Why Indian Unicorns Are Establishing Their Headquarters Overseas?

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Why Indian Unicorns Are Establishing Their Headquarters Overseas?
22 Jun 2022
4 min read
TWN Special

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India's rapidly growing startup ecosystem has recently gained international attention. According to a report, India will be ranked 19th in the world's top 100 startup hubs in 2021, up from 48th in 2020. However, the number of small businesses incorporated outside of India is growing. In fact, some of the businesses that became unicorns in 2022 and 2021 are currently based outside of the United States. Among them are Amagi, CommerceIQ, Fractal Analytics, Polygon, Hasura, BrowserStack, Chargebee, InnovAccer, and MindTickle. Let's talk about some unicorns in India that have their headquarters abroad and the reason why this is happening. #TWN

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Just like the mythical creature unicorn, Indian startups have just rocketed and touched the sky. Many startup companies in India became successful unicorns this year, but they opted to have their headquarters established abroad. Let’s know why this became a thing among startup companies in India. According to some experts, the sole reason for successful startups in India to opt for overseas headquarters is the ease of day-to-day operations.

Let’s know more about it.

India's rapidly growing startup ecosystem has recently gained international attention. According to a report, India will be ranked 19th in the world's top 100 startup hubs in 2021, up from 48th in 2020.

List of Most Valued Unicorns in India with Headquarters Outside India

Now that we are going to talk about the Indian unicorns who have set foot abroad, it’s fair to know about the most valued unicorn companies.

  • Robinhood (USA)
  • Instacart (USA)
  • Roivant Sciences (Switzerland)
  • Automation Anywhere (USA)
  • Samsara Networks (USA)

When Open (a fintech startup) became India's 100th unicorn last month, it was cause for celebration for all. Purplle and Physicswallah are two more startups that have entered the unicorn club since then.

However, the number of small businesses incorporated outside of India is growing. In fact, some of the businesses that became unicorns in 2022 and 2021 are currently based outside of the United States. Among them are Amagi, CommerceIQ, Fractal Analytics, Polygon, Hasura, BrowserStack, Chargebee, InnovAccer, and MindTickle.

The Trend of Unicorns in India Settling Abroad is Picking Up

SaaS startup companies in particular have been expanding, particularly to the United States, which is their largest market. It also allows them to list outside of India.

According to Baskar Subramanian, many Indian technology startups, particularly those in the B2B space, are naturally drawn to sell their products & services in the US market because it provides them with a large market, increased demands, better margins, and favorable customer behavior. While engineering and product development have traditionally relied on low-cost, skilled talent pools that are abundant in India, access to funding and availability of customer-facing expertise has been relatively higher in the United States. Baskar Subramanian is the CEO of Amagi, which is the cloud-based Saas technology company. Recently, it raised $95 million in April. Amagi was headquartered in Bangalore but it now has its headquarters in New York.

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According to Ankur Mittal, the Co-founder of Inflection Point Ventures, Other startup companies in India choose foreign countries because of their favorable regulations and taxation policies in their field of operation. Furthermore, incorporation abroad simplifies the process of listing abroad and trying to gain access to foreign capital.

Having a head office in a specific country simplifies the startup's day-to-day operations in some cases because the venture has many customers from that country. Subramanian believes that having a headquarters in the United States helps Indian startups gain customer trust, gain access to technology ecosystem partners, and make way for realizing IPO ambitions, allowing them to significantly increase shareholder value.

The nature of the business also plays a role in this transition.  According to the managing partner of Unicorn India Ventures, Mr. Bhaskar Majumdar, this occurs when there is uncertainty about the sector in which the startup operates or the regulatory framework that applies, and to what extent, which is why many gaming & crypto startups are based in the Emirates, Gibraltar, and other favorable locations.

Let me explain it with an example.

Polygon, An Ethereum Layer 2 scaling startup, is an Indian unicorn. It was started in India, but the founders of this startup had a feeling about the way they created this startup in its compliance structure. This structure makes it a global company. This is a reason that today Polygon is based out of the Middle East whereas the developer base of Polygon is in many other countries like Belgrade, Switzerland, etc.

Enticing The Unicorn startups to incorporate in India

Avijit Sarkar planned to launch a fintech startup in the United States last year in order to gain access to a larger market. However, he quickly realized that the costs of incorporation were prohibitively expensive and that obtaining a visa would be difficult.

On a whim, he happened to come across Estonia's startup program and decided to apply. He didn't have to travel to the small Northern European country, but he did get a virtual address within a few weeks. "In 15 minutes, I received my VAT (value-added tax) number." The convenience of doing business is a big selling point. "Being incorporated in Estonia allows us to easily hire foreign talent," says Sarkar, owner of CapOne Research, which has applied for EU funding and received in-principal approval.

This shows why Indian startups & unicorns are heading out of India. It is time to entice them to incorporate in India.

According to experts, it is critical to create a favorable business environment in India in order to entice startup companies to incorporate and list in India. In a mature capital market, it is also critical to have a decent pool of investors and mentors. Today, India's government recognizes the value of startups in the actual ecosystem. Residential investors - finances, individuals, family offices, and so on - have demonstrated a strong appetite to support startups, which have also significantly improved the business climate.

The Indian government changed the listing rules, allowing a number of startups to go public in India. This encourages startup companies to establish themselves in India. In addition, the govt made a strategic shift in foreign IPOs, allowing India-incorporated startups to seek direct foreign overseas listings.

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Conclusion

Experts believe that having overseas incorporated enterprises has little impact on the environment and still offers the same impetus to the economy. "A startup can be formed outside of India and continue to operate in India, benefiting Indian citizens and the ecosystem.

Having said that, we are now seeing many unicorn companies in India and startups incorporated outside of India looking to come into the country in order to benefit from the thriving ecosystem and possibility that we have here, which will, in turn, provide economic and consumption opportunities.