Pre-Investment Business Plan: How GCCs are shaping the Indian startup ecosystem

Over the last decade, India has emerged as one of the world’s most vibrant startup markets and also the preferred destination for Global Capability Centres (‘GCCs’), with multinational enterprises increasingly locating technology, product engineering, analytics, R&D, cybersecurity, and innovation functions in the country.

While much has been written about foreign direct investment (‘FDI’) into Indian startups, a less discussed but equally significant trend is the role of GCCs as an indirect investment channel into the innovation ecosystem.

For foreign businesses, investors, and international legal advisers, understanding this trend is important because GCCs are no longer merely captive support or cost centres. They have become strategic innovation hubs that identify, engage, validate, and scale emerging technologies developed by Indian startups before a formal investment relationship is established.

GCCs as catalysts rather than investors

Most GCCs do not make direct investments into startups. Instead, they create value through commercial engagement. A startup that secures a pilot project, technology validation exercise, vendor contract, or co-development arrangement with a multinational's GCC often obtains something more valuable than early-stage capital: credibility, revenue, and access to a global customer base.

In practice, GCCs frequently act as the multinational group's ‘eyes and ears’ in India for identifying promising technologies, testing solutions within enterprise environments, and providing internal recommendations to group business units. Many startups that ultimately receive strategic investment from global corporations have first engaged with the corporation through its Indian GCC.

This creates a pre-investment, commercially-driven access point – essentially incubating ideas, relationships and technology before a full-fledged investment or acquisition.

This also allows multinational enterprises to manage financial risk and regulatory issues by supporting startup growth without immediately acquiring equity or triggering investment-related regulatory considerations.

Key legal and regulatory considerations

Foreign businesses should not assume that a non-equity arrangement is legally risk-free. GCC-startup collaborations often raise a range of legal issues that require careful structuring. Some of these have been discussed below.

Intellectual Property Ownership

The most common source of disputes is ownership of intellectual property (‘IP’) developed during proof-of-concept projects, joint development initiatives, or customized technology deployments.

Foreign companies frequently expect ownership of all deliverables, while startups often seek to retain ownership of their core platforms and underlying technology.

To mitigate this, the distinction between background IP (pre-existing technology), foreground IP (newly developed technology), and derivative works and improvements must be carefully and expressly documented at the outset.

Data protection and cross-border transfers

In data-intensive sectors such as AI, fintech, healthcare, and SaaS, Where personal data is involved, parties must assess compliance obligations under India's Digital Personal Data Protection Act, 2023 (‘DPDP Act’), as well as applicable foreign regimes such as the General Data Protection Regulation or sector-specific requirements.

Data-sharing arrangements should clearly allocate responsibilities relating to consent, lawful processing, security controls, incident reporting, and cross-border data transfers. The liabilities under the new law are quite significant, and therefore clear allocation of roles of each party in relation to the data (with a fair corresponding liability/risk allocation) is paramount.

Procurement and vendor compliance

Cybersecurity audits, sanctions screening, anti-bribery compliance, insurance requirements, and information security certifications should be carried out as essential prerequisites before engagement.

Some practical advice

Dos

1.       Structure pilot programmes carefully: Clearly define scope, ownership of outcomes, confidentiality protections, and commercialization rights before the project begins.

2.       Conduct early IP diligence: Foreign companies should confirm that founders, employees, and contractors have properly assigned rights to the startup.

3.       Regulatory Compliance as a Pre-requisite: Data protection, cybersecurity, and sector-specific regulations should be considered from the outset rather than after deployment.

Don'ts

1.       Don't assume a templatised procurement agreement will address IP issues: Standard templates cannot address all concerns that arise in innovation-focused collaborations. This requires a careful evaluation of the specific project to identify points of legal and regulatory risk. This exercise is not a standard or market driven. This is a legal risk assessment which should be given careful time and consideration before moving forward.

2.       Don't overlook risk during ‘proof-of-concept’ exercises: The legal risks associated with data use, confidentiality, and technology ownership are all present and applicable the data is transferred for testing and innovation. The fact that a project is a merely a pilot and may or may not be viable in a few months does not change the fact that technology and IP have changed hands and hence the consequent risk has already been taken. Risk mitigation begins at commencement and not commercialisation.

3.       Don't wait until an investment transaction to assess regulatory risk: Issues identified during a due diligence often originate from poorly documented commercial relationships established years earlier. These issues naturally become difficult to address at the time of investment because of time constraints. Hence, they end up either delaying the deal, affecting the transaction value, or being carried forward – none of which are ideal scenarios. This situation can be entirely avoided by operating with discipline at the time of commencement.

Looking forward

For international businesses and their advisers, the key takeaway is that the most consequential investment in India may begin before a decision is taken on equity investment. It may begin with a pilot project, a technology partnership, or a procurement engagement managed through a GCC.

From a legal perspective, the most successful GCC-startup collaborations are those that treat commercial engagement and regulatory compliance as complementary objectives. Done correctly, this can create significant value for both multinational corporations and Indian innovators.

[The author is a Partner in Corporate and M&A practice at Lakshmikumaran & Sridharan Attorneys, New Delhi]