Within the next six months, Bangalorebased technology entrepreneur Jay Krishnan will be heading east in search of a better place to locate his fast-growing business. The 38-year-old cofounder of Wifinity, which builds technology that allows machines to talk to each other, set up the venture in 2010. Since then he has spent many hours navigating India’s onerous regulatory maze and thinks that he has had enough. « It does not make any economic sense to stay here in India, » said Krishnan, who has been constantly wooed by Singapore and Hong Kong over the last few months to set up shop.
India’s multiple tax structures and cumbersome paperwork have been a drag for an entrepreneur more interested in boosting business. Wifinity incubated at Krishnan’s alma mater the Indian Institute of Management in Bangalore, designs wireless sensor networks that help large companies save energy costs. Over 43 customers in the United States, the United Arab Emirates and Hong Kong are using this technology. « I am looking for the easiest way to transit from India, » said Krishnan.In India’s booming startup sector, where nearly two companies are launched every day, starting up is proving to be the easy part. But once these ventures are up and running, entrepreneurs find that key customers, investors and favourable policy environments are all overseas.
This is especially true for technology startups like Wifinity that create intellectual property. Scores of such startups are registering in Singapore, the US and even Hong Kong as they believe this will help them grow bigger and deliver better exits to early investors. About half a dozen startups backed by the Indian Angel Network have moved overseas in the last year alone.
Experts caution this can prove to be the biggest challenge for India in the coming years. « People are not just leaving. They are leaving with multimillion-dollar ideas, » said Mahendra Swarup, president of the Indian Venture Capital Association.
A combination of high taxes, restrictions on credit card payments and weak intellectual property laws are the top reasons for the exodus. There are 16 different direct and indirect taxes each in India that amount to 33.99%, as opposed to a one-time 17 % tax in Singapore, or 8.7% in Delaware, in United States. In addition to this, weak IP laws are a concern for technology companies. A 2013 report by the US Chamber of Commerce ranks India last among 25 countries surveyed with regard to protection of intellectual property.
Wearable device maker SenseGiz, a year-old company, is in the process of filing a patent in India for its smart watch and device tracker. But the company said it will follow it up with one in the United States. »Although costs are ten times more than India, a patent filed in US is more valuable, » said Abhishek Latthe, cofounder of SenseGiz who is in talks with Samsung and Hewlett Packard for a potential deal. For some, Singapore becomes an attractive destination as it offers access to a vast base of customers in southeast Asia. Ambarish Gupta, the 36-year-old cofounder of cloud telephony provider Knowlarity, estimates that his company signed up about 100 paying customers after relocating to the city state last June. « The headquarters of most of customers are located in Singapore, and they become physically accessible, » said Gupta, who is looking at revenue of Rs75 crore in the next two years.
Software product companies are also stymied by a RBI mandate – meant to protect credit card users- that prevent companies from debiting money without the customer approving every transaction.
Enterprise software maker FreshDesk recognised this roadblock early and chose to register the company in the United States right from inception in 2010. Its development operations are in Chennai. The company now has over 18,000 clients, including Pearson and Unicef. « This mandate defeats the entire business model, » said 38-yearold cofounder Girish Mathrubootham who did not want to lose customers who would have found the process tiresome.
But data analytics startup Profoundis wasn’t so lucky. « Our retention rates went down to 30% as opposed to an industry standard of 80%. We were forced to register in Delaware last month, » said Jofin Joseph, the 25-year-old cofounder of Profoundis which expects to earn revenue of about Rs2 crore next fiscal. The relatively low chances of big-ticket exits for investors who back Indiabased companies are also proving to be a deterrent for many startups.
« All things being equal, lawyers prefer to recommend a New York or Singapore-based startup over an Indian company to the clients looking for an acquisition, » said Vaibhav Parikh, a partner at law firm Nishith Desai Associates. To address this perception issue, GamePlan, an Indore-based company which makes software for the construction sector, also incorporated a separate venture in Delaware, United States, called True Intelligence Technologies.
« There is a higher chance of getting funded or being acquired in United States, » said 34-year-old Mayank Pandey, chief technology officer of GamePlan. « Overseas customers will pay more for a higher-priced product sold by a US-based company. » « In the long term, the exodus of such companies could be quantified in a couple of trillion dollars, in jobs and employment, » said IVCA’s Swarup.
In contrast, other countries are bending over backwards to invite Indian startups. In the last two years, several officials from Singapore have visited Bangalore to court companies, according to G Sabarinathan, chairman of the NS Raghavan Centre for Entrepreneurial Learning at IIMB.
Three entrepreneurs will be heading to United Kingdom this June, as part the country’s Sirius accelerator program. « We must support this high-value sector for the nation’s long-term good or else in a few years we will be scratching our heads wondering what we did wrong to miss out on that big hit, » said Ravi Gururaj of Harvard Business Angels.See on economictimes.indiatimes.com
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