VCs & Their India Investing Strategies

Last November, at IBF’s Investing in India conference, Vinod Khosla noted that India tends to be ten years behind China. “So if you missed the boat on China, you don’t want to miss the boat on India,” said Khosla. You could feel the anxiousness in the room. Since then, VCs have kept a close eye on India, leading to reports of an all too familiar scenario. Too much money chasing too few deals, and a dearth of very early stage funding.

And haven’t we heard this story before? Remember the last bubble and the India funds that didn’t go anywhere? No doubt, many tourist VCs will get burnt in India- much as they will in China. Still, the bold India strategies of some top US VC firms should be noted. And each one of the top tier firms is using their own different twist in discovering opportunities in India.

Norwest’s Pramod Haque has been the venture community’s most ardent drum beater about the importance of startups having an India game plan from day one. That’s a message he has been hammering home going on some four years now. But while the monomaniacal focus on capital efficiency may have been the call to arms back in the lean days of 2002, Norwest is now well positioned to take advantage of a different upside. They are even planning to open an office in India now.

The VC firm has one of the best vantage points to watch Indian companies move up the value chain and has already invested in Persistent, an Indian company that is pushing the envelope on homegrown product design.

Matt Howard, another Norwest GP, said at the last TiE Con that his firm will use this deep experience with Indian design teams to fund companies with price points that will be able to target the Indian market, and not just hope to introduce cheaper products into Western markets. He also mentioned that several Norwest companies pursuing this strategy are in stealth mode. Not only could this lead to some very interesting deals, it will also contribute to Norwest know-how that will be increasingly relevant in the future.

Meanwhile, in a sign of how much things have changed in the heart of Silicon Valley, the venerable Sequoia Capital did no less than acquire a premier cross-border VC focusing on India, WestBridge Capital Partners. A few years ago, as the happy talk first started about the VC industry going global first started, Sequoia would joke that the five clocks lining its walls read “Sunnyvale, Mountain View, Cupertino, Fremont, and San Jose.”

Sequoia saw so much innovation in Silicon Valley that it didn’t really care to look much further. But while Sequoia is expanding its horizons geographically (the firm also has operations in China and Israel, under its own banner) it remains true to its philosophy of seeking, first and foremost, rapidly expanding markets. Many Sequoia India companies, highly profitable and quickly expanding, are bets on growing markets, not cutting-edge technology. These include 24/7 Customer, marketRx, AppLabs, and Astra Business Services, among others.

Vishesh Kumar is a San Francisco-based writer. He was formerly a staff writer at The Industry Standard and the Red Herring.  His work has also appeared in The San Jose Mercury News, Business 2.0, The Nation, and India Today.