Early-Stage Tech Investing

I was talking to a friend recently on the problems of early-stage investing in tech companies India:

  • lack of  serial/successful entrepreneurs whom investors can bet on
  • limitations of the digital (Internet and mobile) marketspaces (in terms of revenue opportunity) in India
  • dearth of risk capital (from angels and VCs)
  • not enough mentors to guide early-stage companies through the challenging initial years
  • poor digital infrastructure (broadband, 3G) which limits scope in the domestic market

In this context, it is no surprise that the whole investment cycle has shifted: angels act like VCs, VCs act like PEs and PEs like banks. There are many entrepreneurs who start off, but end up in  struggle because of limited capital. So, can something be done about this?

I will outline an idea tomorrow.

9 thoughts on “Early-Stage Tech Investing

  1. Hey Rajesh

    To me its all about risk, not about existing mentors, the larger successes in the US have not been by people who have done it before. I think there are plenty of advisors, in fact not a week goes past when I do not get an email, but I think the VC’s are too risk averse, and only invest when the US moves in that direction.

    Look at the money wasted in social networks in India, by VC like sequoia in India.

    Its the vision / foresight which lacks, not the infrastructure. Startups take around 3 yrs to get moving, look at facebook/twitter types, hence see where the market will be in 3 yrs, will 3G take off, will wifi be prominent, if so take a bet.


  2. Good points Iqbal.

    In technology space its best to generate revenue through an alternate stream till you reach revenue/cash flow positive.

    Alternate revenue stream == Your savings or friends and family or consulting

    I think far too much time is spent worrying about raising capital because the chances of raising capital (even in a country like US) are statistically speaking low.

    See http://techcrunch.com/2010/04/24/ditch-the-biz-plan-buy-a-lottery-ticket/

    Think of it as a positive upside. If it happens great, if it doesnt you should already have it as par for course.


  3. My 2 paisa :

    a) We have to start somewhere. Like silicon valley did some point of time. This is first time in history of India we have capitalist middle class wch can afford to buy quality and innovation. I think is gud enough to start with.

    b) Internet +mobile != Tech . I always wonder why we replace tech with internet . We import nail cutters to ships and I think all involve significant tech. If I look around my house I can see almost 90 % tech we use is not from India or for India.

    c) I think its good to some extent. Moreover as Iqbal said in India rsik capital in India is abused and as you said angels act like VCs, VCs act like PEs and PEs like banks. wch result in transfer of risk appetite . We do not lack risk capital but VC in India do not have risk appetite to invest them appropriately

    d) I agree we lack mentors . But I feel what we lack goes much deeper and it start with education system. We lack PHDs , we lack a education system that generate knowledge wch can be applied and converted into technology, platform, tools and applications. I read somewhere we produce have less then 50 PHDs in CS per year and quality of those is doubtable. We lack education system that appreciate and support creativity problem solving, failure and innovation.

    e) Digital infrastructure is a good to have thing. Tech innovation was happening before internet came and still existing in areas that not revolve around internet.

    I think internet is part a big tech supply chain and we should innovate at all point of that supply chain and what about ‘business’ part of technology. Apple is more innovative marketing then innovative technology and same is Google is is more innovative in business model then technology.

    I think in India Tech is a ecosystem problem. We lack whole ecosystem and solving capital part will be not enough.

    Will be waiting to read your thoughts on same.

  4. What we lack is both …

    risk averse entrepreneurs (who wants money only for the idea…not even ready with proto-type)…most think just quitting their job itself is a big risk they have taken and someone else should bet on them…funny 🙂

    Risk averse investors… want to invest only on already revenue generating company OR herd mentality … invest on what everybody is investing ON.

    Will await your idea.

  5. Most of the talent is migrating to WEST — as many as 12% scientists and 38% doctors in the US are Indians, and in NASA, 36% or almost 4 out of 10 scientists are Indians, 34% employees at Microsoft, 28% at IBM, 17% at Intel and 13% at Xerox are Indians. (http://timesofindia.indiatimes.com/36_of_scientists_at_NASA_are_Indians_Govt_survey/articleshow/2853178.cms)

    Very few Entrepreneurs / Mentors left in India and may be failure rate is high with left over Entrepreneurs / Mentors. May be because of this whole investment cycle has shifted.

  6. @ Vidya Sagar

    IMHO resource , human or material, should be allowed to migrate anywhere they can be best utilized. I do not see migration of talent a negative thing.

    In fact I think people who moved to west during socialist and poor India time frame cud now act as catalyst for the change we seek in technology area in India.

  7. After 5 years of starting and stabilizing our tech startup and agonizing on who will provide the funding, it is clear that the problem is not with the VC or PE industry. Your comments on VC’s behaving like PE’s and PE’s like bankers would be funny except that we found out about these things the hard way. Hindsight tells me that tech startup’s dont go to the right Angels at startup. For some reason most guys subscribe to TiE and start talking to the Sequoia capitals of the world. The reasoning is that they understand the tech business and hence are more likely to fund you. This is wrong. The professional VC’s dont understand this market and look for a company that sells in a market they understand (mainly the US). There are tons of guys out there with money, vision and the ability to take a risk on something interesting. Point is they are not in suits and dont want to see your stupid powerpoint. These guys are the true VC’s and will be the first to be shocked when described as one. However once you find a couple of these guys in your circle (what on earth is linkedin for ) the money part becomes easier….