Not much "venture" activity in India
I was in Mumbai, India last week for a family wedding, when I talked with some local venture capitalists and researchers about the research, development and commercialization scene in India. The discussions made me question if there was a fundamental difference between the venture industry in the US and India. The American venture industry will typically invest in companies with unique or innovative technologies / solutions in exchange for equity in the company. Such investments are risky but provide a huge upside in case of success.
In India, the venture industry is investing in companies that would be considered debt financable in the American context. A typical Indian VC portfolio includes stakes in hotel chains, coffee shop chains, textile companies, clothing designer labels, and hydropower projects. Below are some of the reasons that came across from my discussions:
- The Indian financial industry (i.e. banks) is in a nascent stage, very conservative and not comfortable providing debt financing to small companies.
- The Indian government R&D spending is about $7 bn (0.2% of GDP) compared to $140 bn by the US (1% of GDP). Further, most of this small Indian R&D budget is being spent on developing facilities and purchasing equipment. There is very little in terms of innovative technologies / solutions to commercialize.
- Given the growth rate of the Indian economy these investments provide healthy returns to venture funds, are less risky and hence make sense for their portfolio.
The VC's have filled this gap for small companies by providing growth capital and forgoing the "venture" nature of their investment strategy. Any VC's looking to raise Indian funds should consider the above and evaluate the expertise they have and the expertise they need to be successful in the Indian environment.
By the way, it was great to be part of an Indian wedding after 10 years and experience the dozen odd ceremonies that lasted 4 days. If you ever get invited to one, make sure to attend!