VCs, VCs everywhere, not an Angel to fund!

How difficult it would be, for a great team working on cutting edge technology with a proven track record, and potential military applications, to raise Rs 20 lakhs in India? That is not a hypothetical question. That was the question faced by a team of 8 students from Delhi College of Engineering , as they set about building a fourth generation Autonomous Underwater Vehicle (AUV)- India’s first Indigenous AUV and the only Indian participant at the prestigious Association for Unmanned Vehicle Systems International’s annual competition.

And the answer it seems is that it is indeed very hard to raise early stage or seed capital in India, for the rock star team has still not been able to secure any funding.

Why should that be so, when just yesterday DFJ announced that they will be raising $400 million earmarked for Indian start-ups and expect to invest as much as $20 million per year in Indian region. And remember DFJ is just #7 when it comes to top  VCs that invest in Indian start ups in terms of their investments. Sequoia capital, the top  VC in India, in comparison,  invested as much as $138 million in 2008. 

Perhaps the problem is not with the venture capital funds as such, as it is with the view that VCs have of early stage companies vis-a-vis growth or late stage companies. Private Equity in India flows predominantly to late and growth stage companies and to a substantially lesser extent to early stage companies. with the recession, the flow of PE to early stage companies was further affected.

VCs in India typically do not want to fund anything that does not require funds to the tune of crores.  Perhaps what we need is more vibrant angels and more seed stage funding- a necessary part of the ecosystem that would complement the biggie VCs an fund to the tune of lakhs. 

Also pertinent to remember  here, that  Angels, are the first to get hit during the time of recession and the ones that play safe during hard times, so perhaps 2009 has been a really tough year as far as it relates to securing angel funding; but I doubt that even without recession we have a vibrant angel funding ecosystem to take care of the bubbling entrepreneurial spirit now evident in India.

It is sad indeed that while large funds may be available to late stage companies, the early stage companies where most of the innovation happens, still struggle to get a paltry 20 lakhs rupees. What do you think can be done to make the angel  ecosystem more responsive and vibrant?  Would you consider becoming an angel investor and funding in some small early stage start-ups? If so there are many more such teams like the team from DCE that are waiting for your mentoring and incubation and that can do with a little funding.