Foreign investments are vital in driving the growth and innovation of India’s startup ecosystem by providing essential capital, technology, and global market access.
India’s startup scene has rapidly ascended to the third rank globally, boasting over 125,000 startups. Fueled by a youthful and tech-savvy population, and supported by initiatives like Startup India, the country is now home to some of the fastest-growing unicorns.
Foreign investments have been pivotal in this growth, accounting for about 36% of total startup investments in the past decade. Venture capital (VC) and private equity (PE) firms play crucial roles beyond providing capital. They drive innovation, streamline operations, and introduce market dynamism. Nowadays, PE investors often take active roles in company decisions, including taking board seats to influence strategy and operations.
The focus has shifted towards rapid expansion and customer acquisition, sometimes at the expense of profitability. This trend intensified post-2008-09 financial crisis, when the US Federal Reserve’s Quantitative Easing policy made borrowing cheaper, promoting growth over fundamental business metrics.
In India, while there are no regulations imposing fiduciary duties on PEs, their board nominees are expected to act in good faith and in the best interest of the company, its shareholders, employees, and the community. This active involvement is crucial in balancing the drive for quick returns with the need to build long-term value.
