However, since it moved completely from Singapore to India in October, about 20 unicorns and their investors have inquired about the process and are actively looking to move here, Nigam added.
He interacted with co-founder and chief technology officer Rahul Chari during a YouTube Live session.
Nigam cited capital gains tax paid by shareholders and investors, reset of the waiting period for employee share ownership plans (Esops) and the inability to recover losses as some of the key challenges it faced.
“If there is a willingness, it gets easier from here. There are certain obstacles. For example, if you want to move your domicile to India from another market, it will be treated as a capital gain event for existing investors. So one has to perform a new market valuation and pay tax on the delta (difference). Our investors paid almost Rs 8,000 crore in taxes just to enable us to return to India,” said Nigam.
He added that this is a “solid shock”, especially if a company is not yet mature.
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ET reported on Jan. 4 that the government was likely to collect as much as $1 billion in taxes from US-based retail giant Walmart and other PhonePe shareholders as part of the fintech firm’s shift to India. government to make it easier for businesses to come back,” Nigam added.
The Walmart-backed company, Nigam said, also had to convince several thousand employees to return to a “zero-fortress one-year cliff” or reset the vesting period for their stock options.
“The law in India says that if you migrate the Esop plan, you still have to start a new one-year cliff. It is very difficult for startups, especially early stage companies, to convince employees that their hiring status will just go back to zero. I think the law needs to change because it is not progressive and prevents Indian-focused startups from moving their place of residence,” he said.
He also highlighted the challenges around accumulating losses that can be offset once the company becomes profitable.
“One of the things that is very common in the pre-profit startup world is your mounting losses. Later on, if the business becomes profitable, you can actually offset the losses, saving you some tax. In this case, by settling in India, unless the law changes at the end of March, we will lose about $900 million in accumulated losses as it is considered a restructuring event,” Nigam said.
The crux of the problem is that “Indian law does not distinguish between a restructuring where the pre- and post-ultimate owners are the same”. Further, it is being treated as “another acquisition event,” Nigam said.
“Personally, it’s one of the biggest milestones we’ve achieved. But it was a challenge. And just making this move wasn’t easy,” said Chari.
Why the move
Nigam said: “India is where we started and India is where we will be focusing for the next few decades. And for several reasons (we have chosen to move our domicile to India) including being highly regulated, want to note here and create ecosystem value and shareholder value here. I think the location in India for PhonePe as a company and as a company was the right answer.”
The Indian market is becoming attractive and many entrepreneurs are realizing that the markets where their brand has relationships with customers are expected to reward them better.
“We have collected the names of over 20 existing unicorns in a list of 100 who have reached out and are actively looking (to go back). Some investors have said if this eases up, we want to settle here (India),” he added.
On the company’s IPO plans, he said the event will take place in a few years, once it can demonstrate “profitability at scale” and “diversification in business.”
PhonePe has focused on entering the credit segment by acquiring ZestMoney and ramping up its insurance distribution. It has a broker license. It is also planning a new e-commerce game by integrating with the Open Network for Digital Commerce (ONDC), ET first reported last August.
PhonePe received its account aggregator license earlier this week, after receiving approval in principle in 2021.
Split from Flipkart
Last month, PhonePe announced a separation from ownership of homegrown e-tailer Flipkart, which it acquired in 2016.
Speaking of the separation, Nigam said: “Everyone had to be on the same page. It is a big investment of time, money, effort… It became increasingly clear that these two companies are on very different paths strategically and market-wise. just made a lot of sense for long-term shareholders – to break up the two entities.”
Nigam added that the separation gives PhonePe the opportunity to attract investors aligned with fintech and payments, while Flipkart can attract investors interested in e-commerce and related businesses.
“I think it gives us an independent path to our own listing, our own ability to actually do things without having to worry about Flipkart,” he added.
Last week, PhonePe announced a $350 million funding round from global private equity firm General Atlantic at a pre-money valuation of $12 billion. The investment marks the first tranche of a primary fundraising of up to $1 billion.
Nigam also confirmed that Qatar Investment Authority (QIA), Microsoft, Tencent, Tiger Global and smaller hedge funds had participated in the round.