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Wednesday, March 22, 2006

The Rising Levels Of Venture Capital Activities In India

NYTimes sees signs of shift toward high-value work to India are becoming more visible. Silicon Valley Bank executives find twice as many Indian start-ups looking for capital investment than even a few months ago. The article adds, Bangalore is becoming a hunting ground for venture capitalists looking for promising investment opportunities. As I wrote earlier, 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.
Matt Marshall quotes legal expert as saying, “"In the 1990s, money was coming from all over the world to be invested here," he said. "Now investors are using us to raise funds to spend abroad. It's the exporting of U.S capital to those countries." Over the past several weeks, he's wrapped up four venture firms focused on India, and two focused on China”. These type of hype are far from reality – while no doubt the activity levels are increasing with every passing day – even am hearing of 2/3 new pitched being made for investment, the ground situation as I see it remains what I recently wrote:
Would the next Google come out of India? ( we saw earlier Google Finance engineering work started in India).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. Sridhar Mitta’s observation may be somewhere closer to reality – the situation in hotspots in India maybe at best comparable to that of Austin or Boston area in terms of opportunities that get funded. Things are getting better and is certainly poised to improve further.

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