in the first quarter of this year, we have already crossed 1,000 deals.
Capital Inflow
Rupee capital is also flowing into the venture industry. In the last three years, we have raised over $100 million from Indian investors. Forty five percent of our third fund is Indian capital, whereas in the second fund it was only 20%.
This is a game changer. Since the government has become a limited partner through Sidbi as a sovereign fund, international investors’ confidence in venture as an asset class has increased. Indian family offices and other institutional investors in India have also committed to funds like ours.
Digital Push
The power of digital India is to innovate and also improve efficiency of the brick-and-mortar sector. For an investor, the chain is -capital, company, consumer (the 3Cs). If any one of them breaks, there is dullness in the market. In the last three years, all the 3C’s have been running like a well-oiled machine.
Companies like FirstCry, Flipkart, Lenskart, MakeMyTrip and Paytm, among others, have grown to leadership positions with about 15-million internet users. In the next five years, we could see this base increase to over 100 million. In the software space, new global companies have emerged in the product space like Freshdesk, Newgen, Manthan and Tally.
Aadhaar, India Stack
Aadhaar is revolutionary and I am glad it is being adopted in every sphere of life. It solves the problem of identity, tracking where cash goes, and is saving the government a lot of money which can be deployed for growth.
Aadhaar should be linked to every single element of life and enable cross-referencing. We need one unique identity over multiple platforms, such as banks, post office, LPG, paying tax, and getting a driver’s licence. India is adopting digital faster than many countries in the world.
UPI is also a game changer. It enables seamless transactions. RuPay should become a national currency and can even become an international currency. GST will link India as one market for the first time.
While each is a game changer, combined they will have a powerful impact on India becoming more efficient.
Information Security
India is still dependent on international companies for information security, which is not good. The government has to play a major role, like it has played a role in Aadhaar. Information security initiatives should be at the same level as Aadhaar but it is only at 0.5 on a scale of 10 while Aadhaar is at 9.
Regulation and governance
Digital India impact has enabled changes to taxation now becoming predictable which me ans half the battle is won on sentiment. However, it’s crucial to address long standing taxation issues. Private venturefunded companies pay higher long-term capital gains than listed companies. Indian rupee capital investors pay higher taxes on capital gains than international investors. Mortality is a part of risk funding.. it’s still cumbersome to shut down a company.
The way forward
Remove road blocks to scale. Sidbi has world class capability as a sovereign Indian LP and must aim to disburse at least Rs 10,000 crore in the next five years. The adverse tax issue with regard to rupee capital must also be resolved.
More family offices and high net worth individuals will invest in startups if there is a fair tax regime which enables rupee capital to be at par with international capital.
In the last five to six years, India has absorbed around $100 billion of risk capital funds. In the next five, it can absorb over $200 billion.
This can happen only if we think scale and remove hurdles.
(Written by Sudhir Sethi, Chairman of IDG Ventures India)
Source: Economic Times
