The role of venture capital in growing Indian ecosystem

Alok Mittal, Canaan Partners

Indian business landscape has always been active with startup formation. While a couple of decades back, such startup activity was led by family business houses, many of the successes in the last ten years have come out of professionals and first-generation entrepreneurs. The same time period has seen an emergence of venture capital industry in India. The mutual reinforcement of these two developments is hard to miss – independent startup activity has created a space for venture capital, as much as deriving strength from it.

Indian startup fraternity has always had the complaint that the best talent in India is not attracted by startups. I believe that this is largely a function of the risks and rewards that startups have represented. It is not surprising that in an environment, where doing a startup may involve peddling family jewels, not many first-time entrepreneurs may come forward. Risk capital fills that gap in the ecosystem by providing the initial support. More importantly, it amplifies the potential rewards by providing growth capital once an idea takes off. This decrease in risk perception, and increase in potential upside, is a key driver to new entrepreneurs starting their businesses. Beyond entrepreneurs, the notion of capital exit as an integral milestone for startups, creates a currency to attract next line of talent – It is not surprising that most venture backed companies tend to have stock options as a cornerstone to attract talent.

India is an early venture market. As a result, even when extremely experienced entrepreneurs form startups, they are often under-exposed to the nuances of high growth businesses, creating and realizing strategic value, or being able to tap into a recruiting network. Venture capital players often have the scale within their portfolio to build experience and relationships in these areas, and hence are able to bring those learnings and networks to bear for their portfolio companies. The experience of global venture capital players such as Canaan, extend beyond the geography or time constraints of the Indian market, and the partnership as a whole can bring a rich set of learnings to the table.

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Another element of India being an early venture market is that the bridges between the industry and startups are missing. Again, several venture capital firms are beginning to invest in building these relationships to the benefit of their portfolio companies. In my own experience, I have seen this to be extremely valuable to the industry as well, because it exposes them to the innovation that is happening right around the corner. The startup activity in general, and venture capital enabled innovation-led activity in particular, thus has an impact much beyond the revenues and profits of the startup itself. In fact, most mature countries have recognized the key role that external innovation can play in continuous evolution and competitiveness of the large-scale private sector businesses.

A young country like India, ultimately relies on hope and promise as currency of growth and social cohesion. Perhaps the most important contribution of risk capital, though perhaps minute in context of a large country like India, has been to provide that hope and promise to thousands of entrepreneurs across stage and sectors – the hope that the next billion dollar business will be built out of India and it will be theirs, and the promise of patience, support and resources to help entrepreneurs accomplish their dreams.

(About the Author: Alok Mittal is the Managing Director of Canaan India. He leads Canaan’s investments in India, and focuses on digital media and mobile companies, as well as innovators in managed software services and other IT enabled businesses. Alok is a co-founder of Indian Angel Network, on the board of TiE (The Indus Entrepreneurs) in Delhi and an advisor to Adtech India.)

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