Daybreak - Paying the price of going global — Meesho, Razorpay, and the reverse flip

Episode Date: June 19, 2025

For the longest time, getting accepted to Y Combinator, the Silicon Valley startup accelerator was like getting a golden ticket for your startup. It was suddenly on the map not just in India but in Silicon Valley, too. For Indian founders who made it, the story of success began with a journey west. Set up in Delaware, impress YC, and get some of that Silicon Valley shine. But what happens when that dream starts looking more like a detour than a destination?Earlier this week, the online market place Meesho, once a poster child from the YC pipeline, announced it will pay nearly 300 million $ million in taxes just to bring its business back to India. Why? Because that’s where the real opportunity is now. With an IPO in the works, Meesho is doing what many Indian startups are now considering: the reverse flip. And Meesho isnt the only one. Fintech unicorn Razorpay, another Y combinator baby, wants an Indian IPO in the next two years. Its expected to pay as much as $150 million to redomicile its business to India. But if the endgame is an Indian IPO, why take the expensive U.S. route in the first place? Is the YC badge still worth it? Tune in. Want to attend The Ken's next event on health, fitness and wellness? Buy tickets here. Here's your chance to help us shape the conversation: https://theken.typeform.com/to/bZhqWl2g

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Ramon Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. For the longest time, getting accepted into Y Combinator, the Silicon Valley startup accelerator was like getting a golden ticket for your startup. It was suddenly on the map, not just in India, but also in the US. For Indian founders, made it, the story of success began with a journey west. Set up in Delaware, impress Y Combinator,

and get some of that Silicon Valley shine. But what happens when that dream starts looking more like a detour than a destination? Earlier this week, the online marketplace Misho, once the poster child from the Y Combinator pipeline, announced that it will pay nearly $300 million in taxes just to bring its business back into India. And if you're wondering, why? Well, that is because that is where the real opportunity is now. With an IPO in the works, Misho is doing what many Indian startups are now considering very seriously. The reverse flip. FinTech Unicorn Razor Pay, another Y Combinator baby, wants an Indian IPO in the next two years, and it is expected to pay as much as $150 million to redomisile its business into India.

In October 2024, the stock-broking platform Grove paid around $160 million to reverse flip back to India. But if the endgame is an Indian IPO, why take the expensive US route in the first place? Is the YC badge still worth it? And more importantly, what does this mean for the next generation of Indian startups who may no longer see Silicon Valley as the promised land? In this episode, we explore how the Y Combinator dream is changing for Indian entrepreneurs and why the road back home is looking a lot more promising than the flight out. Hello and welcome to Daybreak, a business podcast from the Ken. I'm your host Nick Dha.

And I'm Rahil and we don't usually chase the news cycle, but today we are. Every day or two weeks, we come to you with one new story that is worth understanding and worth your time. Today is Thursday, the 19th of June. Let's make one thing clear before we start. Why Combinator has undeniably shaped the Indian startup landscape in very crucial ways. For starters, it changed India's and investors' perceptions about what a fundable startup founder would look like, because it is specially suited for younger and less polished entrepreneurs. Case in point, the Zepto founders, Adid Pellica and Kewalia Vora. They were barely

20 years old when they joined the Y Combinator Accelerator program. Y Combinator also saw potential in startups beyond what was trending in the Indian scene and often, often, a strong alternative for Indian founders building in less popular or overlooked sectors. Basically, the Y Combinator idea is quite simple. Give early stage start-ups initial funding to get their show running, connect them with relevant mentors from the field, and also help them raise money. As of now, those who get accepted get $500,000 in seed funding. Now, let us briefly look at how this works. The $500,000 is developed. divided into two parts. The first is $125,000 for a 7% equity. This is pretty straightforward.

Y Combinator basically becomes a 7% owner of the company. The remaining 375,000 is slightly more complicated. Now, listen carefully. This money is given using an uncapped MFN safe. What is an uncapped MFN safe? Let us take it one word at a time. Uncapped, meaning Y Combinator does not put a maximum limit or a valuation cap on the price that it will pay for shares later. MFN, or Most Favored Nation, which means Y Combinator will get the best deal terms that any later investor gets. And SAFE stands for simple agreement for future equity, which is basically a way to invest now and get shares later when the startup raises. its next round. Now, if you think from a founder's perspective, somebody who's barely starting out, struggling to get attention, this deal sounds pretty appealing, right? But for the longest time,

actually, since it started back in 2005, Indian founders were not all that attracted by Y Combinator. And that is because it was actually started with US startups in mind, like a summer program for college students. And even to qualify, founders had to fly to San Francisco for and an in-person interview. If they were accepted, they had to spend three months there and meet Y Combinator partners and mentors. But they had to bear all of the cost of living on their own. Y Combinator did not offer them anything. So for most Indian founders, it was a rather big investment in terms of time and money. And of course, there was still no guarantee for success. And even if they got in, relocating to the US was a whole different ballgame. It was only around 2014-15 when

Indian startups began seeing representation in cohorts with companies like ClearTax leading the way. So, what shifted to make Y Combinator one of the most sought-after badges for Indian startup founders? You see, Y Combinator made a bunch of changes over the years to make itself more appealing to Indian startups. For starters, they revised the value of their initial investment from $20,000 to $125,000. They also began holding interviews in India, so founders did not have to fly all the way to the US. And in 2020, thanks to the pandemic, the whole program went fully online. So, why then, is the Y Combinator dream changing for Indian entrepreneurs now? Stay tuned to find out.

Hi, I am briefly pausing this episode to make a very special announcement. On June 21st at the Bangalore International Centre, the Ken is bringing together a pretty extraordinary panel for a one-of-a-kind discussion on how we can lead healthier and happier lives. We'll be joined by Olympic swimmer Nisha Millick, vice chairman of the Narayana Health Hospital Group, Virian Chetty, and finally, Dr. Syriac Abby Phillips, aka the liver dog. Join us for what promises to be an insightful, vibrant discussion that covers a whole range of topics. From how to get great sleep, to attaining mental clarity through workouts,

to which supplements matter, to how to take care of aging parents and growing children, you get the drift. That's not all. We also want your help to shape this discussion. So send us your questions for Nisha, Vireen and the Liver Doctor, and we will take care of the rest. All the details about the event,

where to purchase tickets, and how to submit your questions will be in the show notes. We hope to see you there. And with that out of the way, let's get back to the episode. For a really long time, startup founders thought the only way they could make it big was by shifting shop to the US.

That way, they were closer to investors, to mentors and the networks that they could really leverage as they grew. In fact, many of their early investors would advise them to make that move. So Indian founders would readily choose to flip their homegrown startups. They would transfer ownership to a foreign holding company, which would usually be in the US or Singapore. At Y Combinator, it wasn't optional. It was a condition.

Startups accepted into the program had to set up a new holding company in the US, Canada, Singapore or the Cayman Islands, and then transfer ownership to it, effectively flipping their entire structure. Now, this new entity is what YC would invest in. The original Indian company, meanwhile, became a wholly owned subsidiary of the foreign parent. The way Y Combinator pitched it was simple. Flipping your startup to a US entity would dramatically improve your chances of raising follow-on capital.

And for ambitious Indian founders looking to make it big, it wasn't just a strategic move. It was almost like a right of passage. Wycombinator gave them credibility and opened the door to top-tier U.S. investors, which would be tough to reach from India. In exchange, they were also getting 500,000 US dollars in seed funding from YC, which is a pretty sweet deal for a founder just trying to take off. Of course, there was a catch. While Indian tech startups, particularly fintechs, gained from the experience,

the entrepreneurial landscape in India started undergoing a seasonal. change. Most importantly, the Indian public markets began to evolve. There was growing excitement around tech startups, the likes of Zomato and Nica going public. And suddenly, following YC's playbook too closely, ended up costing some of these Indian startups pretty heavily. Because now, when the likes of Micho, raise a pay or grow want to ship their headquarters back to India, they'll have to shell out hundreds of millions of dollars in taxes to make it happen. A money-controlled report recently stated that these three companies alone, all of which were formerly dormiciled in Delaware and are now preparing to list in India, will collectively have to shell out nearly 600 million US dollars in capital gains tax and stamp duties. Famously, Walmart-backed phone pay shifted its headquarters from Singapore to India through a share swap that ended up costing the fintech approximately a billion dollars in taxes in India.

That's the price these companies have to pay to move all of their intellectual property, shareholding and capital back to India. The process can take over a year and typically is bogged down by a fair bit of regulatory and legal complexity. There's also one more thing. Like MFN's safe from the last segment, basically YC invests $125,000 for a 7% equity stake and then offers another $375,000 through an uncapped safe with the most purests. favored nation clause. This means Y Combinator gets the best terms of any future investor. Many startups realized how this can lead to heavy dilution if the next round is raised at a lower

valuation. Basically, it's the best possible deal for Y Combinator, but not necessarily for the founders. There was also the collapse of Silicon Valley Bank back in 2023, which exposed just how vulnerable Indian startups can be when they are plugged into the U.S. financial system. Many had millions tied up in the bank and suddenly found themselves staring at a situation where they were at risk of losing access to those funds overnight. Now, that's enough to get an Indian startup founder to rethink the YC playbook altogether. For years, they saw Silicon Valley as the ultimate destination. But now they're left wondering, is it still worth it? Which explains why there has been a dip in the number of Indian startups participating in the program. In fact, there's summer

2020-24 batch had the lowest Indian representation in years, according to some reports. Many of these startups are increasingly seeking alternative paths to early stage capital and guidance. And a growing number of innovative programs are really rising to the occasion. In the last five years, we've seen programs like Peak 15s, Surge, US-based Axel Atoms, Singapore's Antley and London's Entrepreneur First all launch India-focused pre-seat programs. Like Y Combinator, many of these have especially low-eastern. acceptance rates. But the similarities end there. The likes of Surge offer bigger checks, smaller cohorts and flexible funding options. And this could not come at a better time,

because YC's standard funding template has become a tough sell for both investors and startups. More importantly, Surge doesn't impose any geographical restrictions on founders. It's simply India-focused and has no strings attached. Just access to capital, mentorship and community. These programs are built for startups that are focused on building and going for and in India. Because of the rise of the reverse flip has taught us anything, it's that the YC dream may still be alive. But for Indian startups, it may not always be worth chasing. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings.

A full subscription unlocks daily long-form feature stories, newsletes, newsletes, and letters and podcast extras. Head to the Ken.com and click on the red subscribe button on the top of the Ken website. Today's episode was hosted and produced by Rahal Philipos and I, Sinkda Sharma, and it was edited by Rajiv Sien.