Venture Capital in India
Read a longer, more comprehensive article that I wrote on the subject here. It summarizes a number of posts and series pieces that I wrote through the summer, with a 30,000 ft overview.
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Dear Sramana,
Excellent overview.
Missing piece in Jig Saw is Social Entreprenuership that directs market forces to solve domestic problems and create huge markets and opportunities in the process.
Every stakeholder in the Indian market wants( needs?) it. Simply put, every stakeholder want to put more money in the pockets of the huge masses in the sub-middle class and middle class:
1) Masses want/need it( Hey it is their pocket!).
2) Big companies( TATA, Reliance, and friends) want/need it.
3) Governemnt and people who hold its strings want/need it(vote bank, better tax collection)
Now the time is ripe in terms of economicmomentum and in terms of technology momentum. Add risk capital to the equation: An unique window to dominate the scene for next 25 years is opening up for the early players. The early ( risk capital) players can set the ground rules, and rule the roost; Just like how they ruled the roost at Silicon Valley the past 25 years.
One point missing in the article is that culturally Indians prefer to work for large well established firms. I think this may be true of other Asian cultures like Japan or China. In India it is more glamorus to work for infosys/wipro/intel/microsoft than an unknown startup. Because of the huge number of applicants it is not easy to get into these large firms and so Indians think that they belong to select club once they are in these companies. So as you said the brightest engineers are working in these firms doing jobs that any average engineer could do. Most of the so called “R&D centers” are just doing maintance work or customization work.
Satyan,
Oh yes, that’s very true. In fact, most places outside of Silicon Valley have this dynamic.
I had a pet story from the mid nineties, when we were doing DAIS in Kolkata. Everytime we made an offer to a young engineer, we had to also convince the parents. The biggest concern was that the guy would no longer be marketable in the marriage market
Sramana
Dear Sramana:
I have a different take on some of your notes.
While I do agree that there are not many technology companies in India which makes VCs shy away from making such deals to rather invest in what-India-is-known-for, there are some companies out there which are fighting to stay alive in technology domains looking for VC money that is not available.
According to my experiences, most VCs who visit India are not serious about technology companies. They are only scouting- it’s more like a reconnoitering trip. They come, they see, and then they leave. Unfortunately, they have not made up their mind, not because they don’t see much action, but because they make direct comparison between the startups in India and startups in US only to get disappointed. Such direct comparison based on Silicon Valley based parameters done in those short trips will indeed result in such disappointments. I can go on to say that as long as the same parameters are used to judge Indian companies, no technology startup which has organically grown in India will ever get invested. Unfortunately, Bangalore (India) is not Silicon Valley. Even if one were to beat it to death it will never turn into one. The parameters that work in India are different. A completely different mindset that has grown organically in India is needed if one wants to see technology companies out of India- they have to rely on local knowledge on how Indian entrepreneurs and Indian markets operate.
Most partners of Indian offices of Silicon Valley VC firms do not share the attitudes of their partners in US. Most of these partners in Indian offices have come from non-technology domain. They invest in companies they know best. If the most experienced bankers, ex-entrepreneurs, industry veterans who comprise VC firms in India are coming from services and dotcom companies, they continue to invest in the same. Their risk-averseness for technology companies turns out to be very high. They do not take chances in unfamiliar domains and continue to perpetuate our status as services/BPO/dotcom industry. In addition, most Silicon Valley VCs operate with more lax attitude compared to their Indian counterparts. Indian offices seem to have narrow criterion in their choices, more restrictions, and strong expectations in returns.
If Silicon Valley VCs are serious about investing in technology companies in India, they should hire ex-entrepreneurs, bankers and veterans from this field. If none are available in India, they should ask someone to move from US to India to LIVE here. No visiting VC who makes three tours per year can make an investment in a technology startup- logistics won’t work out. In addition, they should allow these offices to run independently allowing them to make mistakes the way they do in US.
Indian technology companies can be spawned only by Indian VC firms- those firms which have organically developed here in India. If Silicon Valley VCs wish to develop such VC firms in India, they need to sow the seeds, not bring the whole tree from US to plant it here.
I don’t disagree with you, but I too have a different perspective on what entrepreneurs in India should do. You guys will need to seek out the money in Silicon Valley, the investors who DO KNOW how to invest in technology, if that’s your area. I don’t necessarily agree with you that only Indian investors can invest in India. There aren’t that many Indians who have been in the Venture business, and very few who have been successful in venture, especially technology venture. Vinod Khosla, Promod Haque, Yogen Dalal, to name a few. Ram Shriram has been very successful, but is more a dotcom guy. Then there were Angels like Raj Singh & Raj Parekh, Asha Jadeja & Rajeev Motwani, Prabhu Goel, a few others.
So if you do, indeed, have a decent technology idea, you are MUCH better off working with VCs in the US. You are absolutely right, most of the VCs who are operating on the field in India, are either Bankers or Dotcom guys. They will not know how to do technology investments, and hence, India will not build up any technology entrepreneurship core competency.
Dear Sramana:
Thanks for the response and the advice. I will try to hook up with some of the individuals you listed in your message.
Not that I want to drag this tête-à -tête into a point-vs-counterpoint exercise, but unfortunately we have gone through the path you have suggested.
After spending around three months in Silicon Valley/East Coast of US trying to raise money, and meeting nearly every Silicon VC who has visited India in the last two years, I realize the following:
3. The pervading perception is - Indian and Indian entrepreneurs are not suitable for such technology companies (there is indeed lot of truth in this), but how would one spawn such companies without taking initial risks to set precedents? The insistence on working with the same models that has worked for them (Indo-US collaborative startups) restricts these VCs to a narrow choice- and many companies may not fit the bill. “How will we manage such an early stage startup in India so far away from the partners actually conversant with such technologies and markets”- is a question that constantly bothers these VCs.
1. Its very tough for them to invest in a company in India that has grown ‘organically’ here. They would like to see the founders/senior management based in US, while engineering remains in India (more like extending the present outsourcing model to one extreme). Getting that kind of model going inherently assumes certain prerequisites narrowing the choice of companies to very few.
2. Even the likes of Promod Haque who insisted on investing only in technology product companies (in 2005) went onto invest in a dotcom company (in 2006). One could always argue that he did so since there are no technology startups worth investing
4. The only choice left for organically grown Indian technology companies seems to reach first credible milestone or revenue stage on their own- and that requires quite a huge investment from first generation entrepreneurs of India. Not that it cannot be done. We are doing the same on our own- but I did see many other technology startups that faded away because they could not.
I agree that this struggle is a natural process one has to go through, but I do feel that there is a need for most VCs to consciously look at their agenda and strategy to understand technology entrepreneurship in India - how they work and operate - I had my own learning [living in US for a decade and then the last three years in India] which tells me that if you start looking at India from the prism of Silicon Valley criteria, you will not find many contenders.
The question remains- why should VCs take the onus of spawning technology companies in India? Because it is in their interest to cash in on higher returns on a little longer timelines when success stories start appearing.