Prime Minister Narendra Modi poses for a selfie during the launch of “Startup India”, at Vigyan Bhawan in New Delhi on January 16, 2016. For 2024, the Hurun Research Institute’s Global Unicorn Index showed that India’s startup ecosystem had slowed, with the number of unicorns down for the first time since the launch of their list six years ago.
| Photo Credit: Shanker Chakravarty
At a dinner gathering held ahead of the 2024 general election in India, a veritable who’s-who of India’s startup world hobnobbed with BJP Ministers in a show of both strength and tacit support for the idea of a third-term Narendra Modi government. While the mood of the throng was very much about supporting the idea of continuity in governance, Pankaj Mohindroo, Chairman of the India Cellular and Electronics Association, may have inadvertently let the cat out of the bag, when amidst the general air of hosanna for the Central government, he observed that one of the key challenges for India had been its inability to rein in its enforcement agencies.
But let us start at the beginning. Starting in the early 2000s and for many years after, Indian startups have preferred to register their headquarters abroad. A more congenial tax environment, a larger pool of investors, and often better valuations—it was just all-round easier to headquarter the business overseas but milk the market back home. Then came Budget FY25 and the abolishment of the angel tax.
Introduced in 2012, the tax was purported to be an anti-abuse measure to check tax avoidance and curb money laundering through inflated valuations. With the removal of this tax, the goal, said the government, was to improve the ease of doing business in India. And indeed, there followed a flurry of headlines through 2024 of “reverse flipping” as it is called, where Indian companies that were initially established overseas strategically repatriated their legal headquarters back to India.
The IPO bonanza
While the government may want to take credit for this return, there was a very different sweetener at work. A roaring primary market and the promise of eye-popping valuations. As many as 13 new-age tech startups made it to the public markets in 2024, cumulatively raising over $3.4 billion. The list is long: Swiggy, Ola Electric, FirstCry, and many more launched an IPO in 2024. It was a win-win in many ways, and for many key players.
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The appetiser before the main course came in the form of pre-IPO funding and secondary transactions. Priced at a discount to the IPO price, a pre-listing deal offered high net-worth investors and family offices the opportunity to buy shares into these companies at slightly lower valuations, with the promise of bigger gains post-listing. For the startups, it quickly provided pots of diversified capital even before listing. It was not uncommon for pre-IPO funding to take place many months ahead of actually hitting the primary market. And for the venture capital and private equity titans, it was the promise of a bumper exit. From a mere $700 million in 2022, the exit value figure for venture capital more than doubled to $1.8 billion in 2024.
Great for many, but one—the retail investor. By the end of 2024, data shows close to 40 per cent of companies that listed were trading below their issue price. Come 2025, a sharp correction in markets has seen many names added to the list. Bajaj Housing Finance, Waaree Energies, One Mobikwik Systems, DAM Capital Advisors, P N Gadgil Jewellers, Transrail Lighting, and Unimech Aerospace & Manufacturing are some of the names among 18 recently listed stocks that are now trading at their lowest point since listing. Some of these names are indeed startups. Estimates are that this year, anywhere between 10 to 20 companies from that ecosystem have IPO ambitions and are looking to raise more than $6.4 billion. The hitch is that early tidings for India’s stock market have been far from reassuring. This is best reflected in the fate of the BSE IPO index, which has cracked 11 per cent in the course of January.
Bhavish Aggarwal, the founder of Ola Electric, ahead of the company’s IPO launch in Mumbai, on July 29, 2024. Of late, Ola Electric has been mired with leadership exits, regulatory scrutiny, and disclosure lapses, not to mention social media spats.
| Photo Credit:
FRANCIS MASCARENHAS/REUTERS
What happens to that reverse flip and the charm of returning to home soil, once funds do not seem as flush? The answer to that particular question may already be in front of us. The Hurun Research Institute’s Global Unicorn Index produces a ranking of the world’s startups founded in the 2000s, that are now worth at least $1 billion and not yet listed on a public exchange. For 2024, the index showed that India’s startup ecosystem had slowed, with the number of unicorns down for the first time since the launch of their list six years ago. This was in spite of a grand stock market rally through 2024. Why did the number look so poor? As the report pointed out, Indian founders produced more offshore unicorns than any other country. They co-founded more than 100 unicorns outside of India compared with just 67 in India.
Reality of consumption demand
Complex tax structures, compliance requirements, stringent regulations around mergers and acquisitions, and that much-dreaded knock on the door from enforcement agencies: for all the support and cheer that the government and its promise of continuity received, the reality reads differently. Mohindroo’s faux pas at last year’s startup gathering may have been the truest sentence spoken that evening. The list is now long and the days to “IPO” are short. The mood may have also soured with notable misadventures like Ola Electric, which is mired with leadership exits, regulatory scrutiny, and disclosure lapses, not to mention social media spats.
Underpinning it all is the great Indian consumption story. New-age tech startups need only look to their more staid brick and mortar peers in the consumer industry to gauge how tepid consumption demand has been, and how only a few are being able to skim the benefits of India’s demographics.
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Ahead of the next Union Budget, expect a slew of statements, both from the startup ecosystem and from the government on how technology, governance, and policy support have all come together to create a startup revolution. Here are circumstances as they stand: a turn of sentiment in flows, acute uncertainty around geopolitics and work visas, and of course, a currency with a weak underbelly.
Does India’s startup ecosystem have the legs to remain standing when funds start gushing out and away? The truth is nobody knows. And if both consumption demand and fund flows deteriorate, all bets could be off the table.
In July 2007, Chuck Prince, then CEO of Citigroup, told the Financial Times: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We are still dancing.” It was not long after that pithy quote that the global financial crisis hit. For the sake of the startup crowd, here is hoping there are more records to play.
Mitali Mukherjee is Director of the Journalist Programmes at the Reuters Institute for the Study of Journalism, University of Oxford. She is a political economy journalist with more than two decades of experience in TV, print and digital journalism. Mitali has co-founded two start-ups that focussed on civil society and financial literacy and her key areas of interest are gender and climate change.
