Hostel, the Indian word for a dormitory. A place where tremendous ideas are born and businesses are spawn. The dorm room culture produced and is continuing to produce some of the most powerful, well-known, and profitable companies around the world. There are thousands of businesses built as we read this article.
Dalal Street: Home to India’s stock market. Dalal Street is a metaphor for large favorable outcomes and successful exits.
Every vibrant startup industry is comprised of a classical, almost proverbial, story that serves to define the key inflection points in the ecosystem. Especially the start and end points. For example, in the Silicon Valley, it is sometimes fashionable to depict how a few smart Stanford engineers start a company on campus (usually by drawing on a napkin in a coffee shop in Palo Alto), get funded by Sequoia (by extension some VC in the all-powerful Menlo Park area), and get acquired by Google.
Note, that the language is almost metaphorical – neither is Stanford the only place where smart engineers are, nor is Sequoia the only VC, and so on. But importantly, this kind of story serves to define the ideal path for startup companies in a nicely romanticised fashion. (There are some seedier examples of how large companies spawn intra-preneurs, who got out and start companies, only to get acquired by the parent company – but let’s leave these out).
A similar idealized story is emerging in India – albeit with a few key elements to be filled in – the most glaring of them being a blockbuster exit of a VC-funded company (at the time of writing, multiple companies are rumored to be eyeing sizeable stakes in Flipkart). Post-large-exits, the’ India startup story’ will be complete with golden bookends.
Whereby young kids with startup DNA would germinate a business plan inside a hostel, get funded by premier VC companies and exit at Dalal Street (again, Dalal street, being more of a metaphor for large unicorn exits).
So, Why Is This Important?
For multiple reasons – it helps define, albeit with rhetorical flourish, key milestones in a successful startup’s evolution. And thereby, provide inspiration to other startups as an example to emulate. It provides the startups and all related stakeholders (and this includes VCs like us) the much needed inspirational examples to showcase the vibrancy of the entire ecosystem at a macro level — to international investors, sovereign funds, advocacy bodies, and so on.
Essentially anyone with a financial or academic interest in India’s startup story finally, and permanently, get convinced of the system’s viability and resiliency — its ability to endure as an integral part of the overall economy and as a key driver of its growth.
For Indian VCs, a complete picture replete with success stories is a very powerful lever to market the entire industry. Mathematically, large exits would benefit a few marquee funds and help them achieve ambitious IRR numbers – and thereby provide a compelling risk/reward argument for investing in India VC Funds.
I have had conversations with numerous colleagues and the constant complaint is to into counter the questions such us:
“So Which VC has actually made money in India? Why not put money in Real Estate? On a risk-adjusted basis, do VC investments actually outperform public markets? Why not simply put money in a mature ecosystem like Silicon Valley/London/Singapore?”. With a few documented case studies of strong IRRs, the VC industry in India can significantly mitigate what economists refer to as ‘Systematic Risk’ – the risk inherent in the entire industry.
Further, a few standout exit scenarios would result in Startup valuations showing upward bias as visibility into exits becomes a bit clearer. Which in turn helps increase the attractiveness of the entire industry – a ‘rising tide lifts all boats’ kind of scenario.
Starting a company would become a more viable option amongst the youth in the country as they can draw inspiration (and direction) from previous startup achievements. The attractiveness of stock options can actually become a reality – as more cases will emerge of how an early tradeoff of ESOPs versus Salary can pay off in the mid- and long-term. That it makes sense for smart engineer and managers to ‘forego the paycheck for the payday’.
In the India context, it is especially imperative that such an inspirational story emerges. It will serve to reassure any doubters that tremendous success in the startup industry can indeed happen here. It will inspire a new generation of entrepreneurs to not get bogged down by meaningless rhetoric about an inevitable bubble that’s about to burst, and instead goad them to embark on a journey that encourages and rewards true innovation – that in turns creates wealth and opportunities for ones willing to believe. A string of such successes will raise the profile of the nation too – and firmly establish it as the preferred, nay premier, startup ecosystem globally.