Not All Indian Startup Entrepreneurs Want Protection From Foreign Rivals

Homegrown entrepreneurs and investors say India needs a fair and open market and not the protectionist kind suggested by Flipkart co-founder and executive chairman Sachin Bansal and Ola’s chief executive officer Bhavish Aggarwal.

The two poster boys of the Indian startup industry recently urged the government to design policies which would give them protection from foreign-origin rivals accessing the domestic market.

Playing the nationalist card, Bansal had said, “What we need to do is what China did, and tell the world we need your capital but we don’t need your companies,” according to a report in the Economic Times newspaper.

Unfair Advantage

Echoing the same thought Ola’s Aggarwal, in the same newspaper was quoted as saying, “It's much easier for non-Indian companies to raise capital because they have profitable markets elsewhere. You might call it capital dumping, predatory pricing or anti-WTO but it’s a very unfair playing field for Indian startups.”

The argument, however, has not found many takers within startups. Most entrepreneurs and investors BloombergQuint spoke to said foreign competition has helped bring out the best in these two companies.

Flipkart wouldn’t have grown as much as it did if it weren’t facing competition from Amazon, and competition is important, Anand Lunia, founding partner at venture capital firm India Quotient said.

Sanjay Sethi, co-founder of another Indian unicorn ShopClues wouldn’t want to change the regulatory regime in India which, according to him, is a much fairer market with a level-playing field than China ever was.

'Capital Not The Endgame’

The present environment gives enough opportunities to the Indian entrepreneur to build companies by capitalising on available opportunities, said Paytm Founder Vijay Shekhar Sharma.

To be sure, international companies spend a lot of money when they enter the Indian market, but capital cannot be the endgame ever, he added.

Access To Policymakers

Instead of giving in to the temptation of erecting barriers or seeking exclusionary policies, the emphasis should be on creating and nurturing a level-playing field, Ravi Gururaj, the chairman of NASSCOM’s Product Council said. He pointed out access to policymakers as a major issue and said the government should ensure there is no glass ceiling for Indian startups when it comes to representing their cause before policy makers.

Might Of Capital Vs Local Advantage

Ryan Baird, fund associate at San Francisco-based GWC Innovator fund, however supports Aggarwal and Bansal. According to him, India needs some competitive advantage right now. If foreign companies with their huge wallets are not blocked right now, the Indian peers won't be able to compete, he warned.

“Capital is more powerful than local advantage. Companies from all over the world will try to profit from this and if India doesn't protect local companies then American companies will buy their way into the market by offering items at a loss to win market share,” he said.

Fund Crunch?

Both Flipkart and Ola are currently looking to raise additional capital, and multiple markdowns, especially for Flipkart, have dented their ability to raise fresh funds at higher valuations. Many are reading their call for protectionist measures as an outcome of the pressure due to stressed valuations.

When Flipkart last raised funds in July 2015, it was valued at just over $15 billion. Since December last year, however, it has been plagued by a series of valuation markdowns by foreign mutual funds that hold minority stakes in the company. The latest came in November when a mutual fund managed by Morgan Stanley marked down the value of its shares by 38 percent to $52.13 a share from the June quarter, the fourth time it has done so over nine months.

Ola too recently suffered a markdown in value by its largest investor Softbank, which attributed close to a quarter billion dollar loss to the drop in valuations of Snapdeal and Ola.

“The root cause analysis is that these companies might have to raise a down-round and is not the fact that they are competing with Amazon or Uber,” Kunal Khattar, partner at advantEdge Partners said.

The odds are in fact, stacked against foreign companies in India, he added. Khattar cited the lukewarm response received by Airbnb in India so far, against the success of homegrown Oyo Rooms. “Understanding the nerve of the market works better than anything else,” he said.

Better Regulations = Protection

But while startup entrepreneurs almost overwhelmingly bat for an open economy, they highlight the need for the government to lay out clear rules ensuring transparency. According to some investors, homegrown startups need protection not from foreign players, but from some of the practices they bring with them. For example, predatory pricing.

Anand Lunia of India Quotient said all it will take Uber is another $2 billion to decimate Ola if the foreign firm continues with its present predatory pricing. The head start that Ola had over Uber in India was lost due to a lack of clarity on regulation in India, he added.

Sanjay Sethi of ShopClues added that the government needs to lay more emphasis on ease of doing business in India.

“India continues to be a license raj economy. You need 20-25 licenses to start a company and you are always unsure unless you hire the best audit firm to know if you are compliant with every law. In the U.S., it takes 10 minutes to start a company,” he said.

There is a perception that government policy is antithetical to homegrown startups, said Mohandas Pai, the co-founder of Aarin Capital and former chief financial officer at Infosys Ltd.