Startup M&As are like solving last-mile dare

With “startups” as old as a decade in India, it appears, a startup will remain a startup until it gets acquired. Tech M&A in India saw 190 deals worth $2.27 billion in four years up to the first quarter of 2015, says the 2015 India technology Product M&A Industry Monitor Report from Microsoft Ventures, iSPIRT and Signal Hill.

Some of the notable acquisitions in recent past have been Freecharge by Snapdeal, TaxiForSure by Ola, RedBus by Ibibo Group, etc. A panel discussion at Tech Sparks 2015 held recently shed some light on the topic. “The startup ecosystem in India is maturing quickly,” said Klaas Oksam, Managing Director of Signal Hill.  “In terms of investment, India is sort of catching up with the US,” he said, adding “But, in terms of M&As, India is still behind.”

On what it takes for a company to get acquired, Santanu Bhattacharya of Delhivery contextualised the cost of last-mile delivery in India. “The last mile actually costs about a quarter of the logistics cost in India, which is heinously high as compared with a global average of seven per cent,” he said. “Someone who can solve a problem like this, will make it big and will gain interest,” he added.

Kumar Shah, CTO of Micromax Informatics, spoke about Mixcromax’s latest investment in Scandid. He said, “What Scandid does is aligned with what Micromax offers. It solves the right problem.” So this should be the main motive for investing, he said.

No legal clarity

“Once a startup is gaining traction, it must designate a person within the team to keep track it,” said Sashi Chimala, Executive Vice President of National Entrepreneurship Network. “Because, no one builds a company to sell it. The focus of the company should be to create value, irrespective of whether it wants to go the IPO way or get acquired,” he said.

Abhishek Goenka, Partner at PwC India, who brought the legal aspect of tech M&As into picture said, “In India laws and regulations are not very consistent for tech M&As.” “It may be appalling to know that there is no clarity as to what amount of tax has to be paid by the Indian company for cross-border M&As,” he said. “Besides, the valuation for acquisition is freezed at the time of investment, making no room for re-valuation at the time of acquisition,” he said. “If these issues are not ironed out, they are going to hugely impede consolidation activities,” he said.

“As of now, let’s make minority investments in startups that are dedicated to working on new innovative verticals,” said Shah. “When companies solve problems that are large enough, they will gain traction anyway,” he opined.