The Balance of Wealth

IN 1981, THE Rolling Stones released their hit single “Start Me Up” as part of their new Tattoo You album. Fourteen years later, Microsoft founder Bill Gates asked Stones’ Mick Jagger how much it would cost to use the song in a television commercial for the launch of Windows 95. The deal was struck for $3 million.

That’s small beer for today’s startups. In India, the term startup didn’t even exist till the late-1990s when the first dotcom surge came. No one called their new companies startups, even if they were funded by venture capital and private equity. We had both in our media firm. That made us a startup. Only we didn’t know.

Twenty years later, everyone knows. Startups are exploding. They began in Silicon Valley, but India is today the hottest destination for tech startups. The country has overtaken Britain and Japan to become the world’s third largest startup hub after the US and China.

Not all startup founders are 20-somethings like Ritesh Agarwal of OYO Rooms. Falguni Nayar, founder of Nykaa, is 58. She left a secure job at Kotak Mahindra Bank to set up Nykaa eight years ago when she was all of 50. After its blockbuster listing in November 2021, Nykaa’s market cap is over ₹ 1,15,000 crore, larger than listed firms that have been around for decades. Falguni Nayar’s shareholding in Nykaa is valued at ₹ 58,000 crore, making her India’s wealthiest woman entrepreneur.

The humongous ₹ 18,300 crore Paytm IPO that listed recently elevated founder Vijay Shekhar Sharma’s wealth far above that of leading industrialists.

The IPOs of OYO Rooms, PharmEasy, Delhivery and MobiKwik are waiting in the wings. The fact that the Nykaa IPO was oversubscribed 82 times underscores the shift in the balance of power between legacy firms and new-tech startups.

In an interview with a business daily on November 14th, Raj Balakrishnan, head of investment banking at Bank of America, said: “We expect India to host 150-plus unicorns over the next three to five years. Even if 20-25 per cent of these unicorns take the listing route, we could easily add anywhere between $300 billion and $500 billion of market cap. However, as the internet accounts for just 14-15 per cent of India’s current market cap of $3 trillion-plus, there is a long runway room for growth in terms of market cap share of internet companies across global indices.”

Nilesh Shah, managing director of Kotak Mahindra Asset Management, added: “Undoubtedly, these companies will trigger the rollout of various investment products. These may mostly come from mutual funds and alternative investment funds houses. These companies may end up becoming a category in itself.”

Not only are founders of new-tech startups acquiring great wealth, dozens of their senior employees with pre-IPO stock options have become multi-millionaires.

Two advantages flow from this for the country. One is economic; the other is social. Startups are taking Indian businesses global. In the 1980s, the brain drain saw top Indian talent emigrating to Silicon Valley. Many ended up heading marquee Valley firms like Google (Sundar Pichai) and Microsoft (Satya Nadella).

In the 2020s, Indian firms like OYO, Ola, Byju’s, Freshworks and Nazara are buying up companies in the US, Europe, Japan and Latin America. The Indian corporate footprint is going global.

Old-tech firms like Infosys began as body shoppers, sending Indian computer engineers to US onshore sites to do basic tech work at less than half the local rate. Today, global Indian SaaS (Software as a Service) firms are doing sophisticated international projects right up the high-value chain.

Several foreign tech companies are using India as a tech R&D centre not on the basis of local costs but local talent in coding, software applications, gaming, Artificial Intelligence and machine learning.

As more Indian startups list, the ecosystem will enter a virtuous cycle with benefits to the larger economy.

The other, less visible advantage of new-tech startups is social change. Most startups are founded by techies from small towns. Many come from middle-class families rooted in Indian culture.

The shift has subtle socio-cultural implications. Nearly all legacy firms—Birla, Mahindra, Tata—are headed by old-school dynasts, many educated at Ivy League universities. Most young startup founders are IIT/IIM graduates.

Very few, if any, are dynasts. Their parents come from modest backgrounds.

The shift of wealth and power from the old to the new will take time but it will fundamentally change India.

BYJUDelhiveryMobiKwikNykaaPharmEasystart-upsYO Rooms