President Abdul Kalam Urges SBI for a $1 billion Venture Fund; Why(not)?

It is not the lack of money or the dearth of vision that the Venture Capital ecosystem in India is less than vibrant. If it were vibrant already, why should the President bother to bring it to the forefront?

Part of the agenda setting for State Bank of India(SBI) during bicentinal celebration session our esteemed president, Dr A B J Abdul Kalam asked SBI to set up a venture capital fund to the tune of Rs 5000 Cr. Mainly to fund scientists and innovators to bring their innovations to a huge market success. Thereby benefiting the economy, creating jobs, creating global competitiveness for India, making India a global super power etc.

vc-baby
[ Cartoon Courtesy Hugh ]
If there is an avenue of Investment, in a fairly matured market like India, it will exist in some form or other. Here is my take on 5 reasons why VC ecosystem is yet to take off in India.

5 Innovator cluelessness: Scientist, inventors, innovators are clueless on the venture process. They think VC money is easy money. They don’t do the necessary homework to present their case. Their knowledge of money, finance, how venture funding works is next to zero. They dont fully appreciate that venture finance is costliest from of capital and their plan must be that much high-risk/high-return gig.

4 Speed of Business: Till recently, due to several reasons converting a business concept to a profitable reality took several years to complete. Culturally this means that you normally build your business to keep, and perhaps pass on to your next generation to enjoy. Basing your business on VC funding means you must be ready to exit. The slow business cycle means that there are less serial entrpreneurs to fund. Which has dampened the growth of a vibrant VC ecosystem.

3 Organic Growth favoured over Inorganic Growth: Due to cultural reasons and practical operational reasons organic growth is the only stable/proven/working growth model. Franchisee systems are yet to take roots in a major way. Such partners want to do their own optimizations perhaps killing the concept in the process. When you are growing organically, you are much better off going in for cheaper capital than VC money.

2 Capital Is Not The Only Crucial Success Ingredient: Operations wisdom guides one to maintaining a delicate balance between the stakeholders, viz., suppliers, employees, regulators, utilities, etc. The working relationship is to be cultivated over several years and constantly nurtured. This rules out quick success, quick exit modus operandi of typical VCs. This also means that the market is loaded in favour of incumbent. And the incumbent is invariably averse to dramatic changes in the market( which will typically imply reconfiguration of the carefully constructed relationship network)- thus status quo wins.

1 Cost of Talent/Manpower: Until recently, manpower was cheap and for the talent secured job was more lucrative than the vagaries of business advanture. But now a horde of risk hungry entrepreneurs who have tasted VC funding at shores afar are back in India. They are changing the ground. And the job market is vibrant enough and boring enough to keep them at arms length. Now building blocks of business are slowly emerging. VC ecosystem is not powered by the money, it is powered by the motivation and energy of the individuals want to make it big in business. Now, slowly conditions are emerging to enable this.

This is my quick take. The idea is to stimulate a discussion. Comments, flame, questions welcome.

About labsji

I blog, Therefore I exist ! Funny things are funny to me. Cool things are cool to me. Innovations tick me. I attempt spirituality religiously :)
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