Inc feb 2011 -alok mittal - venture capital


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Inc feb 2011 -alok mittal - venture capital

  1. 1. LOOKING AHEAD BY ALOK MITTAL | CANAAN PARTNERS Venture Capital in India Will come of age—look at multiple sectors beyond tech; geographically more wide spread Cashing In For the right businesses, venture capital will not be a tough hunt. risk of non-participation. Ten years later, there has not just been a revival of venture capital, but even early successes of the model, which is encouraging more and more investors to head eastwards in search of gold. As we look towards the next 10 years, therefore, it is important to derive the potential of venture capital by looking at what the economy at large, and entrepre- neurship in particular, will deliver in real- ising India’s potential. Venture capital will“There was a fresh spark of entrepre- venture capital left around, and it is hard to be driven by, and will contribute to, thatneurship in India a couple of years ago. The imagine that it will make any real come larger picture. Even as we look forward to aglobal emergence of the internet revolution back in the next decade.” decade that will more than double India’sand widespread passion among entrepre- This obituary of venture capital in India economy, it is likely to represent an incre-neurs led to thousands of businesses taking was written in 2001. mental and not a seminal shift in the life ofseed. Unfortunately, today we stand among Most decennial predictions tend to an average Indian. However, in several spe-ruins, with most of those businesses and carry the downside risk of over projecting cific areas, we will see developments thatthose funds reporting failure. There is no the future. This one carried the upside are nothing short of revolutionary—along “It’s easy to build a brand, but difficult to sustain it. The biggest thing is not to become number one, but to stay there for 10 years and still have no one around you.” — Dr Mukesh Batra, Founder, Dr Batra’s88 | INC. | FEBRUARY 2011
  2. 2. LOOKING AHEADsimilar lines as seen in telecom over the ing expectations of external investors, and Both through public initiatives, and by pro-past decade. Some of these areas of disrup- about differentiating amongst various viding incentives to private investors, thesetion will be sectoral, such as education, kinds of capital providers. elements of the ecosystem can be plugged,technology and healthcare. Others will be The demand for capital that above ini- and will have a many-fold leverage inbased on consumption driven by a dra- tiatives entail, will be matched by increas- enabling large scale entrepreneurship.matic expansion in discretionary incomes. ing comfort of global investors towards I also expect venture capital to evolveThe basis for most of these changes will be India. Partly as an effect of global rebal- somewhat differently in India than it has inentrepreneurship. ancing, whereby it will become less and other parts of the world. It is already evi- Let us consider some examples. One of less attractive to continue high exposures dent that venture capital will successfullythe greatest strengths of India is the demo- to developed markets, and partly due to address multiple sectors beyond just tech-graphic dividend—in order to realise this increasing capacity of emerging markets nology, which may continue to remain theadvantage, we will need to train hundreds like India to productively deploy capital, single largest sector. In high-growth econ-of millions of our people to take up pro- the relative migration of investment capi- omies, venture style returns can be madeductive occupations. India’s developmental tal is a given. Cou-indicators, including those around educa- pled by domestiction and healthcare, continue to lag behind savings and invest- Venture capital will be moremost other countries—and, they certainlydo not match up to the aspirations that we ments, one can expect a decade geographically widespreadcarry as a nation. Access to financial ser- that has adequate in India, than concentratedvices remains constrained—with directimpact on resultant growth. availability of capi- tal to fuel India’s in pockets like in Silicon In each of the cases above, and manyothers, the only available blueprints are growth. The virtuous Valley or Israel.those with heavy involvement of private cycle of investorsenterprise. As policymakers define our seeing returns in the Indian market, and through growth and not just through dis-approach to solving these issues, they are hence increasing their commitment to ruption—India will emerge as a primeinterweaving the role that entrepreneurs India, has already been set in motion. Ear- example of the same.are expected to play—be it in terms of lier in broader private equity, and of late in Similarly, venture capital is likely to betraining organisations, or providing edu- venture capital, there are increasing proof more geographically widespread in India,cation at all levels and increasing health- points of the model working in line with than concentrated in pockets like in Siliconcare delivery capacity, or in building investor expectations—as such proof Valley or Israel. This will be driven by theend-user services on platforms like Aad- points multiply, more and more investors heterogeneity of opportunities acrosshar. Given the long history of entrepre- will commit to these asset classes. India, as well as relatively wide spread ofneurial activity in India, it is only to be As we look ahead to a future where entrepreneurial activity across many mar-expected that it will continue to be the key there is abundant availability of risk capi- kets. Finally, most developmental agenciesdriver for the future we have set our eyes tal, there is a need to ensure that policies globally are realising the role of for-profiton. India is a bottom-up country, and eco- are supportive of these underlying forces. enterprises in enabling development—thisnomic growth in India will be no different. The regulatory framework around private will lead to continuous expansion of social Venture capital will play an increasingly equity and venture capital still remains venture capital activity, almost acting as animportant role as entrepreneurship drives fragile and fragmented—the same must be improvisation on the philanthropic modelthe new India. Majority of start-ups in streamlined on a priority basis to ensure of the west, providing more sustainabilityIndia are led by first generation entrepre- that investors get comfort of regulatory in the process.neurs, who lack alternate sources of financ- certainty around investing in India. The time has come for India to cap-ing. While bootstrapping is an option and India will also have to take more owner- ture its destiny, and while there might bewill always remain so, the premium on ship of forming domestic pools of risk capi- hiccups here and there, the next decadetime, which capital helps to crunch, tal—the current norms almost actively will mark significant strides towards thatincreases in a high-growth environment— discourage the same. An interesting case in goal. The linkages of India’s growth andit is already visible that entrepreneurs pre- point here is Israel, where the 1993 Yozma development with entrepreneurship, andfer to accelerate the growth of their initiatives single-handedly led to the forma- of thriving entrepreneurship with avail-businesses through infusion of capital, tion of a vibrant venture capital industry. ability of risk capital are undeniable. Theeven if that means sharing the rewards and There is also a need to plug market fail- next decade should mark coming of agecontrol. They are also getting more sophis- ures in the capital food chain, especially in of venture capital in India, in a uniquelyticated about understanding and manag- early-stage incubation and angel financing. Indian manner. FEBRUARY 2011 | INC. | 89