Venture capitalists should also think of building up an ecosystem of companies along a value chain in the selected areas, rather than making an independent string of investments. This is because most of the elements of the value chain that are required to make a new venture succeed do not exist fully in India. This lack of legacy can be turned into an opportunity rather than a drawback through smart thinking and investing. It is a bit like the keiretsu approach of Japanese companies. Such an approach will require thinking at an early stage of what tomorrows world is going to be and then working to put in place all the companies that are required to make that world a reality.
This approach to venture capital in India is somewhat different from what the VC firms have done in the US. This is also not going to be accomplished by what I think of as the fly-in, fly-out approach. It will require a significant time investment on the ground in India to understand the realities and build the networks of people that can bring to life the ecosystem and the ventures.
Over time, I do believe that this approach will yield far greater dividends than just making a few investments in companies. The reality in India currently is that there are only a handful of investible companies in the Internet and mobile space. At present, there is a lot of money chasing these companies, which leads to a bubble-like effect with respect to valuations. At the same time, the first mover advantage is not that critical because we are at the very early stages of the development of the space in India. Operational excellence will count more over the long-haul (the next five years or so).
So, if I were a venture-capitalist, I would look at identifying three or four segments, then build the teams in each of these areas, and back them with about $20-25 million each. I would give them a horizon of three to four years to build a $100 revenue business. The companies should need no further capital to take them to this mark, and to profitability along the way. The liquidity event should be in the form of an IPO and not being acquired. The focus should be on building companies which become tomorrows giants across the Internet and mobile space in emerging markets, building on the experience in India.
In summary: India is at an exciting time in its history. For the first time, there is a confidence in people that tomorrow will be better than today. People have a belief that what they make of their life is more dependent on them than the government. Half of India is under the age of 25. The lack of legacy must be seen as an opportunity to do things right built on the learnings of other markets. The Internet and mobile businesses can become the foundation for tomorrows giants. This is a time that is made for entrepreneurs and venture capital.
Tomorrow: What Others Say
TECH TALK India Internet and Mobile+T