Indian Startup Braindrain to USA : A (disturbing) trend that’s for real.
For Indus Khaitan, the co-founder at Bitzer mobile, being in India just didn’t work out. Last weekend after a four year stint in the country, Khaitan moved back to the bay area in the United States where Bitzer is headquartered.
When in India, it became difficult for him to do 1 am calls and still be in a “solid mood” to give a walk through of the mobile enterprise platform they have built. Khaitan is not the only startup guy who has moved to the bay area from India recently.
Sampad Swain, the Founder and CEO of 500Startups backed Instamojo moved to the US in November. Deobrat Singh, the Co-founder and CEO of Gazemetrix is hopping between US and India. His company is now incorporated in United States with the Indian company as a subsidiary where two of his other co founders continue to work.
“At least 8-9 startups have moved out in the last 6 months,” Navin Kumar the Co-Founder of eLagaan, an accounting and legal services company which works with startups. eLagaan signs up around 10 startups every month.
In the last 6 months, more than a dozen early stage startups have moved to the US, despite the shortage of visas, pointing to the beginning of a trend, seen as worrying by some.
Only three months ago, Vivek wadhwa, the entrepreneur-academic, revealed that America is losing the global race to capture entrepreneurial talent. Since then, there haven’t been any significant changes in the US with respect to startups but as his study pointed out the only exception to the trend were Indian immigrants. Is the flow of entrepreneurs, from India to the US, accelerating?
Wadhwa says that assumption is wrong. “They aren’t moving to the US because they simply can’t work here legally—visas aren’t available,” Wadhwa told NextBigWhat.com.
However, Khaitan and a few others believe otherwise.
Startup accelerators like 500Startups, YCombinator and the Alchemist want their startups incorporated in the US. In 2013, 500Startups wants to back 50 Indian startups. YCombinator is also expected to turn up its focus in India (as we have been hearing from multiple sources).
Venture Capitalists often advise their portfolio companies to be closer to the market. And then, there is the thrill of being in a much much bigger market. So founders are likely to begin with a temporary arrangement and then figure out a permanent solution to the immigration problem depending on how the company fares. Besides, there are operational reasons to want to be in the US.
“There has been a recent surge in entrepreneurs applying and getting into incubator and accelerator programs in the valley,” writes Mukund Mohan, the CEO of Microsoft Accelerator in India. Earlier this month, he wrote in a
blogpost that of the 20 odd startups he has spoken with over the last few months, 11 have received visas for work and the rest had their visas rejected.
Why are startups moving out?
Swain who landed in the US in mid November lists a few reasons why startups move to the US. “More opportunity for startups against the big boys to change the status quo,” is on top of his list. His company, Instamojo is trying to simplify peer to peer online sales by helping users to sell anything, from a piece of code to time, using a hyperlink. Progress, opportunities and relevant connections are other reasons on Swain’s list.
For Deobrat Singh, the decision was obvious. “We had a choice of raising money from India based investors v/s from 500Startups,” he said. Gazemetrix went with the latter. “In our mind, it was pretty clear that the market for our product is the US… it made sense to be closer to our market,” he added.
Gazemetrix uses computer vision technology to measure brand presence in Television streams and online videos. He is not giving up on India though. “We decided to make a distributed team with the tech team in India and business team in the US.”
Among the operational reasons, Kumar of eLagaan counts the ease of doing business with the dollar as one. He also says that companies raising funds from global VCs often need to be in the US. “We have seen cases where VCs committed to funds but did not transfer the money until a US entity was set up,” said Kumar.
Is it right or wrong?
There is nothing wrong with them going to where the money is, according to Wadhwa. “But frankly, I think this is a mistake—the biggest opportunities are in India itself,” he says. According to Wadhwa, the Indian Internet explosion will happen in 2014-15 and it will create many Amazon class companies.
Sharda Balaji, the founder of NovoJuris Services-Legal Counselors, cannot help but feel bad about the trend. She has seen about nine startups in the last six months wanting to move to the US. Out of the nine, four were moving to find a better market for their product but the other five were in some way or the other coaxed by the investor to set up shop in the US. While she doesn’t have a problem with startups wanting to move to find a better market, she seems to resent the other way of doing things– that is,“investors insisting on companies being located in the US.”
“On one hand they claim to be investing in India and on the other hand they do this. That’s not right,” she says. She cites the example of a startup which was given a very “frothy” valuation by Indian investors. A foreign early stage firm came along and offered a better valuation but the condition was that the startup must move to the US. And the startup did so.
“Its like outsourcing 2.0!” says Balaji.
Brij Bhasin, an entrepreneur in residence the GSF Accelerator in India concurs, “If you were acting as the outsourcing destination in the Infosys age, and then the Rediff age, you are now repeating the same thing,” he said. “How will we ever get to the critical mass. How will we ever create the network effect,” asks Bhasin. He however, believes that seasoned entrepreneurs are moving back to India, balancing the flow.
Angel investor Sharad Sharma, says that on finer analysis, it might pan out alright, with no one at the losing end. “So many of the successful companies such as Druva stumbled upon this very big market elsewhere,” said Sharma who used to head the research and development of Yahoo in India.
Like Wadhwa, he is bullish about India. There are enough problems that need to be solved in India, creating multiple opportunities for entrepreneurs, he says.
Sharma, who has been heading Indian software Industry lobby’s product conclave feels that there are more entrepreneurs in India than there is money. “Its alright if some of them go because we will always have more entrepreneurs than the money chasing them.” he said.
“Frankly, the investment ecosystem is yet to mature in India,” he added.
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