Startups control is what counts

Startups control is what counts

protracted investigations of cargo coming in from China and the possibility of further escalation of measures against Chinese entities in the face of Chinese intransigence on withdrawing its armed forces’ trespass into Indian territory, many companies in India with Chinese investment on board are worried. They seek to redefine what is an Indian company, away from majority ownership to other criteria.

These attempts are futile. The defining metric of nationality of an enterprise is control.

Apart from retaliating against Chinese interests, what is the material concern with the operation of Chinese apps in India? It is the fear that these companies can siphon data off and share it with the Chinese government. To address this concern, what is required is control of the company, the ability to decide where data would be stored, the capacity to monitor the hardware and software of data storage to ensure covert data transfer does not happen, and the ability to sack employees who flout company policy. Corporate control is what decides these things. A high proportion of Indian employees or local ownership of intellectual property will not suffice.

How can this be squared with Indian startups’ need for cash, tight-fisted Indian funding of startups and plentiful supply of capital from China, either directly or indirectly? Via differential voting rights shares, is the short answer. Indian founders and promoters must retain control with shares that have superior voting rights, even as they source capital from wherever it is available, issuing them shares with diluted voting rights. Will there be takers for such shares? Ask founders: Facebook’s Mark Zuckerberg or Google’s Larry Page and Sergey Brin.