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The Changing Landscape of Indian Entrepreneurship and Angel Investments
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In the late 1990’s, India had become the world’s leading back-office to many American-based companies. Since many Indian employees had strong engineering management and software coding skills, their efforts were very beneficial when working on specifications provided by product design teams that were stationed in the U.S. and other western countries. These product design teams went through exhaustive market studies before establishing product design specifications, which were then sent to the Indian engineers who converted the specifications into software products. Due to this informal route, many Indian managers and engineers never experienced the opportunity to understand the entire product design process and the global technology markets.

Most Indians without any international exposure rarely learn the product development aspects of business. Instead, many Indian engineers who do not have U.S. work experience often view software development from an outsourcing perspective rather than from a product development point of view. Indian engineers have the necessary skills for product marketing; however, they lack the firsthand experience in marketing and designing new products.

Approximately 95% of the software and hardware companies in India are medium to large-sized enterprises that base their businesses around outsourcing, while the remaining 5% are Indian-American owned high technology product development startups that are similar to those of Silicon Valley. These high technology product development startups are generally established by Indians who have been exposed to product development in their prior American enterprises. These high tech startups tend to expose their Indian employees to some of the rare product marketing and design skills that most Indian engineers lack. However, most of these high tech startups are small with very limited financial resources to recruit and retain most experienced Indian specialists. Indian professionals are not well acquainted with concepts such as tech startup or work-for-equity; therefore, most of them do not appreciate a startup job offer for part salary and part equity.

Indian entrepreneurs who do not have overseas product design experience try to position products without taking the product marketing principles into consideration and are inclined towards building outsourcing service companies and BPOs (business product outsourcing). Such ventures require less capital and generate fast revenue. None of the net operating loss (NOL) period of a pure play company is necessary, and hence, obtaining venture capital is also unnecessary. This model is known for having a low entry barrier and was probably the only entrepreneurial model available in India. Venture capitalists and angel investors, who had invested in such companies in the last five years, were able to make profits; however, this model has become less appealing since the outsourcing and BPO markets have almost become mature and saturated.

The most recent trend for venture capitalists and angel investors has been consumer internet and mobile offerings that target India’s growing mobile consumers. Segments such as travel, matrimonial services, jobs, games, mobile payments, etc., are getting substantial capital infusion. Even though this model could possibly be saturated in the next few years, engineering requirements are marginal in this space, making marketing a large differentiating factor. To some extent, this example is also introducing the Indian entrepreneurs to product marketing.

Despite the many changes in the business world that have occurred throughout the years, many Indian entrepreneurs have failed to start companies based on technology innovations. Venture capitalists are very familiar with this trend; however, the lack of significant fundable ideas has been forcing them to diversify their portfolios with retail, biotechnology, and real estate. For example, Sequoia Capital, a venture capitalist firm, decided to invest in Royal Orchid Hotels, a chain of hotels that exclusively accommodates business travelers. Oak Investment Partners, another venture capital firm that is known for investing in information technology, internet media, and healthcare, has decided to invest $200 million in the Indian retail industry. This large investment was made possible by veteran retail investor Jerry Gallagher, who visited India, was astounded by the revenue per square feet in the malls and stores, and convinced his partners to commit capital.

Recently, many Indian-American entrepreneurs from Silicon Valley returned to India and partnered with many Indian engineers of the high tech industry. The biotechnology industry has produced one of the flagship entrepreneurs of India. Kiran Majumdar-Shaw, the Chairman and Managing Director of Biocon, Ltd., India’s first and leading biotechnology company, focuses on the development of biopharmaceuticals. The extraordinary success of Mujumdar-Shaw’s company has enabled her status to be the second richest woman in India. She is now using her status, expertise, and skills in trying to improve the entire industry. All of these entrepreneurs are using concerted efforts in motivating others to take the path of entrepreneurship. Furthermore, India is flourishing with investment commitments from many of the corporate giants of technology.

For example, Microsoft, Cisco, IBM, SAP, Intel, and AMD have each committed over $1billion to further develop their India presence. Many of the leading venture capital firms from Silicon Valley are also following pursuit. For example, Matrix Partners has announced a $150 million India fund that will be used to facilitate India’s rapidly growing internet, mobile, financial, and entertainment sectors. Sequoia Capital has acquired Westbridge Capital, an India focused fund that has been around for several years. Yahoo! has also started investing in consumer internet startups, the first of which was announced recently (Bharatmatrimony.com), partaking in the corporate venture capital game. Kleiner Perkins, NEA, Norwest, Battery, Sierra, and Canaan Partners, have also been actively involved in investments with India.

Many people decide to become entrepreneurs for two main reasons, whether they want to prove something to themselves and to the world around them or because they desire a good lifestyle based on their lucrative returns. The first reason is the main incentive behind recruiting India’s technology entrepreneurs.

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