For the first time ever, the Indian startup ecosystem is witnessing a new trend: reverse flipping. This is a process in which Indian startups that have previously left the country to set up their businesses in a more favourable jurisdiction region like the US and Singapore are now coming back to India. For example, PhonePe, an Indian entity, had previously shifted its headquarters to Singapore. However, it has now reverse-flipped back to India. Although many startups have not yet returned to India, this phenomenon is catching some wind, and more people are taking notice of it. There are many compelling reasons for this sudden shift.
Among the most important changes is the change in India’s regulatory ecosystem for new businesses and startups. Over the past few years, the Indian government has made many attempts to build a more inclusive startup ecosystem and has introduced new initiatives and tax reforms, such as the Startup Indian initiative. This has significantly reduced the compliance burden on startups and new businesses. One example of major tax reform is the abolition of the Angel Tax Act in 2019, which restricted angel investors from investing in startups. Also, the introduction of GST (Goods Service Tax) has made the taxation process easy to understand, which has helped entrepreneurs.
Another reason for this reverse flip is that investors’ sentiment towards Indian startups has also been quite positive. In 2021, Indian startups raised a whopping $42 billion across 1,583 deals, according to Venture India. This means that investors feel more confident about investing in the Indian market. India also has the largest population on the planet, and the sheer size of the Indian market, along with its digital footprint, gives startups an opportunity to capitalise on a big market size. According to a report by IAMAI, Indian had 700 million active internet users in 2021, and this number is poised to go up to 975 million by 2025. For this reason, many Fintech startups, such as RazorPay, PhonePe, and PineLabs, are also making their way back to India.
The government of India has also played a major role in the reverse flipping of Indian startups. The Indian government started a Fund of Funds for Startups (FFS), with a collection of ₹10,000 crore; the FFS aims to provide funding support to Indian startups through alternative investment funds (AIF). As of 2024, the FFS has funded around 129 AIFs, which will fund hundreds and thousands of startups.
