Is India as the hot bed for new business a lot of hype?
Sumant Mandal - October 03, 2005
I just returned from an interesting business trip to India where I participated in a conference for 50 venture capitalists interested in investing in start up companies in India.
Having grown up and worked in India before coming to the US, I was a rarity in the group. Most of the people there had either very little or no exposure to the country, but were being shown the potential (a bit self-servingly by a bank) of technology coming out of that part of the world.
A couple of phenomenon that I found interesting:
1. The larger VC funds are investing larger amounts of money with strategic partners from India (ie. Times of India, Rediff, etc.) Not much is happening, from traditional VCs, with small groups of entrepreneurs and smaller amounts of money.
2. Investors have a herd mentality -- most good ideas come to us at the same time. For every one interesting business concept that we saw in Bangalore, there were 3 or 4 investors wooing the entrepreneur. Too much money chasing too few ideas.
3. If one investor found something interesting, the others had to get involved.
4. Really good product ideas, but very few that could evolve into large companies, which makes me think that the Indian market is still relatively immature, at least on the scale we think of here in the US.
5. As always, a local presence is critical. I know India well, but without actually being there working day in and day out in the market, it is impossible for me to do justice to the entrepreneurs and deal flow.
A nagging worry -- if too many people lose money early on in India, then those who bought into the current hype will probably leave, looking for greener pastures.
What happens to this fragile ecosystem of entrepreneurs that we have begun nurturing in India? What happens if the hype does not fulfill itself in the next 3 years?
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Posted by Sumant Mandal at October 3, 2005 10:53 AM
Comments
You are right about VCs. Recently I started a startup company in India. I didn't look for VC funding though. But I did do some research and I have the same opinion about VCs as yours.
himanshu
currenttheory
helping environment needs money to pay ppl
govt gets money from taxes
taxes come from ppl with jobs & companies having profits
jobs and companies with profit comes from healthy economy producing goods ppl want to buy
hence india trying to produce something worthy of selling
whats ur theory?
realist
How about funding a film Sumant?
This is typical mentality when the press go ga-ga over some industry or country. Right now India is slowing reaching the 'tipping point' in terms of coverage here in the UK and America regarding it being a business opportunity, so naturally the VCs are descending there en-masse.
I saw the same happen during the late 90s dotcom boom in London, and for us, who were right in the middle of it, it was still a matter of when and not if the bubble was going to burst.
India has its middle-class consumers going for it so there is the hope that even if they invest in some duds, they will see the potential even if they realise their own business plan was a dud.
The other thing is, VCs always return even if they get burnt. They've been burnt in Russia plenty of times but keep coming back. Thailand burnt many during the currency crises, but is jumped back now. Malaysia froze its currency movements and people said they would never come back... but soon did.
So while the fundamentals are there, I'd say India has little to worry about in the long term.
Sumant
I read about you in India Today a few weeks ago. Just made the connection. Pretty cool.
Dont know much about VC strategy, but the hype in India seems to have been going on for the last 10 years. At least in the last 5 years, a general shift in terms of business seems to be happening.
But, if we dont address issues such as poverty and AIDS, I believe India will be inhibited from making too much progress long term.
Sumant:
I think fundamental business decisions in the USA are based on very short term plans (I would not say that they are "short-sighted"). I have found this to be a difference between the USA and most of the rest of the world including India and Europe (take wind farms in Northern Europe with a payback of ten years). I am neither a VC nor an entrepreneur seeking VC money, so I am not sure of the rules a VC plays with but I cant imagine one can apply common USA based "rules" across such disparate business thinking.
The "ad" venture has gone out of VCs at least in India. The herd mentality saw them burn their hands alongwith those in other parts of the world a few years ago and now VC's seem no different than banks lending money for businesses.
By definition VCs must be original, willing to write new definitions, back ideas that appeal to them even if others are turning it down and by consequence have a substantial appetite for risk.
It may be that those who are good at coddling money together are not as good when it comes to deploying it. With India and its stockmarkets on a gallop, returns are good even in conventional investments.
every crest has a trough! avery single thing that rises must eventually fall... this balloon too will burst one fine day!
today its india, tomorrow it'll be china, russia, mexico and other countries...
Sumant,
India still has a long way to go.still lot of issues, just wait for the Oil to cross 73$ a barrel how the hype comes down and impacts the growth ,
Energy , environment , infrasturcture issues , these areas the VCs shld. concentrate..
India reminds me a poem from Robert frost" The woods are lovely, dark and deep.
But I have promises to keep,
And miles to go before I sleep,
And miles to go before I sleep."
Pinaki
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I wish you were correct.
Is India better now than it was 60 years ago with less industries? Will it be better if we welcome MNCs and allow more industrialization? Will it give basic food to the people of an agro-based economy?
India doesn't have enough laws to discipline conrporations in labour-rights, environmental-pollution, employee-benefits, etc.
The best help to poor people is by helping environment so that they can grow enough crops to feed themselves. TV, computer, cell-phone come next.