Conversation with a Reader: Technology Entrepreneurship in India

Dear Sramana:

I have a different take on some of your notes. (Ref. Too Much Money, Too Few Deals)

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.
Sujai Wednesday, September 27, 2006 at 5:42 AM PT

Dear Sujai,

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, especially in 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, who actually have had success investing in technology.

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, Services or Dotcom guys. They will not know how to do technology investments, and hence, India will not build up any technology entrepreneurship core competency.
Sramana Mitra Wednesday, September 27, 2006 at 10:38 AM PT

ps. I want to add a follow-on comment. For the longest time, entrepreneurs have used the technique of doing service projects to generate enough cash to build a technology product. This achieves one more thing, beyond cash: market experience. Technology entrepreneurs in India should look seriously into using this methodology of building a business, go after US customers, and in parallel build relationships with US VCs who understand technology investments, if that’s your goal. The likelihood of the investors coming to India is small. You will first have to come to the investors, convince them that you are worth setting up shop in India for. Until there is evidence of successful technology entrepreneurship out of India, you will otherwise continue to get only the services, BPO & Dotcom deals funded.