Motivation and clarity are vital when taking your startup beyond borders, say industry experts at TechSparks 2021
Time was when an entrepreneur would launch a company and rest content if it succeeded in the local market. Nothing like it if it did well across India.
But times have changed, and most entrepreneurs now have global dreams.
However, cracking the international market isn’t easy and comes with a new set of challenges such as cultural differences, legal compliances, hiring issues, R&D involved in setting up a fresh customer base, and more.
This means that founders must ask themselves many questions before taking the international leap - when is the right time to expand, the amount needed for investment, and the countries suitable for expansion.
At a session at TechSparks 2021, YourStory’s flagship startup-tech conference, Siddarth Pai, Founding Partner and Chief Financial and ESG officer at 3one4 Capital; K T Chandy, Co-Head of Private Tax practice for E&Y; Venkataraman GS, Senior Vice President and CFO, Subex.com; and Ravi Bhushan, Founder, BrightChamps; deliberated on startups aiming to go beyond borders and ‘what it takes to go international’.
The discussion was moderated by Anuj Kanwar, Transaction Banking Head, Business Banking, HSBC Commercial Banking.
Begin with a global mindset
Ravi said he had acquired a global mindset before launching BrightChamps. “We deal in technologically relevant subjects for kids that have a global impact. Thus, we intended for the overseas market from day 1 of foraying into our venture. We decided to tap the global opportunity, encouraging parents and children to explore opportunities.”
However, the idea of being ‘born global’ has its set of challenges. Many currencies may not be supported by payment gateways, leading entrepreneurs to believe that to have a smooth paying system one must have a local entity. Lack of a presence in foreign countries also raises trust issues.
Ensuring a strong global mindset with a smooth and transparent flow of cash transactions makes the work easier.
But, when is the right time to go international?
When asked by Anuj, Siddharth gave a prompt reply: go by the customers’ hour.
“We see a trend of ecommerce and biotech companies establishing a strong foothold in India whereas most SaaS companies are domiciled overseas, either in Singapore or the US, as the US is known for its massive SaaS market. Thus, the place of your customer base is a major decisive factor,” Siddharth said. Apart from that, the place of investors and the point of exit for the businesses also have a major part to play.
“The role of VC funding in India is considerably smaller. While India has witnessed the growth of 30-35 unicorns this year itself, most investors making them are foreign ones. So, it’s a kind of reverse brain drain situation occurring again, where some of our brightest minds are choosing to domicile their companies overseas, while India is becoming a land of subsidiaries,” he added.
Understand local laws
Siddharth opined that understanding the intricacies of the sector you are working for, focusing on local laws and competition, and ensuring a physical office with a local team helps remove barriers before you start building a global business.
Startups also need to understand the tax or legal requirements before venturing into the international sphere.
Chandy offered an understanding of the basic motives behind the incorporation of businesses outside, adding that the motivations have changed largely with time. “The fear of getting a large pay cheque for a business based in India has withered away. Besides, if you are anticipating your business to reach overseas talent, the free flow of cash makes it easier to consummate outside India,” he said.
He specified that it’s good to be clear-headed before deciding on all factors – and the sooner, the better. “Externalisation from a tax perspective mainly refers to lifting your value from India and moving the cap table outside. With tax laws getting tighter, this is again a tax-inducing move before you lift and shift,” he said.
“Be careful of the shareholder agreement and clauses, as the next set of investors would be harping on the same clauses while discussing legal matters,” he added.
Challenges of going global
While hoping to go international, what are the kinds of challenges faced by a traditional tech company?
Venkataraman shared his story at this point. “We thought that the main challenges that we faced were during expansion to countries like the Middle East, Africa, and the Asia Pacific, where we weren’t sure of the things required to expand in these markets,” he said.
“There might be certain geographies where customers are paying in their local currencies but it becomes an issue for us to get it converted. The transfer pricing and tax implications based on the geographies also add to the challenges.”
Funding the subsidiaries is the next thought. “We have taken up a particular country in a region, and support multiple countries within that region, thus leading to a free flow of funds to subsidiaries, helping to fund costs required to manage that subsidiary,” Venkataraman said regarding funding issues.
What’s the trending corporate structure concerning startups? Chandy explained the trend where businesses based in India have regional headquarters outside. “It’s good to set up subsidiaries where there is a compulsion to set up a business.”
“As startups set up businesses overseas with subsidiaries, making their presence felt, they must be aware of the profit to leave in every jurisdiction, and so transfer pricing becomes critical in allocating profit and revenue to the jurisdictions,” he said.
Domestic v/s International: Does it impact startup valuation?
Siddharth said at the end of the day, “investors have a sharp eye on where the money is going, so irrespective of the company’s postal address, if the above factor is kept strong, nothing else matters”.
Clearly, the motivation to go beyond borders and clarity on that motivation makes the road to success easier for startups with lofty aims.
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