Most technology startups begin with a dream of an IPO or an acquisition. After all, isn’t that what has always made news in the U.S. markets? Google, Facebook, Whatsapp, whose stake sales to the public or to a big company made their founders billionaires overnight.
However, India lags behind some of the other technology markets in this respect. Even the big boys of technology start-ups - Flipkart, Snapdeal, MuSigma – are still in the funding phase and have a long way to go before they can think of share sales. In comparison, even the startup space in Israel is way more active.
Klaas Oskamis well placed to explain this phenomenon. A European who has lived in India for the past decade, he’s what his wife calls an economic refugee. He is also the managing director of Signal Hill, one of the leading investment banks in technology,
“M&A values need to increase by more than 10 times over the next three to five years to reach the level of U.S. and Israel,” Klaas told us at the TechSparks Grand Finale, where he spoke about Technology M&A in India.” The total value of startup M&A in these countries is more than five times the value of funding deals, while in India it’s about half. A long way to go indeed.
Klaas listed a number of reasons for this:
- Limited traction and visibility in the U.S. where the big acquirers are
- Management and marketing sophistication is still relatively low
- Global accounting and governance standards are still not widespread
- Valuation benchmarks are yet to develop
- Few companies in the technology space are ready for acquisition
In short, it’s mainly a question of time. India is probably a few years behind the other markets, but it’s getting there.
There are also early signs of this transition from funding to acquisition, Klaas pointed out. Yahoo bought Bookpad, Facebook bought Little Eye Labs and Intuit bought KDK Labs all in the last year or so.
What do Indian companies need to get to the next stage? The first thing to do is to figure out if you are a lifestyle entrepreneur, or does your business have the potential to scale and meet VC needs?If you want VC money, take in a large round of capital on attractive terms; but deliver! M&A or IPO is harder than getting a next funding round, so if you want to become a Whatsapp, plan your exit years in advance.
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- Signal Hill
- KDK Labs
- klaas oskam
- LittleEye Labs