This is perhaps a wee bit of eerie timing, as there are posts by Sujai* and quite a few others circulating around the blogosphere with some very serious questions about the Indian entrepreneurship ecosystem. Perhaps its of relevance to go through the basics yet again and what it would take to make this ecosystem mature, robust and something that can even remotely come close to being competitive to the valley.
As an entrepreneur very rightly put it, “A VC is part of the ecosystem, not the entire ecosystem”. Knowing that he is a startup entrepreneur, I am of the opinion that the ecosystem is learning its ropes.
I have always maintained that the main objective of a company is not about funding. Well, those with money and those with access to capital are quite readily available in the ecosystem and in public gatherings, but most of them are there to serve other purposes than to pull out their cheque books and start signing them away – that only happens when there is a bubble in the making, and I really hope and pray that these are not such days. I strongly believe that a sign of a healthy ecosystem is when a company can bootstrap and get to a comfortable market valuation without having to raise money from investors. If the ecosystem is rich and is keen on growing startups, then there will be means to grow traction, gain customers and expand your markets without having to blow too much of money for the same. That is the environment that we should aim for.
A Lot of folks ask then as to why VCs attend all these networking events. Most of them are sincerely looking at deals, but not right away. These events, serve as an initial point of contact for most of these investors, and then through time see how the company grows and validates itself – which is a good alternative for a track record deficient ecosystem. And plus, a VC is probably the most influential person when it comes to word-of-mouth marketing as he sits across various boards and manages his portfolio of companies. There will be opportunities that will arise for partnerships, alliances and perhaps even mergers (fingers crossed).
In a recent post in the proto blog, I have started compiling a list of companies that are effectively leveraging other channels and going after the money that truly matters – making revenues out of customers, and using that as a means to enhance their valuation before they go raise money from a Venture capital firm.
All this might sound as if I am against VC firms, but truth be told, I am not. I do sit on the other side of the table with some VC firms in terms of investment analysis and most of the time the thought that is at the back of our mind is that of backing potential winners. And winners are identified when they come knocking on the door, even better when we go knocking on their doors, trying to raise capital to scale up, not when they need money to assure their mere existence. That’s too much of a risk – no matter where you may see it.
We need to stop comparing the west with what prevails in India. In the west, just acquiring capital, mostly assures that since the ecosystem is quite rich – more big corporations are standing with open doors for alliances, there is enough mentorship pool available, and there is more than enough research and technology at your disposal, an entrepreneur who is even half as smart has a chance of success. It’s not the case in India. It takes real guts and courage to survive a year of operations here.
Let me point you towards some numbers, something that has been shown and pointed at many times in meetings, I would gather: 24,000+ companies are angel funded in the US, and the number of VC funded deals are around 1700+. Take a look at the ratio. Though its not a translation figure, as this are both of the same year, within a three year gap (if we hold that as the time it takes for a seed funded company to raise VC money), the ratio is 24:1. In India, 150 companies get seed funded, and around 50+ of them make it to a VC round. The ratio is 3:1 which is enormous. But we do have this high success ratio (or passing rate) because of the struggle it takes to survive till that point. On a positive note, if you make it through the initial stages, there is a much better chance of you succeeding.
Perhaps the point I am making is that, starting a company – most importantly a product company is very tough in India. And entrepreneurship is no easy journey – it is and was never meant for the faint of heart. We do make certain things a wee bit eeasier at Proto and there are certainly a host of other activities that are going on to make things easier for entrepreneurs, but we wont be seeing such ratios as 24:1 in India anytime soon. If you are an entrepreneur, learn and love to embrace it. What we also forget is that, thats the reason why you still haven’t seen competition from abroad yet. That’s the bright side to it.
There is absolutely no way to fast track this entire ecosystem without also layering it with frailty. The only way this can happen, is if it evolves on its own and thats going to take time.
Note: This post was earlier titled as the Proto Impact. Tweaked it finally for a neutral tone for the sake of a wider audience.
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Vikas,
My comment was not referring to any singular individual experience. It threads to the main post on “creation of sustainable ecosystem” by Vijay Anand, my dear friend who is working hard at sculpting an ecosystem through his brainchild Proto.in
It was his statement “There is absolutely no way to fast track this entire ecosystem without also layering it with frailty. The only way this can happen, is if it evolves on its own and thats going to take time” – that drove me to write this comment, hammering down my pov that benchmarking often leads to despair. It casts a spell of gloom if we don’t measure up to the standard – Silicon Valley in our context here. Let’s keep hacking in our own little ways, and who knows, we may end up building something far better, far more effective in that it blends well with our own limited risk appetites and high cost of failure that dims our entrepreneurial instincts at the outset.
Guess you get the picture.
@krish
point well taken. however, pretending that we are not in ‘the valley’ applies to both sides.
sujai was hurt more by people (on the other side) monopolizing and saturating media with braggadocio. he has not yet failed (and one hopes he never does) and is not crying hoarse at being left out.
it is similar to the anguish we, as middle class urban indians, feel when the government makes tall claims at bringing inflation under control. i know nothing will bring the prices down but giving a black-eye to chidambaram has its own pleasure.
at least this is the impression i carried after reading his post.
Krish,
I beg to differ from you on this issue. History is filled with examples of entrepreneurs starting companies without any prior exposure to business world. If you look at all the great companies in the world today, all of them were started by school drop-outs, and i am sure none of those guys had even luxury of getting their first jobs. Now why those guys were able to build such a great companies? The answer is ecosystem.
Yes, you are right in questioning that who will create this ecosystem. The answer is the first generation entrepreneurs like Mr. Murthy who have wealth of experience and money at their disposal. They can be mentors to these young inexperienced people. If i am going to build a startup, i don’t need learn all aspects of running a company. Something called “teamwork” can compensate for my weaknesses.
Also, I am sure Indians are not afraid of taking risk. We are born strugglers. Among the immigrant population in US, Indians start maximum number of startups.
Lastly, no one is crying, not even sujai. I think, its the VCs who cry the most. I often read articles lamenting that VCs are not able to find quality deals in India. Well, its they who suffer in the end. Determined entrepreneurs will ultimately find they way out with or without. As sujai rightly said “only the struggle gets a bit longer”.
Over n Out
The silicon valley lions after coming to India become like cats. Though lions show they are lions always.
That’s my impression in recent TIE delhi conference.
Sorry! if it hurts.
thanks!
I often ask – how did the first innovator do it? He never had the luxury of an ecosystem… Then I reconcile – we have no right to expect a ready-made ecosystem, if we cannot be its co-creators.
Ok. We don’t have a Valley-like ecosystem. Now what? Wallow ourselves to death? I go the paucity of an ecosystem is glaring only if we engage in doing something for which we need external support. Everyday a new restaurant opens, a new agency gets floated, a new franchisee outlet is thrown open. In choosing an enterprise that can go live with what we have, we’ll find our release.
We can keep longing for a Silicon Valley right here, but that’s not going to help matters. That’s because, besides all resources that it is famous for, the Valley represents a typical risk taking mindset that is endemic. At best, we may recreate the buildings and the roads or even the VC firms, but we can’t recreate the mindsets. That’s more a cultural construct than something to be built out of a budget.
Knowing that we come from a different culture, let’s not do it like how they do it in the U.S. Why do our twenty-something college grads attempt a startup, fail and cry hoarse? Why don’t they take up the first couple jobs, travel far and wide, gain enough worldly wisdom, have the good sense to build some savings and then take a shot at entrepreneurship? May be it’s not racy and glamorous, but it’ll have fewer roadkills. In fact, it’s smart. That sets them up with a realistic frame of mind to decide which road to take, what to build, what it would cost, how to go about and get clued in on the odds of success.
To be valuable from a business point of view, you don’t need an ecosystem. You just need to be market savvy and innovative; and that comes not from youth, but exposure. Work towards delivering a differentiator that drives customer preference. In this light, the big challenge may not be coming up with the initial deviation—there are usually lots of good ideas in play. The real challenge is coming up with all the supporting innovations that reinforce the initial vector, aligning all the other functions and processes to it. This will catalyze new value proposition, creating a sustainable differentiation that can generate deep and lasting competitive advantage.
Then we realize we’ve co-created the ecosystem….