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Wednesday, February 28, 2007

The Omnipowerful VC Community!

Owen Thomas has an interesting post on the VC money that’s chasing Web 2.0 ideas. He thinks that it's a well-established truth of today's Silicon Valley that startups don't really need venture capital. Recalling his conversation with an entrepreneur, he says VC money is taken for connections and introductions. Taking money from a VC also gets you a virtual guarantee that they won't fund a competitor. Like any good Mafia don, a VC takes care of his family. VC money, most often than not, he contends is not about providing capital for growth and creating great companies. Today's venture capital is just an elaborate protection racket, making sure no one breaks your startup's virtual kneecaps.

The situation in India is very different. It’s a case of too much money chasing too good deals but depth of managerial talent available to involve in startups look to be limited. Its therefore critical argues,Sramana Mitra that 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.

Well – I think both the views are extreme – while VC’s can genuinely help entrepreneurs by providing backup and freeing him to focus more on making the vision happen through operations, it can’t be definitely viewed as a safety net providing mechanism. The issue on keeping active VC’s are the fact that most of the western VC firm executives tend to think of them as demigods and the know-all of everything in the tech ecosystem. Several of them take a prescriptive approach (though some have institution building mindsets) that entrepreneurs complain about. I think we need coaches and advisers who can gently advise on nudging the entrepreneurs to keep taking reasonable risks – that’s the way frontiers can be pushed. An informal sounding board is OK but not a definitive framework that funded firms need to factor in their operational plan.These bodies can perhaps help in creating a good support ecosystem – networking opportunities, databases and industry level marketing and nothing beyond. Anybody promising better value add need to demonstrate that and good things and potential assistance can seldom go unnoticed and unutilized. These would anyway get tapped in various forms by any growing business.

The indian ethos is particularly risk averse and there is a challenge in attracting good management talent but this will change with time and already it is indeed changing. More venture success would help change that.Some cultural changes in running the organizations are indeed needed. India needs a mindset where people begin to beleive that failure to realize business success in a startup is not such a big stigma - I think if significant parts of indian society gets this, there will be a seachange in the situation. The truth is that the marquee indian tech firms are driven by self made entrepreneurs and professional managers – VC’s missed the bus to participate in the growth of the indian service industry(In fact any number of reasons were thrown by western executives and indians who have made it big in the west as to why these would not make the cut). It's time for them to demonstrate their unique abilities to help entrepreneurs to utilize beyond funding in other areas like product development and emerging technologies. It can’t be a given right and there may be many ways to attain success. As a matter of fact, I find that several VC firms have limited understanding of indian operations, on some issues even bordering on ignorance. I know of desperate big western names – both individual and institutions wanting to be part of the well evolved indian headquartered service providers. Its true that the next Google or the mobile app killer may not come out of indian ecosystem for now but the beauty is the potential ability of the ecosystem to keep growing and pushing the frontiers. Significant talent that have had experience in building such firms/ideas are beginning to enter the indian tech ecosytem – that way the fusion of such practices are an ongoing phenomenon.I think the onus is on the VC firms to win the confidence of entrepreneurs to play additional roles besides funding and general advice. The indian tech success mix is quite unique. We may very well see the evolution of new success formula therein. This may sound optimistic but truly we are at the onset of a new inflection point. New ways of doing business and finding success are going to get unlocked herein. The entrepreneur has to be at all the times driving the wheels. The journey may be long but it WILL BE A SUCCESSFUL ONE.

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