Venture Investing (Part 2)

What we need in India to get more start-ups created and more importantly, create the environment for them to succeed is a combination of an Incubator and Venture Capital Fund. This is something on the lines of what Kai-Fu Lee is doing in China or perhaps Y Combinator.

There needs to be a core team at the Incubator that can explore new ideas, and see their potential in them becoming companies. In India, one thing I have seen is that start-ups require a lot more hand holding. That is where an experience team at the Incubator can help nurture companies (teams) through the difficult early days. Venture capital funds typically don’t have the bandwidth to spend more time at many early stage companies.

So, think of a multi-stage to create the ecosystem needed for driving innovation and entrepreneurship. Start by creating an incubator which can seed tens of ideas and teams with say Rs 10-50L ($20K-100K). This needs to be a continuous process. Then, pick a few from there for the next stage of funding, which can be 10X the initial funding, with a third stage to get some companies funded with 5-10X more capital (a few million dollars). The fund size should be about $60 million, with about $10 million set aside to build a top-notch core team of peoplewho are committed to helping build the companies over a 4-5 year period.

Many ideas and companies  will fail, but it is out of these failures that the successes will emerge. India needscompanies that can create billions of dollars in wealth over the next decade. We have starting talent, but we need to do more to fill in the gaps that exist. An integrated incubator-fund helps bridge these gaps.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.

17 thoughts on “Venture Investing (Part 2)”

  1. Jimmy Carter established several ‘innovation centers’ that followed your recommendations nearly exactly. But these were among the first struck away after Ronald Reagan’s strict hands-off market policies.

    It’s easy to identify the effort of sincere innovators in order to offer a boost. It’s dangerous not to.

  2. We also need more focus on other fields rather sticking only to IT and Mobile (recent craze ).


  3. I completely agree with you. What we need right now is bunch of young entrepreneurs guided by mentors over a period of time to help them succeed. An incubator-cum-entrepreneur ecosystem is not only good for individuals or the industry but overall country’s development since many of these companies can be India’s next potential mass employers.


  4. I would like to see investments in fields which are non-IT.

    Because there are so many problems which India faces.


  5. Off-topic …

    Wish you all a happy Diwali and prosperous new year.. may the day and year ahead be full of bliss and success…

    Celebrate the triumph of Dharma by lighting up your home, wearing your new clothes, and by lighting your seven shots, your flower pots, zameen chakers, sparklers and by exploding 555 & mirchi bombs. Bursting crackers significantly brings down bio burden in environment that gets created after monsoon, so winter and summer remains healthy.

    Dont fall for cracker cause pollution crap of media and liberals. Comparatively, Pollution caused by diwali is very very minuscule compared, negligible.

  6. Hi Rajesh,

    The question remains: Who will bell the cat?

    My answer is no one will do it.

    In my opinion, all problems in india are due to low self esteem of majority of indians.

    This low self esteem drives them to choose easy and quick paths to personal gains, like crime, corruption, etc so they could be at par with the indifferent society around them, which they doubt their honest paths would be able to afford them.

    This same low self esteem also prevents them from thinking big and take risks with what they have.

    Here is another reason:
    I suggested to my friends in chandigarh on my last visit to create a fund for my public school so we give 1 lac annually for the best teacher and they were smiling at my naivety. Giving back or getting involved is not a culture in india. Everything is someone else’s job.

    India is but a sad reflection of its people. Politicians are made scapegoats. After all fixing society’s problems is their job!

    “For some original out of the box thinking”

  7. Rohitaash:

    I am convinced that individuals respond fairly predictably to situations regardless of where they are in the world. There’s uniformity in individual behavior. What differs across the world are circumstances and therefore the apparent differences in behavior. Those differences give the false impression that individuals differ.

    Individuals are, if I may use the expression, normally distributed. Groups are not. There is such as thing as how group A behaves as opposed to group B. Aggregate behavior differs.

    Individual Indians are giving and caring, for instance, to the same degree as non-Indians. That is my belief and I can defend that claim. The system, however, in India needs change. The politicians are who they are because the system “grows” those types. Sour apple trees naturally grow sour apples.

    Politicians are the visible symbol of the political process. Our processes have to change. What that means is our constitution has to change — that book which dictates the processes that are at the base of the social and economic system.

  8. As someone who has personally been through the grind of trying to raise serious seed stage capital, I totally resonate with the need articulated here. It seems nearly impossible to raise a $250k round of funding today even for startups with a decent proof of concept, notwithstanding team profile/quality of networks etc.

    I hear more VCs admitting today that they don’t see the risk-return profile on early stage startups making sense… which is a sentiment I respect, although one has to say that it does not augur well for innovation-driven out-of-the-garage startups!

    I think incubators like CIIE and others are a silver lining of sorts. They offer some access to capital [still not enough], and have enough flexibility to wait patiently for returns. It’s interesting that through these incubators, GoI is making a well intentioned attempt at kickstarting innovation-driven enterprises across the spectrum – a scenario similar to NIH/DARPA/SBIR funding.

    The irony is that these incubators tend to struggle to generate good quality deal flows from entrepreneurs! Certainly not a volume anywhere proportional to the actual number of freshly minted startups out there!

    Figuring out a decent angel network to complement these incubators, and enhancing collaboration between them would be a good way to improve outcomes for early stage startups in India.

  9. Atanu:

    Societies and systems are made of individuals and how they behave. Its a myth that system governs individuals. How could it? If that was the case, all systems in india would work!

    In USA, previous generations have helped built a system and now immigrants MUST adjust their behavior to it. They can not pee on the road side for example. But to think it can be done in initial stages itself like a painter creating a masterpiece, would be a folly on part of the eternally hopeful.

    The systems have to be designed ground up. You talk of constitution changes but where is the natural progression happening towards that change? And even if it is, the pace is slow because instead of working on bringing the change at the grass root level, people’s eyes are fixated on the destination and the pleasurable, measurable, Grand change it would bring and turn india into “super power”!

    All I am saying is that foundation for the BIG change happens at a much local level say at school and college or neighbourhood.
    I would like to see more fire safety drills so children dont dies like they did last month in delhi in a school stampede. I would like to see people CPR trained so they could save lives at a neighbourhood level in case of emergencies. I would like to see a neighbourhood watch program everywhere in india so younger generation takes turn to ensure the safety of the neighbourhoods they live in. I would like to see atleast a few in neighbourhood formally trained in basis self defense. I would like to see a daily cleaning happening at a neighbourhood level and people being conscious about throwing garbage outside their homes. If municipal truck doesnt come, maybe neighbourhood assigns the residents to take turn and dispose of the garbage. I would like to see people ensuring all children are attending school in their neighbourhood. I would like to see people take a donation drive to help those who can not afford education for their kids.

    So on so forth. These are changes that can be incorporated no matter how rich or how poor the neighbourhood is.

    A lot of it happens in USA. To think everyone here is rich is again a folly. Because society is build collaboratively, people care. The indifference in india is the real deal breaker and causes lot of insecurity. Atleast in poor me.

    However, India has shown that it is incapable of addressing more than one problem at a time and just like the last 20 years were lost in trying to “ease” the controls over business regulations and build priviate enterprise, the next 20 years would be lost in building infrastructure.

    Health care, education, human dignity, safety, environment, security, child development would continue to suffer.

    People would continue to be indifferent. THis indifference would breed insecurity which leads to low self esteem. Their self esteem helped only and only by the amount of money they have.

    I have seen too many people with wealth displaying vulgarity in one form or another in india. Somehow something happens to people in india when they strike it rich. You know what it is? They find their long lost self esteem!

    Rajesh, this one was for you.

    Thank You

  10. Rajesh, I meant the whole previous post was for you not the last part!

    I want to add one more thing:

    When I had written my original comment, I had just read local chandigarh news that a poor woman committed suicide and her younger son on watching her do it, joined her and they both died.
    This woman’s elder son was found murdered and when they protested in a dharna, they were thrown in jail and charged with attempt to suicide! Depressed by the “indifference” of the society and feeling helpless at her own ability to bring justice to the culprits, a mother is forced to take this extreme step in the glorious nation of india.

    I think this example effectively highlights the indifference of society and low self esteem of its citizens.

    One may argue its one off case but I would differ.

    Atanu: The question always is what can you do yourself without any external dependencies to help bring change.
    As a project manager I can tell you that unless you are able to resolve those external dependencies ( changing constitution or whatever) within reasonable frame of time, your project and agenda of changing india is unlikely to see the light of the day within our lifetimes.


  11. This is my final comment here:

    I do not expect a VC to think like a social reformer. A capitalist can not be expected to carry or display awareness beyond the potential of personal profit in any given opportunity.

    However, I do believe in social entrepreneurship. I would like to meet a VC who would support a project with 20-30 lac every year for at-least 3 years with potential to reap benefits in the long run while making an impact to the society.

    Where are they to be found in india?


  12. Interesting observations on seed funding.

    While I agree with the seed stage of 10L to 50L, I believe later stages will have to be less intimidating and only provided with exposure to matching early stage VCs.

    Some of my experiments in this direction have yielded mixed results though the results incline more towards positive side.

    Too much of hand holding and support may serve as comfort zone to unleash the complete potential of entrepreneurial ideas.

    Sow the seeds, water them a bit, expose the plant to sun while protecting the plant from grazing cattle! Observe them to become fruit bearing trees.

  13. Rajesh,
    I am writing from China, Beijing to be exact, and knows one thing or two about Kai-Fu Lee’s Fund. I don’t think you can use his fund as a reference. It’s nowhere yet. Further, lots of people including myself, are very suspicious as what he can achieve. There are many reasons, but most important of all, is Kai-Fu himself. He is not that good a businessman, neither is he really respected even within the Internet community. ….
    You should wait the results of that fund comes out before you pair it with Y!, which is much proven.

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