Homegrown Indian startup founders outperform returnee diaspora, finds study

A study by AnnaLee Saxenian and Vivek Wadhwa reveals that domestic founders lead in commercial outcomes, while returnees play specialized roles

By Saritha Rai

 

India’s fiercely competitive startup field has provided evidence to suggest that homegrown entrepreneurs fare better over the long run than returning diaspora with overseas experience, contradicting widely held beliefs.

 

A new study authored by AnnaLee Saxenian, professor at the University of California, Berkeley, who is renowned for her research on why Silicon Valley succeeded, and prominent tech entrepreneur and academic Vivek Wadhwa, pushes back on the idea that founders returning from the US and elsewhere are better equipped to build lasting businesses. Drawing on a sample of 596 Indian high-tech startups established between 2016 and 2023, their findings mark a departure from earlier work in the field, including their own.

 

They present a granular comparison of startup metrics — including longevity, number of employees, valuation and revenue — that suggests an unexpected structural shift. India’s startup ecosystem and its flagship firms in AI, fintech, mobility and enterprise software appeared to enter a new phase in which domestic founders lead on commercial outcomes while returning professionals now primarily add value in specialized roles.

 

The authors dubbed this phenomenon the “returnee paradox.” While overseas experience has proven invaluable in other economies, it appeared to play a diminished role in India’s contemporary tech ecosystem.

 

“The provocative takeaway is that India managed to nurture world-class entrepreneurs indigenously during a time when many expected the diaspora to lead the charge,” the authors said in their paper, published by the Observer Research Foundation, a respected think tank with significant backing from Reliance Industries Ltd. Saxenian, Wadhwa and their collaborators have long documented the rise of returnee entrepreneurship and argued that the trend would be pivotal in driving innovation in countries like India and China.

 

“I expected our latest study to show that returnees dwarf the domestic entrepreneurs — even 10 years ago that might have been the case, but it’s clearly no longer true,” Saxenian said in an interview. Entrepreneurs that understand the needs of the domestic market, and are able to adapt technology swiftly to fulfill those, are thriving, she said. 

 

Ground knowledge is now a huge asset, according to Saxenian, whose work spans decades of research on “brain circulation” theories that emphasize the role of transnational networks in conveying knowledge, capital and best practices. Her seminal 1996 book Regional Advantage compared Silicon Valley’s collaborative, decentralized ecosystem with the former model of independent and self-sufficient businesses, explaining why the Valley thrived while others stagnated.  

 

For years China and, more recently, India, have actively wooed technology professionals from developed western markets to boost their local ecosystems in hopes of accelerating innovation. China has used state-driven interventions such as returnee-focused startup incubators, preferential funding, housing subsidies and talent programs designed to absorb and amplify diaspora expertise. India, however, presented a different picture.

 

“For decades, non-resident Indians like me were treated like kings when we went back to India, it gave us a superiority complex,” Wadhwa said. “I thought the study would make returnees like me look like heroes.” Indeed, the research shows returnees finding it easier to raise seed and early-stage funding than domestic peers, in large part because of their global networks of contacts. But that initial advantage dissipates over time. Wadhwa, an academic known for his research on innovation, globalization, and the role of migrants in the US tech industry, is himself building an AI-powered biotech startup with an R&D base in India.

 

“Instead, we look like a bunch of losers compared with local entrepreneurs, it was the exact opposite of what I expected to find,” he said. 

 

The study’s authors include MH Bala Subrahmanya, a professor at the Indian Institute of Science, and DPK Muthukumaraswamy, founder of an advanced engineering startup called KrutiBimb Pvt., both based in Bangalore.

 

“In the past, there was no place to go back to. Now India offers opportunities and this might impact the talent dynamic in the US,” said Saxenian. “We’ll see a slowing of immigrants coming to the US. If they do come, they’ll stay for shorter and shorter durations.”

 

The study’s conclusions surprised the researchers to the point where they asked colleagues at Harvard University, Cornell University and elsewhere to tear into the data and methodology. Even after incorporating the suggested refinements and robustness checks, the findings remained unaltered.

 

The new research could help shape tech ecosystems around the world, the authors said. “India and China are not depending on the US anymore, they can innovate on their own,” said Wadhwa.