Strategic intent and orientation of Indian startups

Abstract

This paper comprehensively analyses start-up exits in India and their financial implications for founders and investors under the regulatory environment. Start-up exits occur when ownership and assets of a start-up are transferred to another entity, and there are various exits, including acquisition, merger, IPO, and liquidation. The higher-order exit strategies for venture capitalfunded start-ups include financial harvest, stewardship, and voluntary cessation strategies. The paper primarily focuses on Mergers & Acquisitions and IPOs exit strategies and analyses the exit trends in India over the past decade, comparing them with major economies worldwide. The paper also looks at the factors that come into play in deciding the optimal exit strategy and the positives, negatives, and opportunities in context with the current Indian market. The research findings show that India has emerged as one of the major economies with a significant influx of VC investments, and the VC funding has steadily increased over the past decade. However, the number of exits via IPOs in India has been relatively bleak, and the exits via Mergers & Acquisitions have been profitable, with the major contributing industries being IT & ITES, BFSI, Healthcare & Life Sciences, and Education. The advantages and factors influencing the exit of VC-funded start-ups in India are also discussed in detail. The optimal exit route for a start-up depends on factors such as business model, financial performance, growth potential, and investor preferences. The pressure on start-ups to exit increases as the fund matures, and investors seek to realize a return. Four exits are possible: IPO, high-value M&A, lo lue M&A, and liquidation. The board's role in balancing investor pressure is critical, and independent directors can play a tie-breaking role in exit decisions. Regulatory laws impact the exit of VC-backed start-ups in various ways, such as anti-trust laws, securities laws, tax laws, and labor laws. Start-ups must be aware of these regulatory laws and their implications on their exit strategy. The paper concludes that India's growing economy, large population, and increasing technology adoption have created a favorable environment for start-ups, making it a hotbed for venture capital (VC) backed start-ups over the past decade. However, VC-funded start-ups in India face a range of opportunities and challenges when it comes to exiting. While successful exits through IPO or acquisition can result in significant returns for the start-up and its investors, there are limited exit options, exits can take a long time, and the market can be volatile, making it difficult to predict success. Regulatory challenges and a limited IPO market are additional hurdles for start-ups in India. However, several potential paths could help improve the exit options for VC-backed start-ups in the Indian market. These include developing a robust IPO ecosystem, increasing M&A activity, fostering a strong secondary market, encouraging more institutional investors, and improving the regulatory environment for start-ups. A combination of these approaches could help put India's start-up ecosystem right next to developed economies in the world.