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.