VCs & Their India Investing Strategies

9 Comments

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. 

9 Comments

Atul Vaid

From personal experience, I can vouch for the fact that the so-called VC funds in India are just fat, well-fed cats looking for easy pickings in firms who have already been around for some years and are looking for expansion capital. For all the self-congratulatory releases by VC firms in the press, I dont see any action around seed financing – its all second/mezz financing. Where’s the risk? these guys are bankers dressed in casuals… and getting their pound of flesh with even less risk than the banks.

Rajan

Hi Visesh,

I would'nt completely agree with you. I am seeing that of late a wonderful & very rosy picture about the technology entreprenuership scene in India is being painted by those who are situated out of India. You might wanna be in India speak to entreprenuers like Rajiv for instance and find out what is the actual scenario here.

This erroneous picture I think is getting created because you are getting your information from the VC’s. (Haque, Sriram etc)

Btw don’t take me wrong here, I am very very bullish about the Indian markets and exteremely optimistic about but can not say the same thing about the VC’s who are looking into India and that is where i differ from your thesis.

Rajan

rajAT

What are you talking about – Technology centers outside Bangalore and Hyderabad. Even Hyd and Bglore has a looooong way to go.

Have you ever heard a company in India getting funded with an unproven management team. Nooo !! All venture money is going towards late stage funding.

You can read here more on the “risk capital in India”

http://rajatgupta.wordpress.com/2006/06/20/risk-capital-in-india/

rajAT

Pankaj

It will be very interesting to see if high tech companies and Angels/VCs stick to Bangalore and Hyderabad with a sprinkling in Chennai/Bombay-Pune/Delhi. Or, as it appears to be taking shape, will more and more companies be taking advantage of every part of India that has significant resources and transform it into another Silicon India territory. Hence, creating many more technology centers outside of Bangalore and Hyderabad.

Santosh Panda

Rajiv, let me share the developments happening in India to sustain the industrialization.
The major highways connecting major cities with neighbor cities creating few twin cities like Pune-Mumbai, Bangalore-Mysore, Chennai-Coimbatore… will allow India to spread the industrialization. There are second-rung cities like Chandigarh, Bhubaneswar, many in Tamilnadu and AP will make this industrialization reachd interior part of India.

Regarding your query on “Caste” system, private sector doesn’t run on caste systems, they run based on efficient and skilled resource. The same is true for India. I have worked long years of my career in India and I hardly saw any company working based on caste bias. India has gone few step ahead in this.
Also Indian government is introducing “Knowledge Committee” and constitutional amendments to make it easy for private sector to facilitate absorbing more lower caste into their manpower.

Vineeth, here are some Entrepreneurship Centers or groups in and around Madras
http://www.tiechennai.org/
Meetup.com in Chennai
http://www.meetup.com/search/?keywords=&dbCo=us&dbOutsideUsLink=&country=in&notzip=&zip=meetup5&go.x=19&go.y=9&go=GO

vineeth

Gaurav, good point there. There also seems to be no Entrepreneurship Centers or groups atleast where I come from(Chennai-Madras). If any one is aware of such groups please point me to the same.

Further, a lot of young professional would rather go work for a brand name company, than a startup. This is just my experience from working in one of the few startups in the city for the past couple of years after moving back from the US.

I read elsewhere, about a hands on approach of some early stage seed funding VC with geography focus (just Bangalore).

A lot of people with 6-10 years of work experience are returning back to India with valuable experience. This is might be the ideal group that could propel this forward.

Gaurav Agarwal

Ah well, though the vc community is showing great interest in the Indian market, what we really need is a growing angel investors community. Early stage capital is only available in the form of borrowings from friends/relatives or bank loans. Since most companies fail to kickstart at this stage itself, vcs will find fewer interesting deals to work with.

Erik

I don’t claim to be an expert on India at all, but that economy has some major speed bumps ahead of it. Two off the top of my head ; the vast majority of people are peaseants. Can Delhi and Bombay and other major cities absorb all those people when farming is industrialized? Secondly, although the young generation has begun to shed these ideas, a caste system is still heavily ingrained in the culture. And I don’t believe a caste system can opperate with a capitalist system that encourages entrepreneurs. The “pull your self up by your own bootstraps” cliche doesn’t work if you are an untouchable or a high caste ( each for different reasons). I do hope the world’s largest democracy can make those transitions.

Rajiv

Hope all this attention will lead to a ecosystem forming in India and gradually move towards funding high risk ventures. There have been hardly any good news for early stage ventures who fall into the emerging technologies category.

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