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Timothy Draper is disillusioned with Indian entrepreneurs. Correction: he’s disillusioned with Indian entrepreneurs in India.

Draper, 57, is the founder of Draper Fisher Jurvetson (DFJ), the Menlo Park, California-based venture capital firm that ranks among Silicon Valley’s blue chip investors. In a recent interview to The Economic Times, Draper said the firm did not mind backing Indian entrepreneurs as long as they were not located in India.

His reasons: several of the founders that DFJ had backed in India had “either run away (in the case of a failing company) or did not disclose information or renegotiated (in the case of a successful company)".

The observations come more than two years after DFJ wound up its local operations here. The firm set up shop in India in late 2007 and has invested $70 million in 16 companies. These include remote technical support company iYogi, online ticketing and travel company Cleartrip, ad network Komli Media, e-waste recycling firm Attero Recycling and clean technology companies Husk Power Systems and D.Light Design. It continues to manage existing investments here from its Silicon Valley headquarters but has not made any new investments.

Draper’s disillusionment is not difficult to understand. India is a tough market for venture capital. There are numerous regulatory bottlenecks, the exit environment is complicated and start-ups take longer to scale. Further, unlike in Silicon Valley, disruptive start-ups, technology or otherwise, are not concentrated in any single geographical hub.

But India is not a tough market because of the quality of entrepreneurs here.

In the past three years, the start-up sector has seen at least eight companies push into the billion-dollar valuation club. Most of those companies are from the Internet sector. Last year, start-ups across sectors raked in a record $2 billion-plus in fresh capital. Apart from hedge funds and strategic investors, a large chunk of this money came from venture capitalists, many of who started investing here around the same time as DFJ.

The problem lies elsewhere. DFJ is not the first Silicon Valley firm to quit the Indian market in recent years. Last year, Canaan Partners’ local team disintegrated and the firm ceased investments here. This followed earlier exits of firms such as Kleiner Perkins Caufield and Byers, Greylock Partners, Clearstone Venture Partners and Sherpalo Ventures.

All these firms shared certain traits with respect to their Indian operations. One, they operated with very small teams, sometimes not more than 2-3 people. Other Silicon Valley peers, who have seen success in this market, for instance, Accel Partners, Matrix Partners or Sequoia Capital, currently have anywhere between 20 and 40 people on the ground. Teams of 2-3 members are far from adequate to address a market as complex and diverse as India.

Two, decision-making at many of these firms is centralized. Investments here would normally have to be signed off by the global investment committee, usually based in the Valley. In a market where an investor like Tiger Global Management can close deals in a month, even a week, the lack of autonomy for local investment teams can have long-term implications on the quality of deal-making. For instance, even though DFJ had been investing here since 2005, it doesn’t have a stake in any of the billion-dollar start-ups that have emerged from this market.

Three, foreign venture capital investors that are seeing success in India are heavily invested in this market, not just in terms of empowered and large teams on the ground, but also in terms of capital commitments. Sequoia has raised nearly $2 billion to date for the Indian market. Matrix Partners has a $600 million India-dedicated corpus. Accel Partners has raised four India funds worth $540 million. Mayfield Fund has raised two funds worth around $220 million. Norwest Venture Partners, which doesn’t have a separate India fund, has invested over $1 billion here over the past decade. Firms such as DFJ and others who have left this market may have had different investment priorities. There’s nothing wrong with that.

Their global priorities may have prevented them from addressing the Indian market efficiently.

But to blame Indian entrepreneurs for their failures is unfair. There are rogue entrepreneurs everywhere, just as there are plenty of good ones. Draper’s disillusionment with India is DFJ’s loss.

Snigdha Sengupta is the founder of StartupCentral, a digital news and analytics platform focused on venture capital. She also periodically contributes stories on venture capital and private equity to Mint.

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