‘Once they become profitable, they are attractive for an IPO in India and Indian investors will invest in it. What we need is a few success stories right now.’
I think there is a mindset change towards start-ups now as because of the Covid situation, they are moving towards profitability faster, says the Co-founder, Infosys.
How can Indians benefit from the start-up phenomenon?
There is a mindset issue. I keep telling my colleagues in the industry that they need to think about it strategically, they need to think about investing in start-ups as a way to buy innovation into their own businesses, buy into the opportunity that India provides for growth, for wealth creation. I have nothing against foreign capital coming in. We need foreign capital to help India in its journey but what happens is that when these companies become successful, let us say they do an exit, they do an IPO and the wealth gets distributed outside the country, it does not get distributed in India. So, we will be the losers.
It is estimated that India’s wealth is about $3 trillion in private hands, only 1% or less is being invested in start-ups in India and that is awfully low from a family office perspective.
From a personal point of view, I invest about 10-15% of my wealth into start-ups. And yes, the risk is more but the reward once a while can be significantly higher than what you would make in other categories of investment and that is the reason why I believe you must invest in start-ups.
The wealth creation opportunity for the country is significant. On the entrepreneurs’ side, I would suggest that some of them must look at IPOs. Very few of the Indian start-ups have done IPOs and they should see that when they exit, it should be through an IPO. The Indian public benefits from the wealth creation that the start-ups have done rather than being concentrated in the funds or few individuals. So that is another way in which we can get Indian citizens to gain from the start-up phenomenon that is happening.
Will Indian investors really value start ups which do not have healthy cash flows and which have not earned profits? Is a mindset shift now happening in India?
First generation entrepreneurs seem to invest in startups while older generation of entrepreneurs tend to invest in their own family enterprises or in safer asset classes like public markets etc. The new generation is starting to invest in start-ups but they need to scale that up significantly.
I think there is a mindset change towards start-ups now as because of the Covid situation, they are moving towards profitability faster than what they would have done normally and there is an appreciation of profits and profitability. Even investors are pushing these start-ups to move towards profitability. They can become profitable and once they become profitable they are attractive for an IPO in India and Indian investors will invest in it. What we need is a few success stories right now.
Like what Infosys did?
Yes, exactly. Right people invest in IT industry even today and that is not just Infosys, it is HCL, Wipro, TCS. Then there is MindTree which did a successful exit, then Happiest Minds. There are a series of companies that have come from the IT industry and there is a favourable investment scenario around the IT industry. We just need some success stories and then the public will be very keen to invest in these companies.
Internationally, there is the American model, the European model and the Chinese model. Is it going to be a hybrid model for us?
Our model is probably closer to the European model and we allow competition but we also want to ensure that there is sharing, there is data available, there is protection of privacy, there is a lot more empowerment of the individual on how their own data is used.