Tuesday, May 20, 2008

Innovation ecosystem in India: An early-stage VC perspective

India’s innovation ecosystem dashboard: In an earlier post, we looked at how India’s innovation ecosystem dashboard looks vis-à-vis Cuba, Singapore, Israel, Germany, Eureka and Taiwan. Well, I thought it will be good to understand what is in the mind of a VC who is investing in India’s start-ups today. If you look at the dashboard, the investor axis is denoted by “$” and India ranks 1 on the scale of 4 as of now (Israel, Germany, Eureka and Taiwan, all rank 3 on 4 and Silicon Valley ranks 4 on 4). In this article, I summarize what I gathered from 2 interviews (1) Interview of Michael Moritz, Managing Partner of Sequoia Capital (Economic Times, Corporate Dossier, 24-Aug-2007) and (2) Sumir Chadha, Managing Director, Sequoia Capital India available as a podcast on iinnovate.com (published 18-May-2008).

Sequoia Capital: Sequoia Capital is India’s largest early stage investor. (It also does late stage PE investments). The firm has earmarked $1 billion for investments in India out of which half has already been invested in sectors such as retail, construction, financial services, wireless. In 2006 Sequoia invested in companies like Guruji.com, TravelGuru and Minglebox when they were 2-3 people companies in a stage typically called “Powerpoint stage”. Sequoia has a successful history of early stage investments. Their investments today make 10% of NASDAQ value (most notable: Apple, Cisco, Yahoo, Google and YouTube).

Investment criteria: Sequoia looks for founders and management teams who are enthusiastic and passionate about a product or a service that is addressing a very large market. As Moritz says, “It sounds easy but it is very difficult to find the triple combination of markets, management and product”.

What is missing in Indian technology ecosystem: Sumir articulates clearly that Indian technology industry lacks product management expertise. One reason being that the gap between where the engineers sit and what customer needs is large. I agree with Sumir. In my technical leadership workshop, I usually ask participants what they think product manager’s primary responsibility is. I am yet to get the correct answer.

Common mistakes while pitching to VCs: Sumir mentions 2 common mistakes: (1) Market sizing: For a VC like Sequoia to get interested the business should have a potential to reach $100M in 5 years time. A $10M or $20 M is not attractive enough. (2) Lack of self-confidence.

Should Indian Entrepreneurs be in India or in Silicon Valley? Sumir answers this well. He says, “Move wherever your customer is.”

State of research in India: “Abysmal” is how Sumir sums it up. India has great teaching institutes but terrible research institutes. It is no surprise that on the “E-R&D” axis on the dashboard, India ranks 1 out of 4.

Overall Sequoia is bullish about India notwithstanding the looming downturn. Sumir says, “For early stage, we invest through up and down cycles. For late stage, a bear market is a good time to enter”.

If you want to be plugged into VC activity in India, I recommend: India's Deal Chronicle.

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