Indian Unicorns Must Succeed If We Want To Become A $10 Tn Economy: Infosys Cofounder Kris Gopalakrishnan

What makes Silicon Valley the most successful startup and technology hub in the world? An unmatched talent bank, an audacious innovation culture and plenty of risk capital to get young companies off the ground. Besides, nowhere else would one find so many tech titans and Fortune companies huddled together.

The Valley is home to the most illustrious big tech behemoths, from Apple, Google and Meta to IBM, Intel, HP, Adobe and more, as well as thousands of startups.

Closer home, the Silicon Valley of India is deeply entrenched in a similar environment. Bengaluru houses homegrown tech giants such as Infosys, Wipro and TCS and India offices of Google, Amazon, Accenture and others. Together, they have played a significant role in shaping India’s booming startup ecosystem, the third largest in the world.

IT giant Infosys is a case in point. Thousands of former Infoscions have set up or worked for disruptive startups at home or abroad. At the other end of the spectrum are the Infosys cofounders like Kris Gopalakrishnan, Nandan Nilekani, Narayana Murthy and S.D. Shibulal, investing in startups and helping build the country’s tech infrastructure to empower the ecosystem.

When Inc42 approached Gopalakrishnan for an exclusive interaction, we were keen to discuss how Indian startups could navigate a series of speed bumps, including a funding winter in the wake of the pandemic, high inflation and a fast-falling rupee – affecting cash flow and leading to workforce realignments/layoffs.

Gopalakrishnan, who was the Infosys CEO and MD during 2007-2011 and its vice-chairman between 2011 and 2014, was not unduly perturbed.

“Startups are meant to take more risks than the usual MSMEs, and investors are aware of these harsh realities. In fact, I will be surprised if startups stop taking risky bets,” he said.

The Infosys cofounder currently chairs Axilor Ventures, one of the largest accelerators in India. He also headed the Non-Personal Data Framework Committee and founded a not-for-profit itihaasa Research and Digital, which analyses the evolution of technology in India. He has also authored a book on the evolution of Indian IT titled “Against All Odds: The IT Story of India.

“Against All Odds: The IT Story of India” also traces the waves of IT and Internet-led startups in India. The first wave was the era of Wipro, HCL, Mastek, Infosys, etc. The second wave saw the emergence of Microland, Mindtree, Ittiam, etc. The third wave was Internet-led startups like InMobi, Flipkart, etc. The current wave is witnessing an explosion in Internet-led and digital-led startups.

“After retirement, I wanted to leverage my experience and the opportunity in front of us. So, I focus on tech, invest in startups through my family office, fund research and work with the government, academic institutions and industry bodies like CII,” he said.

His special areas of interest include agritech, healthtech, edtech, deeptech, AI and ML and SaaS.

In a freewheeling conversation with Inc42, Gopalakrishnan spoke about the current state of Indian startups, the recent layoffs, moonlighting and post-IPO debacles, as well as data privacy and Web3. Here are the edited excerpts.

Inc42: Recently, a viral meme showed how a Bengaluru-based startup founder took 90 minutes to reach his office, although his business offers 10-minute deliveries. You have also been appointed the Vision Group (IT) chairman by the Karnataka government. Is there a way out of traffic woes and waterlogging? Can technology and startups help?  

Kris Gopalakrishnan: Many cities face these problems. Pune had a flood situation. So did Chennai, Mumbai and Delhi. It’s currently happening in Florida. We have extreme climatic conditions and unprecedented rain, like 10 cm in just three hours. The infrastructure cannot keep up with that.

But yes, we need to improve our cities. We need to make them more livable. Out of the 10 Mn population in Bengaluru, more than a million are IT professionals, and many work for startups. Bengaluru residents are passionate about their city. So, these issues get more highlighted than in other cities. However, the situation is not very different here.

Should we be impatient? Yes, that’s how progress happens. That’s how change happens. But should we blame Bengaluru alone? No.

Inc42: We have also seen how startups like Paytm, PhonePe, Ola and Yulu helped solve real issues like payments and logistics. What role can startups play in improving the situation here?

Kris Gopalakrishnan: The role of a startup is to bring innovation to society. Unlike established companies, they [startups] can take risks as they are funded by risk-funding venture capital.

An established company’s ability to take risks is limited, especially if it is a public company. Lots of questions will be asked about how you spend, what returns you have got and so on. But if you are a startup, we begin by saying eight out of 10 will fail. That is the expectation level.

For example, logistics costs in India are very high. It is typically 13% of GDP, which can be reduced to 7-8%. This is where startups have an important role to play. And it’s nothing to take away from established companies and what they are doing.

Inc42: Why don’t startups, even the biggest ones, meet financial expectations after public listing?

Kris Gopalakrishnan: At the pre-IPO stage, we look at their performances in the short term or within a particular timeframe. When you are a private company, you have fewer shareholders, and that closed group of investors sets valuations. But when you are public, the number of investors is huge, and the parameters are different.

For instance, startup investors have different mindsets and risk-taking capabilities. They are aware that eight out of 10 companies are bound to fail. Can you expect the same from mutual funds or retail investors? It will take some time to strike a balance.

The onus is on the startup to know when it is ready to go public. People are always keen to participate when the market is booming. But I feel their expectations are not always justified. They need to understand this.

Unfortunately, the global economy went into a tailspin due to the pandemic. And now, the [Russia-Ukraine] war, inflation and even climate change issues are affecting companies worldwide.

If you look at the tech sector in the US, some companies have lost 80% of their valuation. Go to crypto, the extreme risk category, and you will find companies that have lost 99% of their business valuation.

All this teaches us that we need to understand clearly the difference between being in a private space and a public space. And we should be very careful about moving an entity from private to public space.

We should have been careful and prepared our companies better for the public market. However, this is a learning experience for everyone – the companies, the venture funds and the bankers who advise them.

India requires these unicorns to succeed. If we want to create a $10 Tn economy, we need many new companies to become multinationals.

Right now, some of the top startups by market cap are less than 5 years old. These will eventually accelerate growth and create a new Indian economy. So, we need to do everything to ensure that they are set up for success. Post-IPO debacles are a setback for all of us.

Inc42: How will the falling rupee and high inflation impact the startup ecosystem? What should the government and the RBI do to fix things?

Kris Gopalakrishnan: Well, I am no economist. I can only say that many currencies are depreciating against the US dollar. The world wants to move to a less risky currency – the dollar, to be precise. And all that is pegged to the dollar is depreciating.

During Covid-19, we did a very good job of supporting the less privileged people. This included the largest food programme, direct benefit transfer to people in dire need, debt financing for MSMEs and more. We also did exceptionally well in vaccination; to date, we have administered more than 2 Bn doses.

But these schemes [and the cash flow that came with it] did not trigger inflation. I think external factors have caused inflation in India (again, I am not an economist). The rise in global commodity prices, especially crude prices, and our dependence on oil imports have impacted us hugely.

However, India remains a bright spot, with its GDP growth one of the highest among major economies. It is not my opinion, the IMF is also saying this.

Inc42: Lately, startup layoffs have also become a major concern. What’s your view?

Kris Gopalakrishnan: I don’t think it was as severe as it was made out to be. Employees were let go, no doubt about it. But let me repeat, this is a global phenomenon. It is not unique to India.

Having said that, I really hope you will take this message across. A startup is a risky business. It is risky for investors, risky for founders who bet everything on their companies, and also risky for employees.

Isn’t it common knowledge that 80% of startups are expected to fail? And when they fail, companies lose their employees. Because there is no money to pay them. The very first step is to save the runway and reimagine the strategy.

Companies must do their best to create a soft landing and do it humanely. You have to give people adequate notice and keep them aware of the company’s financial health. But employees, too, must realise that when you work for a startup, you are taking a risk. But there’s a reward for this as well.

I remember what happened at Infosys in 2007. We grew at 36% and made job offers to more than 25K candidates.

The global financial crisis hit us the following year, and projects got cancelled left, right and centre. [Incidentally, we grew 11% that year and 3% next year.] Understandably, we tightened our belts and took a lot of pain. Our training period was extended to six months instead of three. Seniors had to give up bonuses and other perks. But we kept our promises and employed those candidates.

Startups won’t be able to do many of these things because they are not profitable yet. They are funded by investors.

I think we have to create a dynamic ecosystem that is necessary for innovation. We need to separate businesses that make honest attempts to grow from those which make honest attempts to innovate and create new products.

Inc42: Wipro recently fired nearly 300 employees who were allegedly working for competitors. But some startup founders have openly supported the employees and the idea of moonlighting. What’s your take on this?

Kris Gopalakrishnan: We need to differentiate between a full-time employment contract and a part-time one. The very definition of moonlighting is about working for another company while keeping one’s employer in the dark. That is why it is called moonlighting.

Now, that is wrong. I have no problem if a person works for multiple companies. But be transparent, be upfront about it. Get a temporary contract – every company has it – and you can do it. But if you are a full-time employee and your agreement says you cannot work for anyone else, you can’t do it.

Moonlighting is not similar to what gig workers are doing, which is essentially a temporary job. Moreover, if someone works eight to nine hours a day for an organisation and then works some more for another company, the long hours will affect their health.

If you are a full-time employee, there are specific expectations, and the contract is crafted in a certain way. But as a temporary worker, you have a lot of flexibility because the contract is written differently.

I know that many new-generation employees want the flexibility to work the hours they want. They want the flexibility to do multiple jobs. They want to take time off to learn and experience new things.

That is great, but there is a way to do these things. If you want to do multiple jobs, be a temporary worker, be a consultant and let there be clarity between you and the company. I believe companies will not object to it and give you that flexibility.

Stay tuned for the concluding part of the interview, where Gopalakrishnan elaborates on Web3, 5G, the Personal Data Protection Bill and people’s right to privacy.