India’s Wealth Frontier

"Ideas don't make you rich,” said British publisher and poet Felix Dennis, “The correct execution of ideas does.” It is in this execution of ideas that forward-thinking business leaders skillfully craft compelling brands and orchestrate their departures from them at opportune moments. The 2019 Global Wealth Migration Review had predicted that India would overtake Germany and the UK to become the fourth-largest wealth market in the world by 2028.

India’s ultra-high-net-worth individuals (Ultra HNIs), that is those with a net worth of $30 million and more, are expected to rise to 19,119 in 2027, up 58.4 per cent from 12,069 in 2022, according to a Knight Frank India report. The number of billionaires in India is expected to move up to 195 in 2027. Notwithstanding disturbing global headwinds in a highly volatile year, India’s total private wealth increased by 4.6 per cent to USD 15.4 trillion in 2022, according to Global Wealth Report 2023. The number of millionaires in India grew annually at the rate of 15 per cent between 2000 and 2022, the report revealed.

China and India were the outliers in a world of crumbling assets in 2022. India did not experience any reduction in financial assets at all. Over the last two years cash-strapped promoters and startup founders have raised capital through share sales, initial public offerings (IPO), strategic sales of companies or secondary sales to investors, but have kept their ships afloat in turbulent waters. As the Indian economy continues to surge forward, founders and promoters will be more tempted than ever before to juggle the options of mergers and acquisitions, initial public offerings or complete exits from high-impact enterprises in their aspirations to retain private wealth.

The Exit Mantra

A. Velumani, a scientist who built the disruptive diagnostic company Thryocare from scratch in 1995, sold 66.1 per cent stake in it to a digital pharmacy startup PharmEasy in 2021 for over Rs 4,546 crore. This was an example of the first-ever acquisition of a listed company by an Indian unicorn. The fundamentals of value creation for substantial personal wealth in business are consistent. A market gap or a pain point has to be identified and the business that figures out its solution creates a certain impact and generates revenue eventually. “Build a business with high efficiencies and a high productivity team. If your profit levels are high and growth is impressive, a strategic investor might pay even 20 per cent more,” says Velumani.

When Velumani started Thyrocare, the words ‘startup’, ‘entrepreneurs’, ‘venture capital’ or ‘private equity’ were not heard of. Entrepreneurs were focused on making more profits and valuations were not the starting goal. “Today, it is totally a valuation game. Loss-making companies are valued often more than regular profit-making and dividend-yielding companies,” muses Velumani.

Veteran business tycoon, Sanjeev Bhikchandani, best known for investing in India’s promising internet startups, is another stellar example. He is the Founder and Executive Chairman of Info Edge. The company has three offerings, Naukri.com, 99acres and Jeevansathi. The 2020 Padma Shri awardee is also a co-founder of Ashoka University. Apart from this, he holds stakes in Zomato and Policybazaar, both of which went public in 2021.

Deepinder Goyal, Co-founder of Zomato, made a Rs 9,375 crore initial public offering in July 2021. The IPO was oversubscribed by 35 times and Zomato became India’s first unicorn to be listedon the stock exchanges in August 2022. Zomato completed the acquisition of Blinkit for Rs 4,447 crore in an all-stock deal and its warehousing ancillary service business was bought for Rs 61 crore.

In 2021, after acquiring BigBasket, Tata Digital bought an online pharmacy startup continuing its investment in 1mg which was founded by Prashant Tandon. 1mg had secured $40 million at unicorn valuation in September 2022.

Risk Capital

These swift mergers and acquisitions draw their strength from the availability of risk capital from angel funds, venture capitalists and private equity funds. In the days of yore such acquisitions would only have been possible from decades of wealth creation from reserved earnings. “The fundamental shift has enabled entrepreneurs to create large businesses in a short span of time while bringing in more partners who could possibly share the risk as well as the reward,” points out Prashant Tandon.

Startups in India are poised to contribute to four to five per cent of the country’s GDP over the next five years, says a StrideOne report. In the last three years, the ecosystem has evolved drastically but what remains same is the history of successful businesses emerging out of India.

According to a Bain & Company report, the volume and value of consolidations and strategic merger and acquisition deals reached an all-time high in India in 2022. What prompted this? Larger conglomerates, traditionally known for their scale and stability, have astutely recognised the potential that startups represent in catalysing market growth. Consequently, they have embarked on a vigorous spree of acquisitions, partnerships and mergers with these young companies.

The math of creating wealth today is to raise the necessary capital to make upfront investments and be okay with a smaller share of a larger pie, say industry experts. Another aspect of the mantra, they say, is to try and utilise the upfront investment to move fast and build wealth through your percentage holding of that value pool of co-creation.

Recently, the Founder of CaratLane, Mithun Sacheti, made headlines by selling his remaining stake in his company to Tata group company Titan for a massive Rs 4,621 crore in a very rare event. It was noticeable because it was a complete cash deal exit. Such swift hefty deals could account for one reason for the growing tribe of Indian millionaires in India between 2000 and 2022, as the Global Wealth Report shows.

Back in May 2018, Walmart had acquired a 77 per cent stake in Flipkart for about $16 billion (Rs 1.05 lakh crore) in the largest ecommerce deal. Sachin Bansal, Co-founder of Flipkart walked out selling his 5.5 per cent stake for around Rs 6,700 crore. Following that, he founded a FinTech company Navi Technologies. 

In July 2023, Flipkart Co-founder Binny Bansal made the final exit by selling his residual stake to Walmart. He is also an investor in PhonePe and is on the company’s board. He runs xto10x, a startup accelerator to nurture younger entrepreneurs. While the decision to exit from a company one has built from scratch may seem difficult, these are actually happy exits. Most successful serial entrepreneurs are actively investing in sustainable Indian startups and multiplying their wealth yet again.

These examples and outcomes now inspire and motivate the next generation of entrepreneurs and exits – even at large scale – are also happening. “The ‘exit trend’ will be much accelerated at a smaller scale, where the smaller ‘bite-size’ makes the created asset relevant to a lot more potential acquirers,” says Prashant Tandon, stressing on profitability and convincing strategy as compelling motives.

“For investors, the worst exits are the two-three year out exits. But founders should openly look at strategics and the strategic should openly look at these businesses, with an interest to build a win-win contract,” says Mithun Sacheti, while talking of the importance of aligned partnerships.

Making Money Mania

Certainly, the giant companies of tomorrow are startups today. Says Prashant Tandon of Tata 1mg fame, “Entrepreneurs should look out to list their companies on the public market and capitalise on the unfolding India story.” Good business has pleasure in both – running or exiting. While it is very difficult to generalise, most industry captains suggest the IPO route to raising capital than a complete exit.

‘The choice of exit hinges upon the DNA of the business and the founder’s long-term aspirations,” says Vikram Gupta, Founder and Managing Partner of IvyCap Ventures. “Pushing valuations often leads to recalibrations which erodes the dignity of the brand. So, have patience, it’s a marathon, not a 100-meter dash” is Thyrocare Founder A. Velumani’s advice to younger founders. Either way, the future belongs to the startups of today and perhaps there will be many more such ‘multi-million-dollar’ exits.

India’s various emerging sectors have positioned it as a global economic powerhouse in the making. The economy continues to be driven by this burgeoning entrepreneurial spirit, which should only accelerate India’s progress to emerging as the world’s third-largest economy by 2027. How they do it, will be a story we will tell as we go along.