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August 25, 2011

"The good and the bad of IT firms listing in the US"

Extracts from article by Sudheer Kuppam of Intel Capital in The Mint

Investor frenzy around the anticipated future listing of other Internet category leaders, such as Groupon (deal-of-the-day site) and Facebook (social media), is at a level not seen since 2000. While some debate that this is a sign of a tech bubble, the fact remains that many of these business models have generated unprecedented revenue growth.

It seems US investors understand the dynamics of investing for growth versus profitability, to claim and retain a leadership position in any given category. The primary reason for considering a US listing for Indian Internet and social media companies is that US investors understand the risk-return profile of these deals and can price them better than Indian investors.

The US listings of Chinese Internet companies Dangdang (an online retailer), Renren (a social networking site) and Youku (a video site) have vastly exceeded expectations, and this data can now be used as a proxy benchmark for Indian companies.

The biggest obstacles to a listing in the US are the legal and tax implications of changes to the shareholding structure of a company. Particular care has to be taken with respect to tax implications for company founders and Indian investors as the combination of restructuring and a share sale can trigger taxable events

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at