Startup diaries – Part-5: Exits for Investors

Getting exits in India is tougher than the Western markets

Read Startup diaries – Part-1: Indian Political ecosystem

Startup diaries – Part-2: Sky-high valuations

Startup diaries – Part-3: International Macro-economic Funding environment

Startup diaries – Part-4: Indian Macro-economic Funding environment

 

Exits for Investors

Exits for Investors

Coming to another Macroeconomic aspect, getting exits in India for PE Funds is particularly tougher than in Western markets. US has big technology players with hordes of cash with which they gobble up thousands of Startups each year – Facebook, Google, Microsoft and Apple being the big 4.

US is also a unique melting pot in a way that it allows creative business ideas to bloom. The whole system promotes risk-taking, but most importantly, allows for creative destruction – businesses which get outcompeted, are easily folded or shut. Newer efficient businesses get a chance to push outdated or lazy firms out of the market. US also allows hostile takeovers, albeit with restrictions on buyouts which are only for asset stripping and hence could result in massive job layoffs.

US Labor laws still allow enough flexibility to Hire-and-Fire, thereby allowing for greater room for maneuver by Managements in ever-evolving markets. The system does result in great stress on CXO’s, since their neck is always on the line basis each quarterly performance (US has highest depression rate amongst OECD countries), but having said that, the same system produces visionaries who are thoroughly backed by the whole ecosystem.

India is a different case. It doesn’t have giant technology firms, but software firms. Internet backbone is still slow and encompasses lesser area. For internet companies, vernacular language markets are much shallower as compared to English speaking markets, which are worldwide. English based websites have to compete with Western incubated businesses, which bring with them deep pockets and standard processes, developed over time by deep experience gained from markets which are ahead of India by at least 10 years. Like home grown e-commerce companies found out, Indian Customers are immensely price conscious, but sticklers for quality at the same time.

Most often, the two big factors which end up effecting Exits are – Launch timing and Scalability. The product or service must be solving a unique problem for the consumer and have rapid scalability to derive economies of scale.

Promoters should also be flexible enough, not to get too attached to their original plan, because it’s probably wrong. Most successful startups end up doing something different than they originally intended – often so different that it doesn’t even seem like the same company. Promoters have to be prepared to see the better idea when it arrives. And the hardest part of that is often discarding their old idea.

Some of my articles explained these issues in greater detail, see below:

http://www.tusharkansal.com/2015/08/22/interview-in-digital-marketing-asia-startups-india/

http://www.tusharkansal.com/2015/02/18/interview-with-tushar-kansal-founder-cfo-indus-b2c-global/

http://www.tusharkansal.com/2015/03/17/interview-with-startup-tushar-kansal-part-2/

More in next Part, next week

Author: Tushar Kansal

Tushar has been associated with the Project Assessment, Fund-raising & Financial Advisory realm in India for 2 decades. He has straddled multiple roles in Financial Advisory in Deloitte Touche Tohmatsu, PE Deal-maker in Times of India’s Brand Capital, in Corporate Finance roles in Aircel, as an Entrepreneur in Education field and as a CFO (Chief Financial Officer) till 2014. Prior to that, he was the Head of Debt for MTS India, where he was instrumental in raising $2.5 billion structured debt. Tushar has been involved in $6 Billion of transactions in Debt/ PE/ M&A across all asset classes. He has major experience in Education domain – From 2001 to 2006, Tushar led his Education entrepreneurship venture which provided Entrance examination training for Engineering colleges in India. The venture grew to 800 students and then was bought out by a marquee pan-India player in this space, as a strategic sale. Tushar is a panel member at CNN-News18. He is also a Columnist @ Business World, Indian Defence News, Business & Economy, Indian Economist, Digital Market Asia, OpIndia & Growing India.

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