India Startup Program Debuts

I read an interesting write-up in www.redherring.com which is appended below. Regards.

- Dilip.

Source: www.redherring.com

India Startup Program Debuts

Professionals come together to support the next generation of entrepreneurs.
January 31, 2006

The Bangalore Chapter of The Indus Entrepreneurs (TiE), a global network promoting entrepreneurship, introduced its Entrepreneurship Acceleration Program (EAP) on Tuesday to bring together successful local entrepreneurs with new entrepreneurs to increase their chances of raising institutional funding.

Early-stage funding in India has been the bane of would-be entrepreneurs, with starry-eyed young men and women rejoining the ranks of the employed after failing to raise any capital.

The recent economic boom in India has resulted in increased entrepreneurial opportunities for people with new, innovative product ideas, or disruptive business and delivery models. It's a climate where startups are springing up in every area. The fear is they will die if they are not supported early enough.

"One of the key reasons for the shortage of high-quality startups in India is that, unlike in Silicon Valley, there isn't a mature ecosystem comprised of entrepreneurs, mentors, venture capitalists, seed investors, angels, incubators, law firms, accounting firms, banks, and other elements promoting entrepreneurship," said Sridhar Mitta, president of the TiE Bangalore Chapter. "We want to change that."

'It's the locals who know the lay of the land, and they should be prepared to invest for the long term.' -Sanjay Anandram, JumpStartUp

TiE EAP is designed to help companies get through the seed stage of evolution and graduate to a first round of funding from established institutions, such as venture capital firms.

"TiE has designed it in a way that the framework between different parties is standardized and parameterized so that precious time is not wasted in endless negotiations," said Ashok Soota, a member of the board of trustees of TiE Global. "The funds directly flow from investors to entrepreneurs. The whole process is open and transparent."

Mentoring Entrepreneurs

The program will solicit business plans from entrepreneurs and weed them out in a selection process. Once an entrepreneur is selected, TiE will match him or her with mentors and seed investors who will work closely with the business.

At this stage, the entrepreneur will be known as a TiE Entrepreneur (TE). The TE will be further supported by a handpicked set of service provider partners and corporate partners who are committed to fostering entrepreneurship. TiE hopes this approach will increase the chances of success of raising capital from institutional investors.

TiE expects to receive more than 100 business plans but initially plans to support only five to 10 entrepreneurs. Seed financing pledges have already come in (just under $1 million).

More importantly, key mentors—such as service providers in the areas of legal services, tax and accounting services, recruiting, and incubation—are already on board.

Indian companies should not expect overseas investors to invest in early-stage startups, according to Sanjay Anandram, managing director of JumpStartUp, a venture fund concentrating on early-stage investments.

Perceived Risks

Most U.S. professionals are still discovering the potential of India, he believes. Overseas investors would perceive a threefold risk in putting money in India.

First, he said, they perceive risk because India is still seen as an "emerging" country. Second, they are not familiar with how well a technology startup from India could do. And third, when they have the option of putting their money into mid- or late-stage companies or into the stock market and be guaranteed a neat profit, the early-stage firm sounds like an unnecessary risk.

"It's the locals who know the lay of the land, and they should be prepared to invest for the long term," said Mr. Anandram.

He is familiar with the hurdles of trying to raise overseas money for startups in India. Jumpstartup has been looking at raising a fund of $75 million for some six months now but it hasn't been easy to sign up companies that contribute the bulk of a fund.

"We nearly signed on a couple of sponsors, but some contractual issues came up and those came to nought," said Mr. Anandram.

Undaunted by his experience, two more die-hard Indian investors are attempting to do the same. Kanwal Rekhi, a well-known Indian in the Valley who was an early investor in Exodus Communications, has set up Inventus Capital Partners and is raising between $150-175 million to invest in early stage technology firms.

While he is geography agnostic, he would like to invest in Indian startups. The fund should start investing before the year is out. " We wish we had the fund already as we have seen very good companies to invest in both in Bangalore and Silicon Valley," said Mr. Rekhi.

He said Inventus would focus on companies that offered solutions in software, consumer Internet, wireless, and technology-related services.

New Funds

Another brand-new fund that will debut in 2006 is called Seedfund, set up by veteran Indian venture capitalists Mahesh Murthy (who ran the Passion Fund), Praveen Gandhi (who ran the Infinity Fund), and Bharati Jacob (also with Infinity). All three of them are die-hard early-stage investors.

"We are looking at raising $10 million," said Mr. Murthy. "We deliberately want to keep the figure low because early-stage startups in India don't need more funds. And since we intend to do a lot of hand holding we cannot spread ourselves too thin investing in too many firms."

Quietly working away without calling themselves a fund are professionals at Erasmic Consulting, a group of four who are already mentoring and handholding three small companies. The group has deployed $400,000 and another $700,000 is ready to be put into a further three selected startups soon.

"Two of the initial three companies are at a stage where they can run independently," said CTO Subrata Mitra. "This year we will concentrate on the remaining four. We may invest more in these companies if need be."

Erasmic has raised funds from friends, mostly Indians in the Valley.

TiE's new program is taking this a step further by building the ecosystem for shoe-string startups to get up and running quickly. Mentors have been drawn from various sectors and several of them are turning into investors themselves.

"These are not just randomly rich guys," said Mr. Anandram. "They have worked in the tech sector, have been entrepreneurs themselves, and know the pain and joy of running a company. That's why the initiative will make a difference to the ecosystem, he feels.

Kleiner Invests in India

Ray Lane, general partner at Kleiner, Perkins, Caulfield and Byers, who is currently touring India along with colleague John Doerr and Ram Sriram of Sherpalo, predicted the TiE program would see mimics very soon.

"Silicon Valley has taken 40 years to be where it is. But even today, the ecosystem being planned by TiE is lacking there," he said.

He believes it is necessary for new companies to be established in India where several thousand new jobs need to be created. In fact, he said, even in the U.S., new businesses had to start since the old ones were shedding jobs.

Mr. Doerr said KPCB was looking at investing in Indian companies and had shortlisted some, but declined to provide more details.