Friday, January 20, 2006

What’s holding back the Indian Venture Capital Market?

Abrar Hussain points out that India’s venture capital ecosystem has “some ripening to do” before it can be equated to the original Silicon Valley.

They heyday for Silicon Valley’s monopoly over the technology industry is long gone. Nowadays, Bangalore is often included in the same breath when there is a reference to Silicon Valley. But, is this really a realistic comparison? Although everyone seems to equate the two, if we poke around this comparison it’s easy to see that there are some big differences. I won’t pretend to have a monopoly on the items listed--I think lots of people are thinking the same thing. India is still maturing and, although there seems to be some recent evidence that the Indian VC industry is beginning to "fill in the gaps" within its offerings, there are still some significant parts of Indian venture capital ecosystem that have some ripening to do.

1) Innovation
– Early in Japan's development a common criticism they faced was that they could copy and make lots of things better but they couldn't create something new. It's much the same for Indian companies. While the offerings by many service companies seems to get better, cheaper and faster, none of these companies seem to be the next Google, or Genentech or eBay--companies which actually created new markets and fundamentally change the way that people look at an industry. This might be changing. There are some early startups that truly look innovative. But, why is it that Indians in the Valley can innovate and create something new and when you put them back in India they can’t seem to do the same thing?

4) Exit Strategy – Most Indian technology companies are focused on services. The problem is that it's hard to create a big exit for a services company. This is a mature space. As I look at some of the investments being made, it's not clear what the exit strategy is. It almost reminds me of the Internet boom in Silicon Valley when investors were investing because they didn't want to be "left behind". Some trends are meant to be left behind.

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