Startups: Vai-Thee

Startups: Vai-Thee-Fuss. Why Indian startups flipped for more than two decades

Flipkart flipped. Maybe the brand name was a giveaway. But it wasn’t alone. Startups such as InMobi, Pine Labs, Meesho, Groww, Zepto, PhonePe, Razorpay, and Freshworks also adopted overseas holding structures at different stages of their journey.

From the mid-2000s till around 2020, something peculiar happened. India produced brilliant engineers, smart first-generation entrepreneurs and unicorns. But when it came to ownership, many of these companies quietly packed their bags and moved their corporate domicile overseas. Singapore was a popular destination, although some chose the US or the Cayman Islands and Mauritius.

Interestingly, the founders often continued to live in India, built products here, employed thousands of people locally and acquired millions of Indian customers. Yet the holding company sat elsewhere. It wasn’t because the founders loved Singapore more. The prevailing ecosystem made the decision almost inevitable.

Twenty years ago, India wasn’t particularly friendly to venture-backed startups. Foreign investors preferred predictable legal systems, while Indian company law was cumbersome. Capital gains taxation created uncertainty, cross-border transactions were complicated and ESOP regulations created additional challenges.

For startups hoping to access global capital markets, an overseas holding structure offered greater flexibility. For all these reasons, Singapore became an obvious choice. It was English-speaking, politically stable, operated under common law, offered efficient regulatory and financial systems, and was just a short flight from Bengaluru.

Global investors were also comfortable investing through Singapore or US structures as most of them had standard investment documentation and familiar legal frameworks. Founders also found the overseas route practical and agreed to “flip”. The fact is, when large investment cheques are at stake, patriotism and idealism rarely win over commercial practicality. Over time, this became a mechanical decision and the only variable for founders was to choose between Singapore and the US.

To be fair, some sectors had genuine business reasons for doing so. Enterprise SaaS companies selling globally wanted US entities. Fintech companies raising large amounts of international capital found Singapore attractive. Edtech companies serving international markets and consumer startups with global ambitions also followed suit. After all, who wants a regulatory nightmare just before a billion-dollar exit? The advantages were immediately visible. Fundraising became easier, international expansion and acquisitions became smoother, corporate structures were familiar to global investors, and mergers and exits seemed easier to execute.

Meanwhile, Indian policymakers faced an uncomfortable paradox. India was producing entrepreneurs, technology, employees and customers, but the ultimate parent companies of some of its most valuable unicorn startups were legally sitting outside the country. Could India truly aspire to become a technology powerhouse under these circumstances?

Then something interesting happened. The traffic started reversing.

PhonePe returned from Singapore. Groww came back from the US. Zepto returned from Singapore. Several others followed. And, in a delicious piece of corporate symmetry, Flipkart, the company with which I started this story, has now completed its own journey back from Singapore to India. The startups that flipped have reverse-flipped.

Why are companies willing to spend considerable time, money and effort undoing structures they once worked hard to create? In the next column, we shall look at what has changed in India — and why home has suddenly become attractive again.

(The writer is a serial entrepreneur and best-selling author of the book ‘Failing to Succeed’; posts on X @vaitheek)