Seed Funds in India

Friday, June 23, 2006 | 13 comments

In my previous piece, I posed the question whether a next Bill Gates might emerge out of Bangalore, which developed into a discussion on seed investment in India, and its lack thereof.

This then led me to ask around, and collect some information on efforts to put together seed funds, as well as support very early stage entrepreneurs in India.

Subrata Mitra of Erasmic had first approached me with this concept, about a year back. I asked him for an overview of the early-stage investment scenario in India yesterday.

“… there really are the following organizations which are trying to do things at our level:
1. Band of angels (from Delhi)
2. Mentor Partners (from Bangalore)
3. Seed fund (Mumbai)
4. There’s one other fellow who is supposed to setup in Hyderabad; not sure where they are.

Funds such as Ashish Gupta (HelionVC) & others are much bigger ($100+M, and are in the real VC side of things). However, the following US funds have made early stage investments in India: DFJ, Sierra, Sequoia (WBCP) and Battery. Not sure about any others.”

Also from K. Ganesh, CEO of TutorVista, who just raised Series A from Sequoia (Westbridge): “See TiE Bangalore EAP program that is trying to help entrepreneurs”. (Btw, Ganesh and his team have boot-strapped their seed stage, and raised the Sequoia money only after they built up a bit of traction, albeit very little for a consumer play, nothing statistically significant.)

In summary, there IS a very early stage investment community coming together in India. I have a great deal of respect for these guys for venturing, since it is an extremely high risk segment to play in. The market needs are high on the mentoring side, relatively low on the capital aspect. Most of these funds understand that, and are hands on.

Erasmic considers companies for funding with the following characteristics, in an India-US mode:

* Indian companies that have little or no access to markets outside of India but have some customer validation and (usually) a small revenue stream in place

* US founders that have ideas that require a strong Development / BPO like back-end presence

* US founders with product ideas that can receive significant VC traction once an initial team, prototype & early validation is in place through involvement of this fund

The first category does not qualify as seed investment per se, but the two latter categories do. It is also a much better strategy to pair up experienced entrepreneurs in the US, close to the market, with entrepreneurs / early team members in India, to mitigate risks.

In the case of entrepreneurs like K. Ganesh, they are India-based successful back-office entrepreneurs. Whether they will be able to scale their expertise to be able to market to US consumers - remains to be seen.

Anyway, I will continue to track this segment, and invite opinions and contributions from both investors and entrepreneurs who are active in the space. If you have interesting information, please email me, or add your comments right here.

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