Intellectual Property Valuation in Indian Unicorn Start-Ups: Legal and Governance Challenges

In January 2016, Prime Minister Narendra Modi launched Startup India with a clarion call to transform the country into a nation of job creators rather than job seekers. A decade on, the numbers are striking. India has grown from 4 unicorns in 2014 to over 130 today, with a combined valuation exceeding USD 350 billion, cementing its place as the world's third-largest unicorn ecosystem behind only the United States and China. Companies like Zerodha, Razorpay, CRED, Meesho, PhonePe, and Ather Energy have reshaped entire industries and attracted global capital at scale.

Yet beneath these headline valuations lies a structural tension that few founders or investors discuss openly: the intellectual property underpinning these companies, the algorithms, datasets, brand equity, software architectures, and proprietary processes, is often poorly documented, inadequately protected, and legally vulnerable in ways that only become apparent when it matters most. Understanding IP valuation in the Indian context requires grappling with a legal framework that is evolving, a regulatory environment in active flux, and governance norms that are still maturing.

India’s IP Legal Architecture: A Patchwork in Progress

The foundation of India’s intellectual property regime for startups rests on several key statutes: the Patents Act, 1970, the Copyright Act, 1957, the Trade Marks Act, 1999, the Designs Act, 2000, and the Information Technology Act, 2000. This framework, though amended over decades to align with TRIPS obligations under the WTO, was largely conceived for a manufacturing economy. Applying it to a software-driven unicorn ecosystem creates persistent gaps.

The most significant gap is the absence of a dedicated trade secrets law. India has no statute equivalent to the United States’ Defend Trade Secrets Act or the European Union’s Trade Secrets Directive. Businesses seeking to protect confidential information, proprietary algorithms, customer datasets, pricing models, lending decisioning systems, must rely on a patchwork of the Indian Contract Act, 1872, common law principles of breach of confidence, and non-disclosure agreements enforced through civil litigation. The judiciary has recognised trade secret protection through injunctions in various cases, but the legal standard is inconsistent and enforcement slow. A draft Trade Secrets Bill has been discussed for years; as of 2026, it has not yet been enacted, leaving Indian unicorns operating in a gap that their global competitors do not face.

A second structural challenge is the patentability of software. Section 3(k) of the Patents Act explicitly excludes ‘a mathematical or business method or a computer programme per se or algorithms’ from patent protection. For a fintech unicorn whose core value lies in a proprietary credit scoring algorithm, or an AI company whose moat is a machine learning model, this exclusion is a fundamental constraint. Patent protection is available only if the software demonstrates a distinct technical effect or hardware improvement, a test applied inconsistently by the Indian Patent Office and contested frequently before the courts.

Government Initiatives: Promising but Insufficient

The government has recognised the problem and responded with meaningful, if partial, solutions. The Startup India initiative, managed by the Department for Promotion of Industry and Internal Trade (DPIIT), includes a dedicated Startup Intellectual Property Protection (SIPP) scheme, currently valid through FY 2025-26 and recently extended for a further three years. Under SIPP, DPIIT-recognised startups receive an 80% discount on patent filing fees, access to government-empanelled IP facilitators at no cost, and expedited examination of patent applications, a significant advantage given that standard examination timelines in India can stretch to three to five years.

The results have been measurable: patent filings by Indian startups increased by approximately 131% between 2019 and 2023, according to the Intellectual Property India annual report. DPIIT has also partnered with CIPAM (the Cell for IPR Promotion and Management) to run awareness programmes for startups, MSMEs, and academic institutions. Expedited examination tracks have reduced grant timelines for eligible applicants, and India’s patent office has modernised its online filing infrastructure considerably.

These are genuine improvements. Yet they address process efficiency more than substantive protection. A startup that files a patent application faster and more cheaply still faces the Section 3(k) exclusion, the absence of trade secret law, and the challenge of enforcing rights through an overstretched judiciary. The SIPP scheme does not extend to trade secrets, and the facilitator network, while useful, is variable in quality and depth of expertise.

The ‘Flip’ Problem: Offshore Holding and Repatriation

Among the most consequential, and distinctly Indian, governance challenges in unicorn IP valuation is what practitioners call the ‘flip’ structure. For much of the 2010s, Indian startups incorporated their parent holding companies in Singapore, the Cayman Islands, or Delaware to access foreign venture capital more easily, circumvent restrictions on differential voting rights under Indian company law, and optimize for overseas listings. Flipkart’s Singapore holding structure is the most famous example, explicitly designed to navigate India’s restrictions on foreign investment and fundraising.

The consequence for IP valuation is significant. When the intellectual property of an Indian unicorn is held in a Singapore or Cayman entity, valued and licensed back to the Indian operating subsidiary, the company creates a complex web of intercompany IP licences, transfer pricing obligations, and cross-border ownership questions. The arm’s-length principle - requiring that intercompany transactions reflect market prices - must be satisfied under India’s transfer pricing rules in the Income Tax Act, 1961, enforced by the income tax department with increasing rigour.

More recently, the trend has reversed. With India’s capital markets offering valuations two to three times higher than international markets, regulatory incentives for ‘reverse flips’, bringing the holding structure back to India, have grown stronger. Flipkart’s own ongoing repatriation process is the highest-profile example. But repatriation raises its own IP valuation challenges: the IP must be formally valued, transferred, and taxed as part of the restructuring, at a moment when any misstep in valuation methodology becomes a direct tax liability.

Valuation Methodologies in the Indian Context

The three standard IP valuation approaches - cost, market, and income – each encounter India-specific complications. The cost approach is blunted by the widespread practice among Indian startups of building on open-source frameworks, contracting development offshore, and relying on engineering talent compensated partly in ESOPs rather than fully loaded salaries. Reconstructing the true cost of a proprietary fintech platform built over five years using a hybrid of in-house engineers, IT services contractors, and offshore teams is an exercise fraught with accounting ambiguity.

The market approach struggles because comparable transactions in India, while growing in number, the 370 acquisitions recorded in 2024 represented a dramatic increase from 123 in 2023, are rarely disclosed with sufficient granularity to extract IP-specific pricing. The Zomato acquisition of Paytm’s ticketing business, Swiggy’s acquisition of Scootsy, or Razorpay’s acquisitions of Opfin and Ezetap all involved IP as a central asset, but the deal terms do not publicly allocate value between IP, brand, customer relationships, and human capital in the way a valuation exercise requires.

The income approach, most commonly the relief-from-royalty or discounted cash flow method, is theoretically the most robust but faces acute challenges in India’s fast-moving, often pre-profit unicorn landscape. Projecting the future cash flows attributable to a fintech algorithm operating in a market where the Reserve Bank of India can materially alter the regulatory framework with limited notice, as it has done multiple times with digital lending guidelines, payment aggregator regulations, and BNPL restrictions, requires discount rates and risk adjustments that are genuinely difficult to calibrate.

SEBI, LODR, and the IPO Governance Reckoning

For Indian unicorns approaching a domestic listing, and 2024-25 saw a significant wave, with 18 startups tapping public markets in 2025 alone, the governance standards for IP shift dramatically. SEBI’s Listing Obligations and Disclosure Requirements (LODR) regulations require listed companies to disclose material developments that could affect investor decisions. IP-related events, patent grants, infringement claims, loss of key trade secrets, material licensing disputes, can qualify as price-sensitive information requiring immediate disclosure.

Pre-IPO, investment bankers and legal counsel conduct what has become an increasingly rigorous IP due diligence process. The red herring prospectus filed with SEBI must disclose IP risks, ongoing litigation, and key dependencies. For companies like Nykaa, Paytm, Zomato, and Mamaearth, whose brand equity is itself a core IP asset, the valuation of that brand for DRHP purposes becomes a publicly scrutinised exercise. Rating agencies and research analysts examine IP disclosures with growing sophistication, and any gap between IP representations in the prospectus and subsequently revealed facts creates significant securities law exposure.

India’s National Company Law Tribunal (NCLT) has also become a forum for IP-related insolvency disputes as several high-profile unicorns and soonicorns entered financial distress during the post-2021 funding correction. Valuing IP assets in resolution proceedings — where the IP must be assessed both as a standalone asset and in the context of the going concern — has tested the capacity of Indian resolution professionals and courts, who are relatively inexperienced in technology IP valuation compared to their counterparts in the United States or United Kingdom.

Governance Best Practices for India’s IP-Rich Unicorns

The regulatory and legal environment is evolving, but governance cannot wait for legislation to catch up. Indian unicorns that build robust IP governance frameworks before they are forced to, by an M&A process, an IPO, or a litigation, will find themselves materially better positioned. Best practice in the Indian context involves a specific set of measures calibrated to the local legal and commercial environment.

Conclusion

India’s unicorn story is, at its core, a story about intellectual property, about the algorithms that power digital lending, the brand equity that commands premium pricing, the datasets that train the next generation of AI models, and the software architectures that serve hundreds of millions of users. The legal framework protecting these assets has improved significantly over the past decade, driven by Startup India, DPIIT’s SIPP scheme, and a modernising patent office. But structural gaps, the Section 3(k) exclusion, the absence of trade secrets legislation, the complexities of flip structures and transfer pricing, and the informality of early-stage IP ownership, mean that the gap between a unicorn’s stated valuation and the legal defensibility of the IP underpinning it can be wide.

As India’s startup ecosystem matures into one of IPOs, institutional governance, and global M&A, closing that gap will require not just better laws, but a generation of founders and boards who treat IP governance as a strategic priority from day one, not a compliance afterthought when the auditors come knocking.

Author: Sri Sunandha G S, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

References:

1. Team AMLEGALS, Role of IP Valuation and Protection vis-à-vis Indian Start-ups, AMLEGALS (Nov. 14, 2022) https://amlegals.com/role-of-ip-valuation-and-protection-vis-a-vis-indian-start-ups/

2. Karthekeyan K. R., Startups in India: Structure and Legal Challenges, 10 TIJER (Trends in Innovation Journal of Emerging Research) Issue 4, 1053 (Apr. 2023), https://tijer.org/tijer/papers/TIJER2304152.pdf

3. Sujal P. Koligudd, Somashekhar Subhas Biradar, Y. S. Harshal, Pavan S. Aradhya & Deepashree Devraj, Why Indian Startups Fail to Leverage Intellectual Property Rights: A Gap Analysis, 12 IJIRT (Int'l J. of Innovative Research in Technology) Issue 8 (Jan. 2026), https://ijirt.org

4. Vaibhav Srivastava & Tamanna Pandey, The Role of Intellectual Property Right in the Success and Growth of Startups, MANUPATRA (Sept. 13, 2024), https://articles.manupatra.com/article-details/The-Role-of-Intellectual-Property-Right-in-the-Success-and-Growth-of-Startups