Primer for India VC practice

When you scroll down this blog, you’ll find several posts which suggests what customizations Indian VCs could bring about in their setups / mindsets, on the basis of the feedback I got from several startup entrepreneurs.

Wake up and smell your coffee. This is India, not your father's economy.

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I was in fact thinking of putting up a summary post as a one point referencer for VCs looking at India to do business when I chanced upon this superb K@W interview with Netcore CEO Rajesh Jain.

[ Excerpts ]

[Rajesh Jain] “I believe we need a new approach to venture capital in India. There is a very limited legacy, so it's not going to evolve the way the U.S. did or even perhaps the way China did. In India there are lots of gaps across multiple value chains. Sometimes a service fails to take off because some parts along the value chain are not appropriately digitized. What ought to happen is a large amount of investment across building out an ecosystem of companies. Instead of waiting for an entrepreneur to come up with a business plan, venture capitalists need to be much more proactive. They should say, "The capital is available, now let's find a CEO for this business and back that person with funding. Let's start multiple companies based on what we have seen in other countries, and what we think the opportunities are in India."

This is a very different, inside-out approach, where you end up flipping the model around. That requires much more work. It will not work if the core venture capital team lives abroad and just comes to India once in a while. We need people on the ground who understand the realities of India today, who understand how the technology is evolving, and who can make bets on what the future is going to be.

Sometimes the VCs tend to behave more like private equity firms by investing in companies that don't need the capital, or which are pre-IPO companies. For example, the investment by Kleiner Perkins into Naukri.com [a job-search web site] was a pre-IPO investment. There was really nothing "venture" about it. Westbridge's investment in Times Internet was of the same type. Those things need to change. You need to really get in there, work with people and focus on building out the ecosystem. Most of these things don't exist, and that's the great green-field opportunity across this space. How can education be done differently with digital technologies? How can health care be done differently? We need to look at different industry verticals and think about how to transform them given the presence of broadband, of computers, of mobile [devices], of software sitting on the network. We need to rethink how business gets done. I think that is the real opportunity.

Knowledge@Wharton: What are the principal risks?

Jain: This is a "build-it-and-they-will-come" approach. If you build it and they don't come, that's a problem. If you are too early, you lose. If you are too late, you lose. The risk is that you may be too early or too late. But that's what all the great successes in the entrepreneurial world have faced. You need luck on your side also to make it work. Basically as an entrepreneur, you have to live in the future. You have to imagine what is going to happen. You have to create the future and make others come to it.

I recommend it as a must read for all VCs who are seriously looking at India to do business.

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