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One of the reasons why Entrepreneurship does not grow in India!

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Yes, I know, I may raise a few eyebrows with that title – But it is a fact that cannot be overlooked.

failed-Indian-Entrepreneur

I will explain you with a real-life example, read on…

I was sitting with a serial entrepreneur friend of mine today at office and as usual our discussion veered towards Entrepreneurship. He was lamenting about the fact that how Entrepreneurship has not grown in India, even though we have probably some of the most creative, talented and innovative minds on earth.

He gave me his own example – He has had a startup in India for about 2.5 years and has been pouring money into it. During this time, he approached 10s of Indian VCs for funding and has never even received a second call from them – not even a mail saying “All the best for your startup, but we cannot fund your startup right now”.

Here comes the interesting part – 6 months back, he opened up a office in a small South Asian country, which is not known much for anything other than for tourism. The reason – he was talking to one of the local Internet & Mobile company – They liked the product and wanted to give it a try.

In the meanwhile, he came across their local government aided firm that was set-up to promote Entrepreneurship in this S.E Asian country. He demo’ed his product to them and applied for funding, so that he could build the product for the mobile company – He actually very little hopes of hearing anything back from them – but to his surprise, he not only got a call for them but they also showed much interest in his product.

Within 3 months of contacting them, he has not only received funding from them, but also a mentor who will help him with his product.

This small South Asian country which has fraction of GDP compared to India has allotted half a billion dollars to promote small entrepreneurs like him – Take that !

Now he is probably planning to move his company’s base and will offer employment to the locals in that country.

Just think about it for a second, if we had something like this setup by our Babu’s here in India and more importantly – if it was honestly run – we would be called a  land of Entrepreneurs!

Today though, my friend is a one happy man – He says “Thank God, none of the VCs replied me back here in India” – coz they would have taken good amount of equity and would have offered very low valuations, especially during this downturn!

What are your thoughts on this? Don’t you think Indian Government should take steps to seriously promote Entrepreneurship? The Union Budget was a golden chance to announce something to that effect, but like so many other areas, there was no mention about this as well.

Would love to hear your comments on this – I am sure few of you may have conflicting views. Let us know!

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About Arun Prabhudesai

Arun Prabhudesai is founder / chief editor at trak.in. He jumped the Entrepreneurship bandwagon in early 2008 after a long 13 year stint in I.T Industry. You can follow him on twitter @trakin and Facebook. Arun’s Google+ Profile

25 comments

  1. This is a very interesting discussion and an important one. Being entrepreneur myself, I have found that many start up lacks innovation an is indeed a business venture rather than the latter. Most VC throws one blunt question and that is ‘What is the revenue stream?’ Now that is really a daunting question for a young entrepreneur when he is just on the verge of materializing his idea. This puts pressure on the entrepreneur to think of money rather than innovation. Mine own startup is revolving around answering business model and innovation and believe me, capital stability starts to become more important than the idea down the line breaking the chain of innvotions. This I think is major problem. Should Government play its role? I don’t know. But the universities must, of which I am very sure of. University is the place where ideas are more free and unbound by the business factor. Further, once the idea is stablized enough then business model is just a next step of innovation. If you have a web product than this is how a VC would react : Show me million page views per month and Money is gauranteed. I don’t get the point of this question at all. I have even heard from so called VCs that “We can never come up with Big ideas and that all ideas ” Is it really so… I beg to differ and believe that it can be done.. Thanks for a wonderful discussion.

  2. hello , I think that the reasone of not grow the business in india is government policy of tax structure & labour law ,Government not give any good potential to any enterperner .Which will effect to grow a competition in market any product & lauch any new product .I think that the nobody can devote to our contry . No any expriment in any product in good look , good quality & good service & work together .

  3. Hi Arun… I liked your blog. A very interesting article indeed. I guess, Indian VCs lack the vision, and foremost towards TECHNOLOGICAL products. They want to invest where there money is safe, something which is tried and tested. In effect, both industry misses important first hand developments, and a start-up misses necessary M-fuel.

  4. Well everybody knows the pace at which files move in govt. depts. The babu nature so its really difficult to get govt. funds. But if we can’t get the funds(which can make an entrepreneur’s dream come true) being a good guy I think it’s much better to be the bad guy i.e to get the files moving n get the much needed funds by not so morally correct but by proven methods i.e by using some under the table payments to the babus. Trust me guys this really works.. one of my friends got the funds this way.
    N plz don’t go ballistic over the way mentioned. As they say everything is fair in love n war :)

  5. Sachin Malhotra

    Hi Arun Thanks for the sharing and involving us. The idea behind all this is that we have seen very few VC are involved with start ups without the glamour name. The Western world and now even SE Asia needs economy to grow for thr states/county/Countries. With this reason they want people to have more and more opportunities for start ups and are more employment-centric process. More over Angel investors, Family money etc are just a medium for the funds, but fetching money form Gov is a Confidence they want to build in many of the startup Brain. Definitely Indian too have talent but less people to support. Sachin

  6. I think we still donot see silicon valley style VC in India. Now these VCs are very different in mentality than wall st / New York style investors. Many of these VCs made their money by starting their own technology company and understand technology really well. They understand which idea has potential in future. We Indians always look to govt to solve our problems, but the fact is govt should just be a facilitator. Silicon Valley was not created by govt grants but by people’s ingenuity. Now, lets say govt has money to invest (or give grants). But then the question comes in which company to invest. Now people would argue about private-public partnership and some honest and capable people should come together to make such decisions. Well I think chances of something like that happening is very bleak. Chances are very high that “corrupt forces” rather than “market forces” would make such decision. And you can very well imagine the result. There are lot of Indians who understand technology and who made good money in this business. They should come forward and create venture fund. I am not aware if people like Azim Premzi or Narayan Murthy has venture fund or not, but people like them should come forward and create funds to invest in promising ideas. Another important thing is people in general are reluctant to join startups (even though things are changing, but past hang over is still there). So, Engineer should also take some risk and pursue their dream rather than do a job which sucks. And most important of all, we should understand that failure is not bad. Living with insecure feeling won’t take us to land of entrepreneurship.

    • Arun Prabhudesai

      RB, thanks for contributing to the discussion. See my reply to @TIP guy. Again, I am not talking about funding / grants here, they are probably just a subset of the whole process. We need Policy changes, reforms that will promote entrepreneurship – and I have no doubt that we have capable Industry leaders, who along with Govt. can bring about that change. Having said that, I fully agree with you that “corrupt forces” are far stronger and will make this a painstakingly slow process. What We need is START !

  7. Arun, I would agree with you that government should provide and facilitate the ecosystem that promotes entrepreneurship. And private sector should fund the ventures. Discussing about rotten babu culture is endless. It’s chasing the tail (at least as of today). You also mentioned about difficult dealing with Indian VCs and other related issues. However, I would like to elaborate on one aspect that you mentioned; for VCs it is pure business. In my view that is a very key aspect if you put it in proper context. I cannot back with numbers, but 90% of the startups that I see around are in fact business ventures (and not entrepreneurial ventures). Almost every IT-related or IT-facilitated startups are drumming up some computing program using available platform (think application!), and wrap a business model around it, hoping revenue will start trickling in. I really do not see any entrepreneurial idea or innovation around it. The crux is many, if not all, are looking for funding to develop an iterative products or application. There would be very small number of startups or products that will change any aspect at a fundamental level. Therefore, Angels/VCs look at them as business venture, and hardly find any sustainable preposition. In true sense, the number of true entrepreneurial VC/startups is still very very small. If not all, then in most of the cases, I do not see anything wrong in VCs looking at startups as business venture. Finally, VCs not reverting back is an issue related to India Customer Service aspect. We Indians do not believe in courtesy and customer service. We would be more than happy standing long hours in queue doing nothing, gossiping, cribbing, cursing, etc, but we will not make a 15 sec courtesy call to anybody even to just say ‘thank you’ or ‘sorry, I cannot help you’. Very good discussion here! Best Wishes,

    • Arun Prabhudesai

      @TIP guy, very valid points made by you, and thank you for contributing to this discussion. I cannot disagree with you that innovative startups are lacking and most of them are business ventures and your reasoning is also spot on. But, we have missed a very important point in the discussion, which actually starts much before an entrepreneur thinks about even funding. The government has to come in when an individual is actually thinking of starting a venture. Govt. has to take steps to ensure that they create a suitable environment that will encourage people towards entrepreneurship and self-employment. And the example I gave above is exactly that – This small country that I am talking about has policies in place that will attract entrepreneurship from within as well as from outside the country, which itself increases employment. What I see today is more than 95% of all people in India dont even take the first step, just coz the environment is not conducive and it is a very high risk proposition.

      • Arun, I also tend to agree with you on the policy and framework front. Surely, there is a need for improvement and govt needs to play its role to develop a conducive ecosystem. I am sure we in India, at national level, have the policy frameworks, structures, regulations, etc., in place. Similar to any other section of our society, the execution is defunct and rotten. I believe we do have an ecosystem in place, but babus have made it defunct. These programs keep rotting in government files. GP gave a good example about funds being underutilized in sidbiventure. These national institutions (or programs) need to follow the farm sector model in which farm loans are provided at grass root level. Ironically, it is easy for a farmer to get loans, which in few years gets waived (politically driven). While a smart entrepreneur who will most likely provide employment continues to search… Best Wishes,

  8. Government should not have any stake in the startup companies.. the public-private partnership is a bad idea.. it has been adopted by the Obama administration but because it was their best resort given the situation. Government should instead promote small and medium size business by simplifying tax structures or providing tax benefits. This will in turn attract the VC’s to sponsor startups. Funding will best come from private .. and they will be greedy and will only look at the bottom line.. the profits.. its all about money..honey.. BizGuy

  9. Well, at least the situation is much better than the license raj of 60′s and 70′s… You know bajaj was trying to expand its factory for years and wasn’t allowed to do so…entrepreneurship to bahot door ki baat hai… Hopefully, situation will be still better 20 years down the line…but as a heterogeneous country with complex issues like corrupt politics, we can never have revolutionary steps in any direction…we’ll always walk an elephant walk…we can’t be a cheetah…

  10. nice Article Arun! I seriously believe & thinking that Government should put some concrete plan to promote Entrepreneurship and Innovations. Now, Governement should make good policies for development rather than service industries in India (which I believe that I am not proud of Indian IT industry as appx 99.5% are service based with 0.0% innovation). So, I request government to do something in this respect. Cheers, Ankit

  11. Also on another note, I cannot recommend this book enough for anybody who is starting a company and trying to raise venture capital.. It starts with “New Companies are guilty until proven innocent”… http://www.amazon.com/Raising-Venture-Capital-Serious-Entrepreneur/dp/0071496025/ref=sr_1_1?ie=UTF8&s=books&qid=1246962427&sr=8-1

  12. http://www.nsrcel.org/home/files/DIT%20RFP.pdf Not sure how well this works ( Haven’t applied for this one )… But from the looks of it, it actually looks pretty good. - Ganesh

  13. Hi Arun , A very relevant article and Very true ;-)……..the fact of matter is its not Indian govt doesn’t have funds but these lazy and corrupt babu’s just sit on top of it and make it useless ….for instance consider SDBI (www.sidbiventure.co.in) …it has around 4,000 cr given every year to promote Entrepreneurship but most of it remains underutilized …..or DST funds for that matter ….even Indian VC are not keen investing in core technology oriented companies (which have longer incubation period) ….they are interested in business plan and companies with shorter ROI cycles …they will more than willing investing desi /localized version/copy of foreign product/business …. on top of that sky real estate costs (which has come down a bit ) , 8 to 12 hours electricity cuts….poor infrastructure, babu giri also does not help …. I guess best bet for product oriented startup (with low employee count) is to tap or move to better and sometimes cheaper locations like china ,Singapore , Taiwan ,Malaysia , eastern European countries and while keeping support /customer support / testing /maintenance team in india

  14. Arun..is this small tourism based country Singapore ? :P.

  15. Funding is definitely a serious concern but I always believe that it is not the biggest concern. I believe that somewhere we {Indians] revolve around money and we think about it from very first day. That shouldn’t be the case. Let our concepts grow, let our solutions reach to the masses, the money will surely follow. So, I see the problem in approach. There are other aspects as well but this should be the first step. Thanks & Regards, Nitesh Ambuj

  16. The Indian VC’s who turned him down are private companies. How is the govt involved in that? I don’t think the govt should actively “promote” entrepreneurship. Let them simplify administrative procedures and reduce bureaucracy instead, and leave it to the free market to decide whether something deserves funding. I trust VCs who are personally accountable over a govt babu to make better judgements on whether something is a good idea or not and what deserves funding. Besides funding is a high risk game – most funded companies won’t survive. Thats tax payers money being used. Leave funding to the private sector. The govt has more important issues on its plate. I’m guessing that the SE nation you are talking about is Singapore. Ironically, many local Singaporeans complain that their govt is more keen to use their tax money to attract outside talent to move there than to nurture local entrepreneurs. Paul Graham hit the nail on the head in his latest essay – http://www.paulgraham.com/revolution.html

    • Arun Prabhudesai

      Siddhartha, Thank you for presenting your point of view. Before I start let me tell all the people who are thinking it is Singapore, it is actually NOT. I have left out the name of the country on purpose based on the concerned entrepreneur’s request. I have NO “doubt” that government should promote entrepreneurship. It needs to build an environment that is conducive to growth of Entrepreneurs. Yes, VCs will always be the primary organizations who will fund the companies, bur remember VC’s are governed by external forces and in most cases the best innovation / idea / startup will not end up getting funded by them. It is pure business for them. And, I would be the last person to trust Babu, for whom probably even the word “entrepreneur” is alien. Govt. needs to do something like a Public-private partnership (like in case of Unique ID project) and get some top corporate minds in country involved with innovation & entrepreneurship. I hope you get my point.

      • Arun, VCs dont fund some ideas. Agreed. But there are so many other avenues – friends & family, angels, bank loans, TiE, Nasscom and so on. There are even lots of govt funds from MSME and other orgs. Then there are other models like bootstrapping, building cash flow through sales, or consulting and using the revenues to fund the core idea… There are infinite models to make things work out. Entrepreneurs who are complaining about funding are not thinking hard enough. The govt CAN do some things to promote entrepreneurship – like reducing administrative overhead, simplifying tax structures and reducing bureaucracy. I would say this this is a bigger pain than any funding issues.

      • It is obvious that the country in question is SRILANKA cant believe that people mistake it for Singapore By the way Srilanka are desperate for business activity since decades of violence.(maybe thats the reason why)Indian govt should make capitalist reforms to promote a culture of entrepreneurship in this country.This is the only step to be taken for creating jobs and to alleviate poverty in this country.Welfare schemes like NREGA free power etc will only create avenues for corruption rather than development. Reduced interest rates and active Venture capitalist funds will go a long way in promoting the same.

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