Sridhar Vembu, founder and chief executive officer of the Zoho Corporation expressed in a recent social media platform X post that India's route to $100 billion revenue tech companies is through nurturing visionary builders who are working towards sustainable, long-term growth and not short-term valuations. He warned about stock bubbles, and excessive funding, which can distract markets from core business fundamentals. He emphasized discipline and strategic execution, not inflated market metrics.

The debate about whether India can produce $100 billion revenue tech companies is not just about ambition; it is also about strategy and philosophy. While it is important to focus on visionary builders and a long-term view, we could be overlooking a larger reality about the startup ecosystem: valuations and loose funding. Let us look at why valuation along with a decent funding environment is so important in helping large-scale companies come up in India.

Valuation as a Growth Enabler

Valuation is often described as a superficial number, which detracts from the core mission of building a sustainable business. However, it is important to understand that valuation is the market's confidence in a company's future growth potential. It is a way for founders to access substantial amounts of capital swiftly, so they can scale rapidly, go into new markets, and recruit the highest caliber talent.

Examples of companies like Flipkart and Paytm raised so many controversies over their valuations but they were able to leverage their financial strength and build outsized infrastructure, penetrate their market much deeper, and create jobs. By downplaying valuation, we risk undermining an important lever that is a necessary condition for scaling.

Furthermore, emerging tech giants get the benefit of high valuations, attracting global investors which not only bring capital but also expertise, mentorship, and connections, which are valuable for an emerging tech giant aspiring to expand internationally. Such resources are indispensable for a country like India, which is looking to compete with existing global players.

Loose Funding as an Accelerator of Innovation

A 'loose funding environment' is often criticized for creating inefficiency and a lack of discipline. Yet, it might also be said that such an environment encourages innovation: creating an environment where entrepreneurs can experiment, take risks, and learn from failures. To innovate rapidly, startup culture is to be as flexible as possible, and that means financially.

There is no denying the fact that if we look at the Silicon Valley model, the abundance of capital was the key to nurturing revolutionary companies like Amazon, Facebook, Google, and others. It was the willingness of investors to put money into these unproven ideas that allowed these tech giants to be created. Similarly in India, startups need capital to not only pay bills but also scale quickly and compete in the global market.

While it makes sense for small businesses to forge ahead with the strict discipline of generating profits from day one, when building a company with the potential to earn $100 billion in revenue, the growth strategy necessitates significant upfront investment. Capital access gives companies the ability to fund their R&D, explore new markets, and build infrastructure without the hindrance of short-term financial constraints.

Balancing Vision with Valuation: A Dual Approach

It is a simplification of a complex reality to assert that an excessive focus on valuation distracts from long-term vision. There is no either or, it is simply about balancing both. Visionary leaders understand that high valuations are a necessary step in their growth journey. It should not be about turning a blind eye towards valuations but about using them as a strategic device.

For instance, the financial metrics have kept the tech ecosystem booming for companies like Infosys and Tata Consultancy Services (TCS) in India, which have grown significantly by striking the right balance between their vision and financial metrics. It was understood by these companies, that sustainable growth needs a mix of visionary leadership and financial acumen.

When we look at it properly, valuation is a result of executing a long-term vision effectively. It is a feedback loop for how the market perceives a company’s progress towards being a market leader. Therefore, it is important to consider valuation as a key performance indicator, without letting valuation crowd out the larger mission.

Role of Ecosystem Support in Building Tech Giants 

India needs a conducive ecosystem that supports the growth of tech giants. While discipline and long-term vision are necessary, so is an environment that allows companies to dream big, take calculated risks, and access vast amounts of capital. China’s rapid emergence as a hub of $100 billion tech giants was facilitated by a supportive policy environment, abundant funding, and an aggressive approach to scaling businesses.

For India to replicate this success, we cannot solely rely on disciplined, bootstrapped growth. We need a dynamic ecosystem where venture capital, government support, and corporate partnerships come together to provide a robust foundation for startups. Valuation and funding are part of this ecosystem, offering companies the leverage to experiment, scale, and eventually compete on the global stage.

Need for a Nuanced Approach  

To build $100 billion revenue tech companies in India, we need a nuanced approach between the long-term vision and the strategic use of valuation as a growth enabler. We must acknowledge that valuation and loose funding environments can help accelerate growth and drive innovation. India can become a land of global tech giants by creating an atmosphere that is essentially one that values both visionary thinking and financial strength, thus setting an example for the world.