Snapdeal, Myntra investor calls against capital dumping by Uber, Amazon

Ahead of Budget, Vani Kola says Modi's Startup India is under threat without policy changes

Vani Kola, co-founder of Kalaari Capital and one of the most successful venture capitalists in India, has become the first investor to take up arms against foreign companies deploying huge capital to edge out Indian counterparts in the consumer internet space. 

Kola, who has raised about $650 million from global investors and counts Ratan Tata as an advisor, has warned that India’s fledgling start-up system could be in dire straits unless the government brings a policy changes to safeguard local companies. 

“The consequences of not providing a policy response may include: Modi’s Startup India Standup India initiative which is unlikely to succeed and India’s start-up ecosystem won’t take off if a dumping-like strategy can be used against Indian start-ups,” Kola wrote in an article over the weekend. 

Her demands resonate the call for a China-like regime that puts the interests of local information technology firms first, edging out even global giants such as Google, Facebook, Amazon and Uber, ahead of the Union Budget later this week. 

Kola has backed Urban Ladder, Snapdeal and Myntra, now owned by Flipkart — the three large internet companies facing threat from foreign players. The call for the Indian government to create laws that protect local start-ups, such as Flipkart and Ola, first came up in December when start-up posterboys Sachin Bansal and Bhavish Aggarwal made a public call for India to accept foreign capital but said no to foreign companies wanting to do business here.

They accused the global firms of dumping capital to win customers but doing nothing to add value to the Indian system.

“When a ride goes to Uber, for example in India, the higher-end jobs are being created in the US and not in India. The capabilities in the ecosystem are getting created in the US and not in India, while when it comes to Ola the capabilities are being created in India,” Sachin Bansal had said in a panel discussion.

The first sign of an Indian start-up calling for protection against global competition came when Ola made a submission to the Karnataka high court in June, accusing Uber of bypassing local laws in its search for profit. Ola has struggled to raise funds to battle Uber in India, largely due to the aggression of the US company and the huge war chest it is building to win the Indian market.

Kola said the local firms in Europe lost market share after US companies dumped capital to dominate the region, following which foreign investment shrunk, while China, which protects local firms, saw foreign investment shot up in the same period.

Not all buy the arguments of Kola. A leading venture capital investor says the argument is flawed because it’s not measurable. WhatsApp, the world’s largest instant messaging platform which is also India’s largest, built scale without spending billions of dollars. But, can WhatsApp be banned because it is not Indian, despite not dumping capital to acquire customers?

“The capital which big investors dump in some form or fashion, that’s what actually alerted the world that there is a tech market here and drove global competition here. The argument is that if these guys had allowed companies to be built sustainably, it would have taken competition longer to come here,” said Karthik Reddy, co-founder of Blume Ventures.