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Friday, August 25, 2006

The VC Money & Indian Entrepreneurial Growth

Sramana Mitra comes out with an amazing perspective about the VC and entrepreneurial maturity in the Indian ecosystem. With tech giants committing large investments in India and many VC firms upping their interest, she thinks that in today’s India, the commodity in short supply is good entrepreneurs. In VC parlance, fundable deals are few and far between. She points out that this goes back to India’s traditional role as the world’s back-office and the

“skill-set that has developed in India is that of engineering management and coding. The specifications are provided by teams elsewhere. Elsewhere, the market studies get done. Indian managers do not understand global technology markets. They have hardly had opportunity to learn this aspect of business. Entrepreneurs try to position products without knowledge of the product marketing discipline”

She thinks that with tech services being the forte of India – VC’s may think that the entry barriers are low and the strong players may get stronger and the investment appeal may go down. VC’s may like internet, mobile, travel, matrimonial type of sites and investors need are looking at other areas like retail, real estate etc.. and she concludes that due to a number of such reasons that the Valley would continue to be the hotbed of technology innovation, which Indian back-offices can then implement and scale. Charles has similar set of concerns and thinks that with all the VC money flowing into India, a new startup model for Indian companies may emerge.

My Take: Read my earlier note here wherein amongst other things I noted that more than 95%( again my estimates based on feel) of the web2.0 setups have primarily come from within the US. Kudos to the technology leadership that the US is showing here - Forget Asia or Europe - initiative, speed and zest for trying out in the tech sector still remain a US vestige - Good for America and by extension good for the world. As I see it, its time for action in places like India right now.
Some like CK.Prahalad expect China & India to dramatically change things in the years ahead. A recent delegation of venture capitalists visiting india while noticing infrastructural problems, also noted the ethos of circumventing such difficulties to carry on. While some investments are beginning to happen, the ground reality very much echoes what I covered earlier here. Vast majority of venture money tends to go into existing and later-stage businesses. There is little or no real VC money available in India for early startups. 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. In the US, venture money goes into early stage, pre-product or pre-revenue companies , while in India, a majority of the private equity is going into late stage businesses. 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. I agree with Sramana that the valley shall continue to be the springboard of innovation and technological advances for some more time to come and we may see some limited action in other parts of the world – we may see the activity in India to be the equivalent of say a Boston area or Texas area for springing up startups but valley shall remain the central node for technological advances. Lets hope breakthrough big deals and innovative enterprises spring out of this momentum. But, I am not in agreement with Sramana about few things: Entrepreneurism is not in short supply in India – I see an increase by multiple times in terms of aspiring entrepreneurs in India – While I agree that she is right in terms of lack of marketing mindset amongst Indian setups – it is changing fast – mostly what I see is that lack of capital had been a major reason. The scene is changing fast. The low cost PC solution is a case in point. I now see many India based entrepreneurs going around with brimming ideas – fact remains that VC’s are not so forthcoming in funding ideas as we see in the US market – understandable as they are in a new terrain. We are not hearing of VC’s closing deals in India all that fast as we see elsewhere. I also feel that even in traditional outsourcing there are lots of white spaces waiting to be invested by the VC’s. I do feel that the investment levels in pursuing mobile related opportunities are far too less in the country and I think it is still not a settled issue if Indian firms can be there – there are few more steps before ruling out the possibility. We are not seeing ambitions to build a next Cisco like firm in the mobile application space – fact is that we may not see a Socialtext, Google, SAP, Cisco to come out of India in the next 5 years timeframe but things are improving and are definitely slated to improve further in the coming years.

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