India - Enterprise, Business & Venture Capital

Forbes Asia's second annual list of the 40 richest Indians is very interesting. With a net worth of at least $590 million, up from $305 million last year, to make the cut – it is indeed an impressive list. Twenty-seven members are billionaires from India, more than double last year's count. The group's collective net worth soared to $106 billion, up from $61 billion; by contrast, China's 40 richest (min networth -$321 million) with ten billionaires are worth a collective $26 billion. Predictably,significant number of billionaires have come from the technology sector. While this abodes very well - can it be taken that all things improving in the country - atleast in the technology sector? Lets see-
Pramod Haque in a recent TiE (The Indus Entrepreneurs) meet in Bangalore said that,"There needs to be a culture of not looking for a quick fix of salary but the opportunity for greater wealth. Otherwise -India will get left behind by other countries." He hopes to persuade them to embrace the Valley's key currency: stock options. It is a hard sell-options have been legal here only few years, and most large companies don't offer them. He rightly highlights that india is a great place for development and innovation, but any company that is serious must set up its headquarters in the U.S., where the early adopters of technology-a startup's first customers-are based. He highlights that while India spends $13 billion on information technology each year, the U.S. spends $490 billion.
Mallika chopra refers to her husband sumant mandal of clearstone ventures talking about the status of VC investments in India – In a very insightful interview (Mallika can be genuinely proud of him and can hopefully show off lot many more times like this in future), sumant points out that a vast majority of that money will go into existing and later-stage businesses. There is little or no real VC money available in India. Companies that are receiving money in India are either spin outs from existing large businesses, captive units or second tier outsourcing providers that may lack the size or scale to compete with IT service giants and want the private equity money to grow through rollup and acquisitions. He adds that in the early-stage investing business, there are a few small funds that are local to India but have not done too many deals and highlights venture money goes into early stage, pre-product or pre-revenue companies in the US , while a majority of the private equity is going into late stage businesses in India. As I see it, Sumant is quite correct about the dearth of angel & early stage money availability in India – hopefully this would change along with the massive realignment towards growth being experienced inside India today. Investments mostly happen at late stage only - recently Infinity capital bought out stake in Sify – its another matter that it was quoting at above 5$ - just a few weeks back - today the stock is quoting at above 10$ - most of the conditions have remained the same in the last few weeks. The point here is that investments if any happens at this stage mostly. A friend upon seeing this post asked me when to expect the likes of next google to come out of India. I had no answer to provide. Truth is that in general most indian enterprises are hardly innovation chasing entities, and the framework for VC entry & exits are poorly defined. Coupled with limited VC activity in the past and archaic regulations – these make it a tougher breeding ground for enterprises like that of what is seen in the valley. VC’s and Angel’s may find it difficult to spot the next Flickr coming out of India. Angel investments and VC are so close to each other – the absence of one hurts the other very badly. The big company boards in India are mostly filled with family members and friends. The investor activism is very limited – the culture in general cascades across the ecosystem – the concept of family acting as passive investors leaving the running of the enterprise to professionals are quite limited in numbers and where in vogue it is mostly within well defined spheres of activities - in such cases direct compensations are better and not necessarily linked to sweat equities. Correspondingly the spark needed to work on innovative ideas aided by sweat equities for key employees second to many levels down mostly does not exist.The ecosystem inside India is also tough where job market dynamics at senior levels are less active compared to what we see in the western markets. The talent levels inside India continue to be very high – all it requires is a vibrant ecosystem - but not many recognise the issue here - talking india's growth for granted may be the biggest mistake - the country can't afford it.