The Indian Economy Blog

March 27, 2007

Entrepreneurship In India

Sramana Mitra, entrepreneur and consultant sent us this thoughtful piece

Enterpreneurship is a critical element of a growth economy, and India is poised to unlock a Silicon Valley like entrepreneurial boom through the next 10 years. The beginnings are already in place, steps have been taken in the right direction.

I have written extensively on the topic of entrepreneurship and venture capital in India, and thought it would be a good time to summarize the various pieces.

Last summer, I started digging into the topic, and came up with my first nugget: Too Much Money, Too Few Deals, highlighting the excess capital chasing Indian startups, and the lack of fundable deals.

Around the same time, I also wrote my popular Concept Arbitrage series, which led up to the widely read Venture Capital in India article. In these, I explored what kinds of deals have been getting funded, and why. Consumer Internet turned out to be a big trend from last year, for India, while non-tech sectors like retail and real estate are also big money-making opportunities. In fact, I highlighted the retail trend in my piece about Oak Investment Partners’ India Retail Fund.

This year, as we have explored the issue of seed capital for entrepreneurship in India, the situation has got more dire, with more money going into India. This has led me to the conclusion that India Needs More Incubator Funds. I continued an exploration of the incubator fund requirements, while entrepreneur Sujai Karampuri wrote some passionate pieces on why we need technology product companies in India, and why we don’t have any.

Finally, I suggested some areas for technology entrepreneurs in India to explore as segments where new companies can be formed: SaaS, Enterprise 3.0 and web 3.0.

In summary, I am optimistic about India’s entrepeneurial potential, and look forward to tracing its developments over the coming months and years.

All you entrepreneurs and wannabes — comments are open.

27 Comments »

  1. India is a conservative country and most of us are more content with monthly pay rather than taking risk by venturing out as an enterpreneur. Our parents taught us to study more and play less, because according to the parents the best way to survive is being an officer.
    People do have ideas but realizing those ideas involves risk which we are not accustomed to. To realize ideas,the gap between ideas and investors should decrease. Nurturing an idea is key to enterpreneurship.

    PS: Sramana mitra,I read your blog regularly,its interesting.

    Comment by Harish Babu — March 27, 2007 @ 9:54 am

  2. “India is a conservative country and most of us are more content with monthly pay rather than taking risk by venturing out as an enterpreneur.” – not entirely true.

    The License Raj worked very hard for very long to kill the entrepreneurial spirit in India, but historically Indians certainly have been very enterprising. But this entrepreneurial streak runs more in certain castes (the Vaishya or trader caste) and communities (the Marwaris). Individuals born in such families are brought up in an environment where “going into business” is encouraged.

    However entrepreneurship is probably not as popular among the higher-educated elite as it should be. The IT and MNC salaries and “onsite opportunities” act as serious temptations.

    Comment by Kiran — March 27, 2007 @ 10:43 pm

  3. you say that Indian enterpreneur is poised for potential growth..you have referred to your previous writings.. I haven’t read them .. but I see the way big money is dominating the market and how our government is going all out, changing laws and everything, to facilitate them.. not to mention SEZs.. please explain more..

    Comment by abhay tiwari — March 28, 2007 @ 4:48 am

  4. I am an entrepreuner based in Chennai. (plasitc injection molding) ;
    i am from the textile town of Karur in TN. In our district the
    entreupreunal culture has evovled very much over the decades in
    spite of the license raj. Most of the people (incl engineers, lawyers,
    doctors) are self employed (into textile exports or related services)
    and the local GDP is nealy 3000 crores for town of population of
    some 3 lacs ! And bus body building, mosquito nets knitting (HDPE) are
    other major industries. Nearby Tirupur is hosiery centre and Namakkal
    is the hub trucking, borewells and poultry.

    the culture of the area matters most. I know self made millionares,
    barely literate, who travel to Europe regularly to confirm orders.
    Walmart sources most of its hime textiles from here. Panipet is our
    competitior.

    The area is mostly dry and arid. Agriculture is difficult and marginal.
    Hence the motivation for survival is high and the people originating
    from the ddry lands nearby are the leaders in business. The people
    from wetlands (to the north of Karur)have not made the mark and there
    are no sucess stories from that area, as they were used to easy life
    with plenty if river water for irrigation. same story in Namakkal
    and Tirupur. Trichy and Tanjore districts have good water resources
    and the textile processing industry, which requires lots of water
    should have come there. but the motive was not there.

    Another important aspect for entreuprenership is the attiitude to
    form partnership based on mutual trust. One may have capital, another
    the skill and another the ability to manage and work hard. partnership
    is the first step towards capitallism. Private limited cos, then
    public limited cos (which issues shares) are the next steps. Finally
    there is venture capital which is the pinnacle of free enterprise.
    many tech start ups with bright ideas have been funded by them in
    the Silicon valley.

    Indians, who experienced double digit inflation and public frauds,
    traditionally invested their life savings in gold, real estate or
    bank FDs. It would be great if the menatlity changes slowly and
    VCs and equity culture spreads steadily with more honest deals.

    Comment by K.R.Athiyaman — March 28, 2007 @ 4:56 pm

  5. Great to find this site. Have spent 5 months surfing for thoughtful Indian economy commentary while blogging about my personal experience working/living in India, and about the microfinance venture capital space that I work in (a small niche but one that’s gaining momentum and mainstream investor attention as of late).

    I do believe that a VC culture is taking hold. It seems everyone I sit with at dinner in Delhi or Bombay is pitching a new business idea, even before I tell them what I do.

    K.R. Athiyaman is right to point out that one of the biggest issues for new entrepreneurs is trust. I’ve heard several investors, much older and wiser than me, make the comparison that the Indian entrepreneurship / VC circuit looks a bit like Silicon Valley did in the 1980′s: A lot of cautious first time entrepreneurs, deals that take longer to close with terms harder to flush out, but nonetheless plenty of deals to do.

    Let’s hope that comparison continues to play out as the industry in India grows.

    More about microfinance venture capital at http://www.bankerinindia.typepad.com

    Comment by Mark Straub — March 28, 2007 @ 10:04 pm

  6. Entrepreunership historically flourished in India.. we have history of ancient indian coins being unearthed as far as Rome, Indonesia & Singapore[incidentally, which was named as Singapura - Town of the Lion in tamil.. a Lion - Merlion is the mascot of singapore!].. The license raj did its best to punish enterpreuners.. for starting business.. it is still the case.. even for registration of a new organization.. to getting electricity.. water & others involves bribes to officials.. who still view the enterpreuners as an evil & greedy guy.. as in old movies.. where the villain was usually a business man..

    it is slowly starting.. however, it is still confined to either the elite from IIT/IIM institutes or grass roots level innovators.. who spend their entire life with hopes of funding.. the middle class just wants “safety”.. which is non-existent.. the government is doing its act now.. by taxing the salaried class more.. which should make them awake.. let a billion businesses bloom…!

    Comment by Suresh — March 29, 2007 @ 2:24 pm

  7. It is interesting to hear you discussing the future of entrepreneurship in India from a venture capital perspective. Whilst venture capital plays a big part in funding businesses here in the UK, most people approach their bank as a first port of call.

    There are government schemes like the Small Firms Loan Guarantee scheme for loans up to £250,000 that are guaranteed to 75% of value. This is the equivalent of the US’s SBA 7(a) Programme that offers similar guarantees to banks offering start up capital but on a larger scale.

    As a result we have a culture that promotes the entrepreneurial spirit and small businesses accounting for 50% of all jobs and over 50% of UK turnover.

    Are there any such schemes available to business start ups in India? Is it that, as Mark puts it “a VC culture is taking hold” or does this sort of government backed assistance just not exist as an alternative?

    Please forgive me my ignorance of your commercial finance industry. I would be very interested to hear your feedback.

    Comment by Ben Lefroy — March 29, 2007 @ 4:00 pm

  8. Speaking of a VC culture taking root and old economy plays, here’s a bit of news from the financial services sector in India, Silicon Valley based Sequoia Capital has just led a $11 .5 million equity round for Hyderabad-based microfinance upstart SKS, which I believe is now one of, if not the, largest-capitalized microfinance lending organization in the world.
    I can’t find any links to news stories about it on the web, so here’s the press release (www.bankerinindia.typepad.com).

    Comment by Mark Straub — March 30, 2007 @ 1:20 am

  9. To repeat a cliche, India is a land of contrasts. I see entrepreneurship bursting at its seems on the streets of India – everybody is doing something that adds some value to someone and earns him a few bucks. From the paanwalas to the tire repair guys to the little kids who delivers chai to shopkeepers to the “agents” who can broker anything from insurance to mortgage to train tickets – India is teeming with entrepreneurs.

    On the other hand, most young Indians, when asked what their goals are, would say, “getting a good job.”

    Is entrepreneurship a last resort for those who fail to get into a good “service,” as they say in India? Is India’s entrepreneurial force mainly – and I repeat mainly – the less educated and less privileged?

    Comment by Sarat — March 30, 2007 @ 4:40 am

  10. Sarat,

    Entreupreunership is not the last resort for many youth.
    the family and local culture shapes many. Traditionally
    some castes are entreupreuners and traders. Now with
    MBA’s everywhere, there seem to be lots of new avenues
    opening up for entrerprises, esp in the services sector.

    In my home town, most prefer self employment and taking
    up a job is looked down upon, even if it is a prestigious
    IAS officer / Collector..; booming textile exports and
    there are hundreds, if not thousands of self made millionares.
    a tailor can become a boss in a decade if he is dilligent
    and careful with his savings. there are women entreupreuners
    who manage labour and act as agents. catering servies and
    transport are booming in tandem. and so on.

    License raj is well entrenched in the bus tranport system.
    there is an acute shortage of buses all over India, while the
    exisitng private ‘permit’ holders make a bonanza. ‘routes’ are
    traded for crores of rupees (of course in black money) in many
    prosperous areas. I am disheartend about the power of this lobby
    which includes rent seeking politicans and bureacrats and trade
    unions of PSU bus corporations. It is almost impossible to
    break this network unless there is a mass upheavel against lack
    of buses. All the govt bus cos are bleeding and are heavily
    subsidised by govt budgets. But the poor continue to ride in
    jam packed and rattling old buses, packed like sardines in a tin.
    the ‘socialists’ and communists seem oblivious to all this, while
    they hold forth against American imperailsim, etc. I cornered a
    top CPI politician in a train and he was evasive in his replies.
    they live in a pipe dream world..

    Comment by K.R.Athiyaman — March 30, 2007 @ 12:59 pm

  11. I do not think the “climate” in India is right for any kind of startup.Opening a company takes one month (compared to one day in Singapore), you still require a myriad of licenses and permits which no one person can really tell you how many exactly are needed for YOUR business (various people will give you various numbers), there are many many different kinds of taxes, exiting a business is much more difficult than starting one,…. I could go on and on. The businessman is seen as a necessary evil, not to be encouraged too much.If despite this he succeeds, there will be infinite numbers of rent seekers who want a cut out of his success.
    No, I do not think India has the climate necessary to let a thousand businesses bloom.

    Comment by Mandar — March 30, 2007 @ 5:07 pm

  12. “you still require a myriad of licenses and permits which no one person can really tell you how many exactly are needed for YOUR business”

    License Raj by itself is not a killer of enterprise. I live in a major metro area of the US and own two companies, one that is free of all rules and regulations and the other fraught with licenses and permits. Any entrepreneur entering the latter field would easily waste a year, a hundred trips to city and county offices, and tens of thousands of dollars merely to get a small business open.

    Highly advanced societies develop intricate rules just to protect their quality of life. They may fast-track certain functions in order to attract capital and enterprise, but their license raj is as cumbersome and economically wasteful as India’s, and at the end of the day, it is just as difficult to open a restaurant in New York City or a gas station in Miami as it is in Delhi.

    So what’s the difference between the two societies? In my extremely limited experience dealing with Indian bureaucracy and extensive experience dealing with the American one, I think the difference is how public officials take their jobs. In the American bureaucracy, there is a lot more transparency, accountability, and a spirit of service (most government offices in the US call their visiting public “customers”). This leads to the checks and balances operating in a somewhat collaborative manner between the entrepreneur and official, and most importantly, conditions under which the original intent of all the frustrating rules are accomplished most of the time. There is less distortion of the process, and if a set of rules governing a business was originally designed to keep customers safe, for instance, it indeed works that way. Or if a set of municipal codes were designed to keep an area of the city free of business, then the codes work – usually.

    I suppose I am referring to a social trait that has been discussed frequently at this blog – GOOD GOVERNANCE.

    If India continues on the free market path, stresses education which leads to greater public awareness and accountability, develops its physical and economic infrastructure to facilitate enterprise, the license raj of India will someday equal that of the US in its effectiveness. (I didn’t say it would go away.)

    Comment by Sarat — March 31, 2007 @ 5:07 am

  13. “Another important aspect for entreuprenership is the attiitude to
    form partnership based on mutual trust.”

    Athiyaman, I couldn’t agree more with you. Your geographic analysis of entrepreneurial culture in and around Karur is very interesting.

    I just watched Mani Ratnam’s GURU. Isn’t a seminal movie on entrepreneurship?

    I think, it is getting easier for risk takers to start a business but, if you go beyound IT related business, one still needs contacts, high level of motivation, and a corrupting way of life (willing to pay up), and pile of cash upfront.

    Comment by Chandra — April 3, 2007 @ 10:15 pm

  14. Dear Friends,

    Thank you for all your thoughts. You see, America has a very robust small business / entrepreneurial culture, and it helps the country to preserve its momentum. There are, for example, 20 Million small businesses registered that have no employee. India, while it grows on the wings on MNC offshore shops, should also develop such a robust entrepreneurial culture. With some success, the stigma will start to erode. For now, the focus needs to be on creating the successes.

    And Abhay, please read the posts that I have linked to. It’s hard to explain such detailed analysis in a few words.

    Mark, I plan to cover SKS in detail. Just spoke with Sumir at Sequoia over the weekend about it.

    Regards,
    Sramana

    Comment by Sramana Mitra — April 4, 2007 @ 9:21 am

  15. A serious impediment to the growth of entrepreneurial culture in India is the relatively high “cost of failure”. The word `R.I.S.K’ assumes a whole different meaning out here. Friends and relatives dissipate and (s)he faces instant ostrasization by the society. In the developed world with social security and other safety nets, one can start, fail and start all over again. (S)he’ll at least keep walking.

    In India, if a first generation entrepreneur hits it off, good for her. Or else, it’s headlong ruin or worse, it would mean starvation.

    Comment by krishna — April 5, 2007 @ 8:59 pm

  16. The Myth of VC / PE investing in INDIA – R they just being courier Boys ?

    I am convinced that most of the Venture Capitalists (VC’s) and Private Equity (PE) Funds are doing a Me-Too Job or behaving like heard mentality, without adding much value to Indian Entrepreneurship.

    Lot has been written about changing land-scape of India’s corporate world, courtesy advent of new animal called VC’s / PE funds, who support a new technology / emerging company or sun-rise industry. However, a close scrutiny, reveals a different story.

    Most of the VC’s / PE funds in India are from American Origin, namely 2 prominent cities i.e. Menlo Park, CA and New York City, NY. They follow a very stereo type funding pattern, which I call a courier job. It is heartening though, that Indian subsidiaries of USA based VC’s / PE funds are headed by Indian, who has studied or worked in USA. So, there is a direct India linkage, but in reality, none of them (The Indian Partner, CEO or the India Boss) is able to finance or Venture into a space or industry if that has no reference point in USA (means the Industry, Sector never funded before).

    The case in point is startling. Travelocity / Orbitz and Expedia has been funded in USA, thus Good amount of money has been poured into Travel sector in India as well like TravelGuru / Yatra / makemytrip.com etc. Any intelligent person would know that this is a crowded space and margin is not more that 3-5% max, so why so much money is chasing so many players ? Simple, India Operated USA based VC’s / PE does not want to work hard or take chances. If this sector has worked in USA, they feel it will work in India as well, hence the rush..

    Another good example is Real Estate. Every PE Funds, worth the salt, is putting huge bet on Real Estate thus we see Raheja’s / DLF , Hiranandani’s are raising over 100 Million in last 12 months. Again, no brainier as this sector has worked in Western Word.

    So, the so called intelligent people running these VC / PE funds are just doing courier job. They are not adding value or creating wealth for India lest we could have seen some investments in Insurance Broking & Distribution ; Finance ; Mobile Distribution ; Web Marketing ; Car Distribution etc.

    M

    Comment by M — April 5, 2007 @ 9:07 pm

  17. “but in reality, none of them (The Indian Partner, CEO or the India Boss) is able to finance or Venture into a space or industry if that has no reference point in USA (means the Industry, Sector never funded before).”

    Undoubtedly there are purely indigenous opportunities in India not being developed, but most of the US transplants are legitimate value additions and will have a potential among India’s urban consumers. Consumption and lifestyles of India’s emerging middle class will not be that different from the US. I suppose most VC’s are like most entrepreneurs anywhere – go for the low hanging fruits first.

    Comment by Sarat — April 6, 2007 @ 2:22 am

  18. To add another point to my previous comment, the opportunities unique to India will probably not be only in the sunrise industries but in the sunset industries of the west, which dropped out of the western VC radar decades ago. The mature sectors of the west are likely to be the emerging, high growth sectors of India. But how many VC’s want to fund motel chains, daycares, auto repair franchises and the like?

    Comment by Sarat — April 6, 2007 @ 2:26 am

  19. For India, the IT Services Sector is the most effective engine for small business activities and startups. You always will have problems with other types of industries, however we cannot ignore them either. Risks are much higher in comparision to a well-paid paid job! Again, as we rightly say – “No Pain, No Gain”.

    Comment by Web Consultant — April 10, 2007 @ 1:08 pm

  20. Entrepreneurship in India is developing but only few get chance to set up their own ventures. Rest of the Knowledgeable persons with great ideas don`t event get chance to show their ideas to financing companies or experts. Many INNOVATION COUNCILS are set up but they are only helping technological innovations.

    For developing entrepreneurship in India, we have to stop promoting only technological entreprneurship. Where ever we see there is Venture Capitalist he or she is more willing to fund technological innovations rather than to good or great ideas. In my view if we want to develop entrepreneurship in India than we must have to stop attaching entrepreneurship only with technology instead good ideas in field of marketing, Financing and services etc. If any one starts a new marketing firm or new bus service or a warehouse in his or her city or village will be of equal help to the economy like any one starting a mechanical factory.

    It is not that only technological innovations can help economy. Main focus should be on the idea and how much we can rely on the idea. There was one person who used a piece of bun added some vegetables to it and we got BURGER. One man was selling flavoured supari and tobacco on cycle, he went on to set up PAN PARAG, There was one man who wanted to see the call rates drop to the cost of post card, we got RELIANCE INFOCOM.

    Comment by Vinit — April 11, 2007 @ 10:48 pm

  21. Isn’t that the toughest part: giving up a cushy job, the security that comes with it to plunge into uncharted waters. As Indians aren’t we doubly conditioned to aim for security above all else? Or … is that mindset about to change?
    That set me thinking. How easy is it really to step out of the comfort zone and take the plunge? What does it take? Guts. Moolah. Persistence. More importantly, how much of each?
    Read more: http://diggindianews.com/IndiaBusiness/Businessworld__Entrepreneurship__Venture_Capital__Taking_the_Plunge/

    Comment by prinks — August 6, 2007 @ 6:13 pm

  22. do “Enterprenureship in india is a death wish”

    Comment by manik prasher — December 26, 2007 @ 9:38 pm

  23. Hi this Blog looks real inspiring…!!!

    Comment by Amrutha — January 7, 2008 @ 2:59 pm

  24. I agree the next 10 years would see an entrepreneurial boom and is waiting to explode but the fire needs to be ignited. There was a phase when everybody was fighting for an IIT and IIM. Quite a few people have reached a stage of decent money and slowdown in their corporate growth. They are thinking entrepreneurship but something is holding them. If this something is nullified, the entrepreneurship potential will be unlocked. The comments earlier are valid that most of these people are hesitant, culturally driven and all that. Can somebody take these as given and try and mitigate them. One idea being simple ; Venture cap to underwrite 10 years salary for an individual in case he jumps into an entrepreneruship project. These sort of innovative schemes will lure people into the game. Else it will remain like the Indian housewives … highly qualified, intelligent but not utilizing their potential due to obvious reasons.

    Comment by Vineet — May 7, 2008 @ 6:29 pm

  25. Financial Crises

    Some dangerous myths have been generated in the wake of the sub-prime crisis. It is hard to think of a more charitable word for them than “nonsense”.
    The first is that the crisis is attributable to “free market capitalism” and this is justification for compromising or abandoning the system.
    This myth overlooks two basic facts: that markets have and should have fluctuations, panics and crises; and the failure of big corporations. These are natural and desirable manifestations of the dynamic nature of markets and essential parts of what makes markets superior to government alternatives, where countless follies are perpetuated at the expense of taxpayers and national prosperity.
    Even if the market is responsible for the crisis — which it is not — there would be no justification for tampering with the system that has made countries with it the wealthiest.
    Countries with the systems now being proposed as supposed solutions are the hellholes on earth where destitution is so normal that it is not regarded as a “crisis”. Brief setbacks in the world’s most successful system are no reason to switch to the world’s least successful systems.
    Second, as far as the SA economy is concerned, exchange control can, at best, now be credited with brief and slight benefits, which do not justify its continuance in the long term. The National Credit Act (NCA) has plunged SA into an opposite “supra-prime” crisis.
    The US government forced the market to provide credit to credit unworthy (sub-prime) people, whereas the SA government forces our market to deny credit to creditworthy people. This has caused or contributed to a collapse in our credit-intense sectors (vehicles, housing, furniture, clothing, and so on ) by as much or more than the collapse in America’s sub-prime housing sector.
    Thousands of creditworthy South Africans, especially blacks, have been denied credit, hundreds of marginal businesses have collapsed due to the NCA making credit costly and risky.
    The third and most fundamental myth is that the crisis is a manifestation of “the market”. The nonsense surrounding this idea goes so far as to attribute the problem to “Wall Street greed”, as if it is a new phenomenon, unique to the past few months and Wall Street financiers. It is an idea so obviously absurd as to justify no further comment.
    “The market” has indeed been responsible for dubious practices such as underrating the risk of securitised and highly geared and leveraged derivatives, but this, on its own, is neither a sufficient nor necessary condition for the crisis. At most, it would have caused spontaneous market corrections and insolvencies for the guiltiest parties. South Africans can easily understand government provision of sub-prime credit and implicit backing by reference to our Land Bank, the sole purpose of which is sub-prime credit to farmers, and SA parastatals, which are implicitly government-backed and therefore able to purchase on credit.
    The fourth myth is the thought that the crisis was caused by “deregulation”. The truth is that there were various laws which obliged banks to provide sub-prime credit such as the Community Reinvestment Act and the prohibition of “red-lining”.
    What little deregulation there was, was firstly trivial and secondly of no direct relevance to sub-prime mortgages.

    BY: Manik Prasher

    Comment by Manik Prasher — November 21, 2008 @ 9:59 am

  26. Dear friends,

    I am here to state that the present situation of the rural entrepreneurship in India. India had a good tradition of entrepreneurial talents in rural areas of India, such as the dairy farming, agriculture, wafer (pa-pad) making, pickles, dry vegetables, dry fruits, etc.

    Due to urbanisation and industrial development, modernisation, and so on what ever may be the name is so called, today the age of mass production, people tend to give up their birth places and shifting to urban area, for monetary reasons, as urban areas provide good remuneration.

    I hope that entrepreneurial talents are almost shifting to urban areas hence, entrepreneurial activities are dying in the rural India, now it has become the duty of the government to promote the entrepreneurial ideas in rural areas.

    The evolution of the Self-Help-Group (SHG) a promotion of the government. Do many of us know that few SHGs have failed, and only some of the flourish due to the support of the locals.

    Comment by Sundar — June 28, 2009 @ 10:15 pm

  27. Entrepreneurship : The definition is complex.

    Most educated Indian take the safe path of getting a job unless they have had a family business. It is the not-so educated people who are willing to take the risk.

    For eg: Today we import most of our toys from China. Thailand etc. Why is no one entering the market. Booming market, good availability of raw materials but no one makes toys.

    Fancy electrical lighting for homes : Again huge demand. All are imported from china.

    If we were a truly enterprising people, we would not just be manufacturing these but also exporting.

    Software which requires minimal capital sees quite a bit Indian enterpreneurs.

    Comment by NotAnEnterpreneur — July 24, 2009 @ 1:06 pm

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