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Startup Street: Indian Startups Are Gearing Up For IPOs, RBI Survey Shows

Here’s what went on this week on Startup Street.

Tourists and locals relax on the Marine Drive promenade in front of the Trident Hotel, one of the sites of the 2008 terrorist attacks, in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg)
Tourists and locals relax on the Marine Drive promenade in front of the Trident Hotel, one of the sites of the 2008 terrorist attacks, in Mumbai, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

This week on Startup Street we have a Reserve Bank of India survey which shows that more than half of the startups it studied plan to list in the near future. The Indian government may announce lowers taxes on employee stock options or other tax incentives for the startup ecosystem in the upcoming budget. And funding for Indian startups grew in 2019—beating a contraction in Asia and across the world.

Ready, Set, IPO!

An increasing number of Indian startups are looking to list on the exchanges as the ecosystem matures, companies turn profitable and investors look for an exit.

According to a survey conducted by RBI between April and November, 57.7 percent startups plan to go public over five years.

Startup Street: Indian Startups Are Gearing Up For IPOs, RBI Survey Shows

Large startups and unicorns—or startups with valuation of over $1 billion—such as Pepperfry, Ola, Oyo, Byju’s and Paytm have been working towards debuting on the bourses for some time now, according to multiple reports. 2019 also saw companies like Delhivery, BigBasket, Rivigo, Icertis and Dream11 entering the unicorn club.

That comes amid a number of disappointing initial public offerings for global startups such as Lyft Inc. and Uber Technologies. Co-working giant WeWork Companies Inc. decided to withdraw its IPO after a series of losses and maladministration led to a drop in its valuations to nearly a fifth, or $10 billion, within one month.

India’s startup ecosystem, however, maintains its confidence. Technology venture capitalist and former Infosys Ltd. official Mohandas Pai said India’s equity markets are set for a wave of unicorn listings.

“There’s appettite for IPOs, from companies as well as investors,” Pai, who’s also on the board of Securities and Exchange Board of India, told Bloomberg in an interview. “The market’s hungry for fast-growth IT stocks.”

Pai had said that liquidity and valuations shouldn’t be concerns for companies seeking to list as the market is “flush with money”, adding that the interest in unicorn listings comes from both domestic as well as foreign investors.

SEBI has also been working on making startup listings in India easier, with continued requests and pressure from various venture capitalists and investors.

Other Future Plans

Startup Street: Indian Startups Are Gearing Up For IPOs, RBI Survey Shows
Startup Street: Indian Startups Are Gearing Up For IPOs, RBI Survey Shows
Startup Street: Indian Startups Are Gearing Up For IPOs, RBI Survey Shows

Budget Bonus

The government is planning to announce tax incentives for startups to kick-start growth and new businesses in the sluggish Indian economy, Press Trust of India reported, citing people privy to the development.

The Department for Promotion of Industry and Internal Trade has suggested several measures to the finance ministry for startups in the budget. The recommendations include extension of tax incentives to incubators supported under Atal Innovation Mission; reduction in goods and services tax rates on alternate investment fund management fees; and tax benefits on ESOPs, PTI quoted the people as saying.

Industry players said that the government should reduce taxes on employee stock ownership plans. Startups need talented workforce and one of the best ways to attract and retain them are ESOPs, said Nitin Saluja, founder of Tiger Global-backed cafe chain Chaayos.

According to a report by The Economic Times, Prime Minister Narendra Modi held a three-hour meeting with leaders of startups, technology experts and electronics manufacturers to ask for their suggestions.

Finance Minister Nirmala Sitharaman is likely to present the Union Budget for 2020-21 fiscal on Feb. 1, 2020.

India Grows While Global, Asian Funding Declines

Investments in Indian startups grew by 18 percent to $14 billion in 2019, despite turmoil and a slowdown in global funding.

Globally, the total funding for technology startups in 2019 dipped by 22 percent to $293 billion, with a 27 percent drop in deals. Funding in Asia saw a more pronounced decline—by 56 percent to $83 billion—according to a report by HexGn which analysed over 60,000 deals.

While India’s total funding rose, the number of deals fell 15 percent.

New Delhi and Bengaluru also made it to the top 10 cities for startup funding, for the first time, beating several other global heavyweights. Delhi’s performance was led by Paytm, Oyo and Zomato, among others, boosting it above Bengaluru.

Also Read: Other People’s Money Was the Tech Innovation of the Decade

Other cities in the top 10 rankings include San Fransisco Bay Area, New York, Beijing, London, Shanghai, Delhi NCR, Singapore, Los Angles County and Hangzhou.