Venture Funds in India

Entrepreneurship flourished in America not just because of the risk taking appetite of people but also due to the guided supply of money. Google is not only founded by Larry Page and Sergey Brin but also made financially viable by Angel Investor Ram Shriram, Kleiner’s John Doerr and Sequoia’s Michael Moritz. Venture Capital funds are the life blood of America’s entrepreneurship. Even the mighty Google has started “Google venture Fund” to provide support for promising startups. We need to understand whether India Inc. really host such ambitious venture funds.

Entrepreneurship in India is a new buzz word because of the limelight on India’s economic success by western media. Indian media too now treats entrepreneurs as new breed of celebrity and often telecast their interviews on the media. India Inc. is usually patriarchal and also entrepreneurs usually hail from this type of family. But the success of business entity such as Infosys, HCL, etc. triggered middle and upper class to foray into the elite league of entrepreneurship. These people are the ones who find it difficult to raise funds since they often lack the good network of business people. The start-ups by these kinds of people need angel investors as well as venture capital funds. The truth is India does not lack number of good venture funds available.

Indian Venture Capital or Private Equity scenario looks green with players such as ICICI Ventures, UTI Ventures, IDFC, Nexus India Capital, etc. But the current problem is the paucity of information and awareness available to the start ups. People are afraid of the hassles associated with approaching these private equity funds too. Most of time, venture capitalist not only fund the company but also acquire greater management control over the firms. For example, Google’s CEO Eric Schmidt was appointed by venture capitalists claiming that Larry and Sergey lacked business acumen to run the business activities. Founders of any start-up company do not like the idea of their company run by someone. They are also afraid of the investors stealing their ideas and starting a company to compete with them.

A quick look into “TATA NEN Hottest start ups” shortlisted companies of 2009 will clearly show the number of companies which receive Venture Capitalist or other Angel investors’ funds. Most of the startup companies receive their funds from family and friends. To start high tech companies we need to have high capital which obviously requires institutions investing in it. Take Singapore for example, it has institutional funds available for starting small and medium business as well as large entities. It has regulatory boards such as Spring Singapore, EDB, etc to oversee the business deals to avoid any malpractice. All these factors make Singapore a viable country to start business in 6 days and also to pull out from business in less than a week.

Currently, Venture Capital Funds are regulated by Securities and Exchange Board of India. The need of hour is a transparent regulatory board appointed by Government of India which oversees the Venture Capital and Angel funds in India. It has to protect the interest of investors as well as founders of start-up companies.

On June 25, 2009 “The Financial Times” carried an article on the increasing oligarchs in Indian democracy. It seems 80% of the total market capitalization in stock market in India is controlled by Billionaires and Millionaires. This will provoke only crony capitalism in India instead of competitive capitalism with many small players too. Big corporate in India instead of killing other business must proactively help start up companies to flourish entrepreneurship. Established firms must start Angel investor networks and invest in the growing or nascent companies.

Usually institutional investments such as Private Equity funds come only at mature stage of the business hence it is difficult for small companies to raise capital in the initial stage. That is the main reason behind why the Government needs to set up institutional funds to help viable and credible firms in the early stage. As former President A.P.J Abdul Kalam remarked “We need youth to be job creators not job seekers”. For those words to convert into actions, we need good breed of Angel Funds and Venture Capital properly regulated by Government of India.

Sathiya Velan Subramaniyum

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