By Ninad Karpe, Partner, l00X.VC


Chess is a game of strategy. At the very start you need to envisage the endgame, then plan for the middle game and accordingly, make moves in the opening game. It may sound odd that one needs to plan the final outcome before moving the first piece on the board, but that can determine success or failure. As the game progresses, a seasoned chess player is also able to foresee more than eight possible moves – in fact, that is the hallmark of a champion.

The strategies used for playing chess hold important lessons for startup founders as well. Founders start with an innovative idea and a plan, build an MVP and gear up to pilot the product or offering. From here they build their business to scale. The endgame is an eventual exit. Analogous to a game of chess, founders need to have a different plan for each phase, envisioning their final move.

The startup sector in India has recently witnessed some feverish action. India had 16 unicorns created in the first half of 2021. There are now more than 50 unicorns in India and the number is likely to exceed 150 by the year 2025.

Just as the startup sector has evolved over the past three decades, so has the scope and variety of options for exit. The merger of startups into large companies is a time-tested option for exit. It gives satisfactory returns to the founders on their investment and the larger company, in all likelihood, will decide to merge all the products into their domain and absorb the innovation or the technology. By and large, in this merger process, the startup is submerged into the larger company.

As the importance of human capital has gained prominence, a new method of exit has evolved – ‘acqui-hire’ - a portmanteau of ‘acquisition’ and ‘hiring’. Large companies may not have the structure and the DNA of rapid innovation and may rely on acquiring these assets from outside. In a people-intensive business, acquiring a startup primarily to recruit its employees and also gain control of the products and services could become a strategic move.

Acqui-hire is normally done for businesses which are adjacent to the main line of business. Normally, the founders get returns of around 3x to 5x of the investment made and it ensures that the technology or product survives in a larger company with more resources.

If the startup has developed a strong IP around a product, there is also the possibility of a larger company merely acquiring the IP for a price and not the entire startup. This is a neater option for the larger company, as it does not need to bother about taking over the existing employees, doing a due diligence of the startup and engaging in other formalities. For the startup founder, it might also provide a faster exit route to encash the IP created.

If a startup scales rapidly and crosses a significant landmark of recurring revenues, it could become a potential target for PE investors. These investors have the capability to invest large sums of money to take control of a startup and put all the resources at their command to build scale in the business.

PE firms may invest large sums, appoint their own management team, give strategic inputs and bring it to a point where they can sell their stake to some other firm for a profit. Some PE firms, particularly in the US, have teams tasked with managing operations in companies in which they invest. In all these situations, the founder would have cashed-out from the startup and would not be involved in the operations and management. Since PE firms are known to have deep resources for investment, they have the ability to buy out founders of startups and invest as much money as required for the business.

July 23rd 2021 was a historic day for startups, as Zomato was listed on the stock exchanges in India. Floating an IPO is the final ‘judgement day’ for a startup. Prior to the IPO of Zomato, the listing regulations in India did not permit startups with losses to list on the stock exchange. This tweak in the regulations has now opened up a huge opportunity for startups to list on the stock exchanges, despite incurring losses.

The mega public issue of Rs. 9,375 crores (USD 1.3 billion)  of Zomato  at  a price band of Rs. 74-76 ) of Zomato at a price band of Rs. 74-76 saw it over-subscribed 38 times - a strong response from investors. Zomato is the first Indian internet unicorn to make its stock market debut. This public issue was the largest to hit the stock markets since the large IPO of SBI Cards in March 2020. After its debut, much to the dismay of those who predicted that the stock was overpriced, the share price held firm and increased by more than 40% over the IPO price.

There are many more startups now looking to do an IPO and a slew of them, including PayTm, have hit the market. For founders of startups as well as investors, this has now opened new possibilities of an exit. It is most likely that the founders which go for listing will sell part of their stake in the IPO and continue to manage the company. Importantly, it leads to a transparent price discovery of the startups and the founders are able to sell their remaining stake when required.

If you enjoyed this article, be sure to read CAIA Association’s new report, The Rise of India’s Private Equity Market.

About the Author:

Ninad Karpe is a Partner at l00X.VC -a VC firm, which invests in early stage start-ups  and  aims to  invest in l00 startups every year.


Karpe was the  MD & CEO of  Aptech Ltd. for more than seven years, till 2016. He previously served CA Technologies, a US headquartered leader in software products, as Managing Director of India.

Karpe has authored a book on business strategies, titled "BOND to BABA", which received rave reviews and was listed by Amazon in its prestigious list of "Memorable books of 2018".

He was the Chairman, Western Region of the Confederation of Indian Industries (CII) for 2017-18, an honorary position.

Besides his day job as a VC, Karpe is passionate about supporting theatre and has produced two Marathi plays, which have received wide acclaim. An avid follower of Fl racing, he switches off his mobile phone during race days.