Gulzar has a good summary of startups and risk capital: “For a capital starved economy, this spurt of foreign risk capital is a much welcome trend. First, for the last few years, there has been a consistent upward trend of private equity investments which now dominate the total foreign direct investment in India. In the last two years, there has been a surge in foreign venture capital in Indian start-ups, a trend accelerated by the developments in China. Now recently, mature Indian start-ups have started the to go public with their IPOs, a trend which looks likely to gain momentum in the months ahead. While these are all largely foreign capital, the wealth generated by successful Indian founders may be amplifying the start-up boom…It still remains to be seen how long the momentum can sustain, especially given the frothing secondary markets (globally too) and the questionable profitability of many of the startups. It also remains to be seen whether such foreign capital can be a significant substitute for the deficiency of domestic risk capital. Or whether the startup boom can significantly expand the envelope of domestic risk capital. But while it’s on, this remains a very important and rare bright spot in the Indian economic horizon.”
R Jagannathan: “Indian entrepreneurship is booming again. Led not by old-money entrepreneurs, but new money. It’s happening not despite Covid, but because of Covid. The pandemic that caused economic damage all over the world has led most governments to provide enormous stimulus support to flagging economies, and this easy money has triggered a stock market boom and channelled a flood of ‘patient’ equity into companies, both old and new…To keep this story of animal spirits going, we need to add two caveats. One, states must start reforming faster; and two, the judiciary, which remains the most unreformed institution in India, has to speed up and join the party.”
Akash Prakash: “At this rate, in 2021, we may see almost $40 billion being pumped into the Indian private company universe by global capital…The reality is that all this money is being raised by the start-up/private ecosystem to spend. Money raised will be spent or burnt, such is the nature and the stage of life cycle of most of these companies. The money will be spent to hire people, build infrastructure, strengthen the core tech, accelerate demand and build the brand. None of these companies will just sit on the money raised. Mind you, this money is entirely equity, most of these unicorns do not raise debt. For perspective, $40 billion is Rs 3 trillion, almost 2 per cent of GDP, that is being effectively pumped into our economy by foreign funds. This may be the stimulus that the government was unable to provide due to a lack of resources. The stimulus will come from foreign funds, not the central government. Frankly, how does it matter where the money comes from as long as it is spent in our economy and is not debt?”
