India Needs More Incubator Funds

Yesterday, I spent an hour chatting with Subrata Mitra, one of the Partners at Indian seed fund Erasmic, which has been in the news recently for attracting Google as a Limited Partner.

I have been writing often about the Indian seed investment situation: Concept Arbitrage, Venture Capital in India, Too Much Money, Too Few Deals
.

The situation has got even more acute, with more, more, and more money chasing India, and simply not enough deals to absorb the interest. A VC mentality “India is booming, let’s send $200 Million to India” prevails at the moment in Silicon Valley. The grass, washed by the monsoon rains, seems infinitely greener in India, than the dry California hills along Highway 280.

The truth is, India is still very busy being the back-office of multinationals. It is downright impossible to hire senior management for startups, luring them away from $100,000+ packages. As a result, just as I had predicted, Erasmic is running an incubator in its Bangalore office. Their four partners are essentially “running” their portfolio companies.

Just the opposite of what Cal said in his article about Canada, that the serial entrepreneur in Canada is old and grey, the Indian entrepreneur is young and green. And hence, they need adult supervision.

Nothing wrong with the model so far, right? Larry and Sergei, their VCs thought, needed adult supervision too. All through the nineties, young and green entrepreneurs ruled. In web 2.0, they are ruling again. VCs have become used to it by now.

With one exception. In the valley, adult supervision CAN be hired. Eric Schmidt was hired to plug the perceived naivete in the Google founders. In India, however, adult supervision has become very difficult, near impossible to hire.

This leaves a gap. I asked Subrata how this gap is to be filled? Seems like a chokepoint … His answer was, “We need more hands-on, small seed funds like ours.”

Actually, let’s go a step further. India needs Incubator Funds. 3-4-5 Partners with solid entrepreneurial experience, rolling up their sleeves, with strong ties to the valley, experience of the cultural nuances of the country, with strong understanding of product and strategic marketing, up-to-speed, current.

In some cases, these Partners would need to come up with ideas for new ventures, and recruit teams around them. Vinod Khosla used to do this at one time. This is not the job of analysts, bankers or professional fund managers.

LISTEN ALL YE VC GLITTERRATI WHO ARE ANNOUNCING BIG INDIA STRATEGIES : TAKE $25 MILLION FROM YOUR INDIA FUND, AND CREATE AN INCUBATOR WITH A GROUP OF EXPERIENCED ENTREPRENEURS, WHO CAN ACTUALLY MAKE A PIPELINE HAPPEN.

Or else, you will continue running around in circles, going from retail to hotels to real estate, never actually building the technology industry that your original charter has been. You will drive up the valuations of those few deals that will bubble up to being fundable, and thus corrupt the market.

This isn’t working. The entrepreneurs need help.

Further Reading: Entrepreneur Sujai Karampuri’s article on why India needs technology product companies.