Indian Startups Embrace Reverse Migration Trend
In a significant shift within India’s startup ecosystem, numerous companies are relocating their headquarters back to India after years of operating abroad. This trend, known as “reverse flipping,” is gaining momentum as startups like Razorpay, Udaan, and Meesho make the transition. The move is driven by the promise of improved IPO opportunities, streamlined compliance, and the burgeoning Indian economy, despite the complexities involved in the process.
The Rise of Reverse Flipping
The trend of reverse flipping is reshaping the landscape for Indian startups. Many companies that previously registered in countries like the US or Singapore are now returning to India. This shift is not merely a matter of logistics; it involves navigating a labyrinth of legal and regulatory approvals, along with substantial tax liabilities. However, the potential benefits are compelling. Alok Bathija, a partner at Accel, notes that Indian capital markets have matured, making it feasible for companies with $50-$60 million in revenue to list domestically, a stark contrast to the nearly $500 million required for a similar listing in the US. With Indian markets offering higher valuations and greater accessibility, startups are increasingly recognizing the advantages of returning home.
Compliance and Regulatory Benefits
Beyond the allure of IPOs, the return to India simplifies compliance for startups, particularly those in heavily regulated sectors like fintech. Many of these companies generate most of their revenue within India, making adherence to local laws a logical choice. Amit Nawka, a partner at PwC, emphasizes that as fintech companies grow and contribute to India’s financial landscape, it is fitting for them to be headquartered in India. This alignment not only enhances regulatory comfort but also facilitates smoother operations within the local financial system. The expansion of domestic funding options has also played a crucial role in this trend. Previously, startups based abroad had easier access to global investors, particularly US venture capital firms. However, the rise of family offices and domestic venture capital funds has shifted the landscape. Siddarth Pai, co-chair at the Indian Venture and Alternate Capital Association (IVCA), highlights that many startups, especially those in regulated sectors, are now looking to relocate to India. The recent abolition of the angel tax has further incentivized this shift.
Impact on the Indian Startup Ecosystem
Industry estimates suggest that over 70 startups are currently in the process of relocating their headquarters back to India, with at least 20 being major players in the ecosystem. Notable among these is PhonePe, which incurred a staggering Rs 8,000 crore in taxes to shift its registration from Singapore to India. Sameer Nigam, co-founder and CEO of PhonePe, stated that for a highly regulated company like theirs, being based in India was the most logical decision. The Indian government has also taken steps to streamline the process for startups looking to return, reducing bureaucratic hurdles and expediting approvals. The Indian capital market has proven to be robust, with the highest number of IPOs globally in the past year. Varun Malhotra, a partner at Quona Capital, notes that India is emerging as a leading IPO market, further dispelling the myth that startups must list on NASDAQ to achieve significant valuations.
The Future of Indian Startups
For many startups, such as Razorpay, the decision to return to India is clear. The company is investing over $100 million in taxes for the transition, but CEO Harshil Mathur believes it is a worthwhile investment. He points out that the process of going public in India has become much more streamlined, making it a natural choice for startups to thrive in one of the world’s most dynamic economies.
As India continues to establish itself as a global startup powerhouse, this trend is expected to accelerate. Sunil Khaitan, head of the financing group at Goldman Sachs India, predicts that the trend will gain momentum in 2025, positioning India as a key hub for entrepreneurial activity and enhancing access to capital markets. With ongoing regulatory reforms and a strengthening domestic investment ecosystem, the era of Indian startups incorporating overseas may soon become a relic of the past.
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