Vishal,

It is not really just an ABCD problem.

Sure, they do add the mess by refusing to talk to anyone who does not have 100cr revenue as the ’target’ 2-3 years down the line, but the mess really starts with complete ignorance of market realities in India. This is market that is different, it is growing differently (you’ll see very few 100cr PA companies here, at the moment) and the deals have to be different. It is a vicious cycle, but we all know the problem. The question is who is going to break the pattern?

On a tangent, I was wondering recently about exits for VCs in India. They have been now around for close to 10 years here, I think the successful exits from new ventures in all that time would be less than a handful. I wonder how these funds manage to keep growing every year with such a miserable rate of return.

I don’t fully agree with this article. Should name the VCs to make more sense.
- VCs with all indian born partners with no american accents - Helion, IDG, Accel, Seedfund, Matrix, Canaan, Sequoia(some), DFJ etc and the list goes on.

Haha...Vishal. Well written, I don’t know about the ABCD’s but recent news suggests that there certainly has been far more Venture Capital investment in Private Equity.

Hail the ABCD’s taking the sensex to 25k - they should get other ABCD’s to join in as well!

Heard of something called spellchecker?? Use it...so many spelling mistakes..its irritating.

Thank you for being one of the few who are frank and in the process controversial. I have followed your talks at various seminars and conferences with much joy.

Hoping to hear you again at Headstart, this Saturday :)

Best,
Asfaq

@anon who posted on the 16th,

That is the gospel, which is more or less true for the Sandhill crowd, which is probably not the case in India. As Vishal has mentioned in the post, most eventually wind up behaving like PE groups, which beats the entire purpose of them being VCs. Again, I don’t remember too many exits in India for VCs, which has to happen for even 6/2/2 split to work. Instead, we have seen fund size & numbers grow year-on-year. For the funds to work, that money has to be invested. My question is where does it get invested and what is the return on it for the LPs for India-specific funds.

Vishal, I did not say anything about the exaggeration in the post. What I was saying was that the problem is more systemic to the domain itself here.

hey vishal,
Hope u remember our encounter at e-summit 2009,sorry if I annoyed you that day asking too many questions.I found This post to be true in sense and a complete recap of your indiagames venture.Is it really that way??

Talking of ABCD story,this seems to be the problem with not only (American Born Confused Desi) but all financial investors.
This also holds true in stock market investments.You will never find a Private Equity or mutual fund buying falling shares(small and mid size companies) unless they are contrarian fund.They always chase rising stars.

Let me tell u an experience in 2006-07:
A company named atlanta listed on the bourses at 150 bucks against initial pricing of 120 rs.The share went on achieving new heights within one month even lame T.V persons knew that rise was without fundamentals,and everyday I used to get queries related to this stocks which I warned everyone against it ....still it keep on rising and one day I heard morgan stanley fund investing into it...at 1200 rs.......After 2 weeks news came that the promoters rigged the share price ,that share came down to almost 300 rs. in rising market within a fortnight and almost to rs. 65.

The point I am trying to make is all foreign investors in their quest for safe investment and outperformance invest mostly in rising sectors and companies so we can assume they like to swim along with the wave.Today education is hottest so any venture in this field gets good funding,herd mentality.

Why do then such ABCD or other VC’s Invest?

The ans. is Today almost all venture capitals in india are hyped cos once they make investment the startup’s value rises in multiples as people come to believe that the company does have good business potential,and they keep selling their stakes to similar VC’s at higher price which in itself is rigging by utilizing their so called power, creating a similar cycle like banking credit.At this decade emerging countries are at boom phase so people exaggerate every investment there as good and growing investment.Even startups like taking investments from such companies as these people have less knowledge compared to Indian based entrepreneurs and thus would be less interference in working.

In my sense a business startup should start by thinking the worst that they won’t get any funding so that way they would be focusing more on earning revenues from their core business. :)

India needs YCombinator style investors. Not much opportunity here for VC’s searching for million dollar deals.

Hi Vishal,

i heard you first time in IIT e-summit and liked you very much... it was nice to hear thoughts of a successful entrepreneur who is talking from his heart...

saw your article and again found it coming straight from heart. I fully agree with you and i can say that out of my practical experience with these VCs over last 6 months. few of them, were in e-summit hearing the start up ideas but when i approached them with few proposals then comments were like we think its too early investment for us... we would like to see this proposal after one year of performance..

so, basically they agreed that the business had potential but not ready to invest in still. also, few of them rejected one proposal saying that this was bigger in size than they generally look at.. but 15 days down the line there were news that the same funds have invested 10-15-20 mio dollar in one company...

so how do we get what they want...??? infact, we get confused.

A suggestion for you, why dont you start a Angel fund for helping indian start ups. it may be small in size but slowly can make it big the way indiagames did.

i myself am an entrepreneur and started my own financial consulting company 8 months back. In our Company, we have launched specific departments for assisting entrepreneurs in nurturing their ideas, developing a scalable business model, taking care of all legal compliances, accounting, raising of funds etc. infact, we are already working on 3 proposals under this department while evaluating few others. under this department we invest our time with entrepreneurs and take a minor equity stake in venture instead of cash. option of cash or equity really depends on the entrepreneur and we work as per his comfort level.

We are also now working on launch of a small seed fund with initial corpus of 50-75 lakhs to invest in start ups with investment requirements between 10-15 lakhs. this project will soon be out in the market..

let me know your views.

Now that is what i call a blog with reality and a good sense of humor... :)

great post.
have seen this happen too many times in the last 15 years - both when i was in a corpo and now that i have my own business !
no body wants to invest a crore or two to get back y times that amount (where y is any figure between 5 and 15).
it is more like - you need to ask for atleast 25 to 30 crores - and project revenues of 250+ crores in year 5. Unfortunately, the only businesses that generate that kind of revenues is illegal :)

Nice blog , Vishal.

Nice Post Vishal.

As an American (but not a Desi) living in India working essentially on a start up, I found this post refreshing.

Our business has entered countries in a myriad of ways (with a myriad of budgets). We have found that beyond anything else, you must first prove the business model in the local market before you start throwing money at your problems (real of perceived).

With regards to your post, I’m not sure this problem is as much an ABCD in India problem, as a human nature problem. I’m sure you could find a lot of local boys who’ve taken VC money & thrown it into TV ads. Look around the world, and you will find this mistake more times than I care to count!

Scott

vishal, i am a new york based investor who looks into emerging markets. i came across your blog by accident. you have a lot of growing up to do. if india produces entreprenuers like you, who seem full of themselves and criticize their own kind in another country, it does not reflect well. If you want to position yourself as a sophisticated international player. you need to develop some finesse in your wording and also not be biased towards a certain group of your own origin. good luck and i hope you do some growinp up son!
also, i saw your picture.do not mind me teeling you this, but you really need to lose some weight. being overweight is a sign of a person who has gotten too big for his pants, just because he/she got some success which could not be handled.