Y Combinator to Support Indian Founders Building Global Enterprises in Second Wave

Y Combinator Shifts Focus to Supporting Global Ambitions of Indian Startups

Global startup accelerator Y Combinator is now gearing up to support startups with global ambitions in its next phase of investments, according to Jared Friedman, Partner and Managing Director at the firm. While the accelerator has previously found success backing Indian founders focused on the domestic market, it is now shifting gears to cater to companies building global products for the global market.

In its initial phase, Y Combinator backed payment gateway firm Razorpay – its first investment in India – and then deepened its bets on the country's startup ecosystem with investments in Groww, Meesho, and Zepto, all catering to India's 1.4 billion-strong consumer base. While Meesho and Groww have already gone public, delivering strong returns for Y Combinator, Razorpay and Zepto are now in advanced stages of listing, set to further boost the accelerator's gains from its India bets.

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A significant challenge faced by Y Combinator in its previous phase was requiring Indian startups to base their headquarters in the US, often forcing them to later flip structures back to India ahead of a local listing. This arrangement was essential as Indian regulations made it challenging for US-based investors to fund Indian startups, according to Friedman. However, as more India companies build for the global market, Y Combinator has worked out a partial solution.

"A workaround is that an Indian company should actually be headquartered in the US but a lot of its employees are based in India but its customers and investors are all in the US," Friedman said. This arrangement has eased access to capital for Y Combinator portfolio companies, although it still incurs significant tax costs in the US.

A Moneycontrol analysis showed Y Combinator portfolio companies paid a total of $600 million in taxes to flip their base to India. Despite this challenge, Y Combinator is now poised to support startups with global ambitions in its next phase of investments, with companies like Emergent and Giga serving as great examples of the type of companies the accelerator will back.