Suddenly, everybody is in love with Indian entrepreneurs. On Sunday, British Prime Minister Gordon Brown announced that Britain would set up a network for providing venture capital to Indian entrepreneurs. Details on how this will play out exactly are not known yet, but Brown said the initiative would aim to support Indo-British start-ups. Britain’s interest in this market follows West Asia, from where a number of investors, private and state-sponsored, have started backing seed and early-stage funds here (Read our 21 January story ‘West Asia opens up new source of capital for early-stage firms’ at www.livemint.com/seedfund.htm It all adds up to one important shift in the Indian venture capital market—the US Silicon Valley, though still a dominant player, is no longer the only source of capital for Indian start-ups.
It will take a while for non-US investors to make their presence felt amid the ongoing rush of Silicon Valley funds into India, but it is a good start to creating a diversified funds pool. The diversity will benefit the Indian start-up eco-system in a couple of ways. First, it will, over time, reduce the singular dependence on the US market for such capital. Typically, when venture capital funds in the US experience a bad year of fund-raising because of a poor exit year or other macro economic factors, India’s pool of early-stage capital shrinks dramatically.
Second, it will encourage entrepreneurship of the non-technology kind to flourish. Silicon Valley funds and most others from the US tend to focus on technology start-ups either because of their orientation or because their investments here seek to plug certain gaps in their portfolios back home. On the other hand, West Asian investors, such as Chennai-based Singularity Ventures, focus on sectors such as health care, consumer products and retail, apart from technology.
It is easy to assume that the flow of capital will translate into lots of deals in the early-stage space, but there is one hitch. Many of the start-ups that have sprung up in the past 12-18 months are a bunch of sceptics when it comes venture capital. This generation of start-ups incubated their ideas in an environment of capital scarcity—venture capital re-discovered India less than 18 months ago—andhave become quite adept at bootstrapping themselves. They are smarter than their dotcom peers in terms of managing costs and building real businesses.
Also, more and more start-ups these days are being founded by seasoned professionals and often venture capitalists find themselves pitching to them rather than the other way around. It would be far-fetched to conclude that as a fresh and diversified pool of venture capital begins to accumulate in India, entrepreneurs will call the shots on deal terms.
But, given the manner in which the start-up eco-system has evolved, independently, over the past 12-18 months via forums such as Proto, Headstart (see Tuesday Post) and BarCamps, it promises to be a far more level playing field this round.
Snigdha Sengupta is Mint’s resident expert on private equity and venture capital.
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