Sanjeev Bikhchandani’s advice for startups: Focus on customer’s money and not on investor’s money


By Nayantara Rai

Many of the start-ups which can be unicorns will and ought to go public and they are going to discover demand and hopefully be capable to service their itemizing as nicely within the years and many years to come back, says Sanjeev Bikhchandani, Co-founder, Info Edge.

The authorities has nominated you to the panel of the National Startup Advisory Council. You are going to advise the federal government on find out how to make the startup ecosystem extra sturdy and enticing for home and international capital and scale back the regulatory burden. Are you up for the problem?
It is a shared duty. There are plenty of folks on the council. But one at all times desires to present again and after 30 years of being an entrepreneur, I’ve some firsthand data. Also I’ve a community or pals who’re entrepreneurs and who may give sufficient suggestions on what we are able to do to make issues higher for the federal government, for start-ups and for society at massive.

Just just a few months in the past, you talked about the issue of flipping and raised the problem of how start-ups are altering their domiciles and India is dropping its IP. Clearly, tthe authorities is listening.
Absolutely. The authorities has been consulting numerous business our bodies — entrepreneurs, founders, corporates, buyers — up to now as nicely but it surely has not been a proper advisory council. We all have met the federal government, the DPIT, NITI Aayog a number of occasions to debate issues. But that is the primary time {that a} formal council is being arrange with a broad big selection of representations. This is a really constructive and encouraging step.

As we need to develop into atma nirbhar (self-reliant), we need to shield Indian IP and enhance home capital. What are the highest three to 4 issues the federal government can do to make the ecosystem much more enticing?
Yes, have a look at the sources of capital and the problems that every certainly one of them faces and additionally what are the widespread points they face. We are speaking about primarily fairness capital right here as a result of for start-ups it is extremely onerous to get debt as debt requires collateral and start-ups do not actually have that. So, the capital that start-ups increase is excessive threat as a result of the mortality charge is excessive. High threat capital will are available provided that there’s a prospect of excessive return.

Now you’ll be able to have a seed stage of getting capital from pals and household, you’ll be able to have an Angel round, you’ll be able to have institutional rounds, CBs, ABCs no matter. You can have capital from India and capital from abroad. Some of the problems start-ups face might be widespread and some might be completely different however broadly the problems lie round ease of entry, ease of exit or ease of repatriation of money whether it is coming from abroad and tax remedy of good points made or money invested.

The authorities departments one has to work with might be within the space of direct tax, oblique tax, SEBI, RBI and Ministry of Finance. The regulator must unlock capital from some sources that are not allowed to speculate at present, enterprise funds for instance. Insurance firms or pension funds do not make investments rather a lot. The money sitting on company steadiness sheets might be unlocked and be invested in start-ups. So unlocking the supply of capital is necessary. A framework is required that enables folks to earn an inexpensive charge of return given the chance concerned.

If capital is coming from abroad, repatriation must be simple after they exit and that’s the reason you get extra investments. Right now, there’s a construction for different funding funds (AIFs) via Mauritius for abroad enterprise capital companies however there are numerous individuals who are available immediately. How are they handled? So, a complete resolution with many small components to it must be really helpful.

There are loads of expectations that come 1st of February, Finance Minister Nirmala Sitharaman will make some announcement for itemizing of start-ups. How excited is the startup group and what sort of an announcement ought to it’s?
The Budget is a milestone and a chance to make some adjustments however this must executed on an ongoing foundation and might take a number of months as a result of there might be so many guidelines that we must change, so many departments consulted to make it simpler in all these areas and I do not anticipate a miracle. Maybe, there might be just a few issues within the Budget but when we are able to make a dedication to repair many of the issues over the following 6-12 months, it will likely be excellent.

Has time come for India to permit the abroad itemizing with out additionally insisting on a secondary itemizing? Or is it time to have a look at one thing like ADRs which can enable start-ups to additionally present exits?
First of all, earlier than mid 2005, company India may listing abroad. This rule of an Indian itemizing first and solely then an abroad itemizing got here solely 15 years in the past. Companies like Rediff and Sify had listed abroad with out itemizing in India. There are some sorts of public choices which can be onerous to do in India if there isn’t any visibility of revenue. Apart from the regulation, Indian buyers themselves are not so eager, at the very least not but. We have been the primary web firm to listing in India and we needed to do street excursions world wide.

The preliminary demand for our IPO and for our inventory got here from abroad as a result of folks in India have been not so acquainted with web investing, however that has modified now. So it would take a while and perhaps it would change however I imagine that an abroad itemizing choice must be open and positive, they will listing in India as nicely.

IPOs are purported to be the massive theme for 2021 and 2022. Zomato, Flipkart, Delhivery, Grofers are all planning IPOs. If India does not come out with laws quickly, many may listing abroad and Indians will miss a chance to get richer.
When a startup is domiciled and lists in India, listed below are numerous different externalities as nicely. Had Info Edge externalised proper and then listed abroad, maybe we might not have invested a lot money in different start-ups — in Zomato or PolicyBazaar as a result of our focus might not have been India as a lot.

Secondly, if we glance again, in 1980, each HCL and Infosys have been start-ups. They have been first era entrepreneur start-ups. Can you think about what may have occurred if in 1985 or 1982 or 1981, they’d determined to externalise and determined not to listing in India? I completed school in 1984 and if I have a look at the industries that have been using folks and had a buzz in 1984 and I have a look at at present — 36 years later — I discover that the majority the industries which have created vital worth buzz and employment progress did not exist in 1984 – -be it IT firm or IT-enabled providers firms, retail, on-line, web, personal airways, personal sector banks, personal sector insurance coverage firms, personal telecom firms. None of those industries have been listed in 1984.

The level is that it’s start-ups and new initiatives that create worth over many years and the start-ups which can be rising large at present and will create critical worth over subsequent 20, 30, 40 years — can we need to seize that worth in India or do you need to let that worth be captured abroad? Will the externalities accrue to India or the accrue to abroad economies? Those are necessary questions. So even when some have already flipped and many have flipped, the query is can we now take measures in order that in future you might be right here and nice?

The Indian start-ups have massive world ambitions. They need to construct for India and for the world. They are within the technique of finalising bankers, attorneys, submitting for drafts like purple herring prospectus and many others. Do you imagine that the personal area that we’re seeing at present might be wealth creators?
In the very long term, each firm is valued as a revenue a number of and an organization is really sustainable when it makes a revenue. When prospects pay a value that’s larger than the price of delivering that services or products, that’s if you find yourself creating true worth. So sure, firms will go public and that’s nice however an IPO is not the tip, it’s only a new starting. It is only a milestone past that the enterprise has to run proper. Indian entrepreneurs are good and as soon as they get it, they are going to shift gears to sort out that milestone as nicely.

Can you share with us some measures that the federal government can instantly take to cut back regulatory burden which is perhaps seen as too advanced and making us uncompetitive?
Every rule that exists, does so for a purpose. Take the rule Section 56 2(a) the place if an earnings tax officer determines that funding has come into an organization not from an AIF however from someplace else and at a valuation that appears too excessive, he can tax the distinction as if the revenue is within the fingers of the corporate. This rule got here in about 5 – 6 years in the past as a result of some folks have been laundering money in that vogue and have been placing fairness costs into shell firms.

In the method, real start-ups obtained damage. What might be executed to cease that malpractice and on the similar time not hurt the real start-ups? We do not know what the reply is the place each might be glad however that’s one thing the startup advisory council amongst many different points will hopefully work on with the federal government.

There are guidelines that exist for a purpose and there are specific guidelines that additionally exist which must be struck down. Do you suppose the entrepreneurs are overtly regulated or is the regulatory burden not that prime?
Let me provide you with one other instance. When an Indian firm raises money from abroad and not from a Mauritius entity however immediately from an Angel investor from abroad, the money is available in foreign exchange. There must be a selected submitting with the RBI. Sometimes start-ups omit to file there merely for lack of awareness. Let us say the corporate does nicely and the investor is taking out 10x or 20x proper now, that repatriation has to go to RBI. RBI says present us the paperwork that you simply filed when the money got here in. It is a authentic query for RBI to ask and if the startup has omitted to file that, then it takes loads of time to kind it out with RBI and that daunts international buyers from investing once more in India.

So it’s not that the RBI is improper, it’s that now we have to seek out elegant options to all these issues.

What can be the answer as a way to take money from a international investor with out having to fret that I’m going to be challenged later?
That is what now we have to work out with folks from the direct tax, folks from RBI, the MCA. We do not have all of the solutions but.

India is at quantity three with the best variety of unicorns on the earth. We have seen 12 unicorns through the pandemic yr 2020. One has already are available 2021!
India is doing very nicely in start-ups.The query is how can we make it higher? So what I’m speaking about is admittedly nice tuning or tweaking to make it do even higher.

What can be your advice for the younger founders who’re dreaming large?

I wish to say that customer’s money is best than the investor’s money and the reason being you will get the customer’s money repeatedly and at a value larger than your value of supply, then you definately most likely have a viable enterprise as long as you will get sufficient prospects. And if you’re getting customer’s money on these phrases, then likelihood is you’re going to get the investor’s money as a result of buyers like to put money into companies which can be getting buyer money. However, in the event you get investor money first, there isn’t any assure that you’re going to get the customer’s money as a result of getting the investor’s money is usually about impressing two MBAs throughout the desk along with your Powerpoint however the buyer is not your uncle, aunt or your mom. They will not do you a favour and will give money provided that they imagine what you’re providing works for them. Therefore focus on the customer’s money greater than the investor’s money.

So, you’re a robust believer in having a wholesome steadiness sheet utilizing the shopper money to develop large. If you get an investor nicely and good, in any other case do it organically with accruals as a result of debt may be very tough?
Yes, I wish to level out that Zerodha and ZOHO are two shining examples of firms which were constructed with out taking investor’s money in any respect just because they have been making one thing that prospects needed and they have been capable of get extra prospects and construct on customer’s money. Of course, not everyone can try this and not everyone is doing that. We ourselves invested in start-ups however nice firms are capital environment friendly. Google raised solely $25 or $50 million earlier than its IPO and the whole market cap has been constructed on that quantity of money.

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