The venture capital (VC) based Indian startup ecosystem is still its nascent stages. A bulk of the VC activity in India really began in 2005-06 with the establishment of VC firms who setup offices in Mumbai and Bengaluru with a significant amount of capital.
In comparison, the venture capital landscape has been active in Silicon Valley for about 40 years with several visible large scale success stories from companies like Intel, Apple, Cisco and Google. Since a lot of VCs who set up shop in India have spent decades working in the U.S., they have brought with them, many of the Silicon Valley practices and culture. The Indian startup ecosystem will continue to evolve in the coming decades as investors, entrepreneurs, bankers and lawyerstogether go through a few “investments to exit cycles” together.
Indians have an entrepreneurial DNA. I think it comes from our sheer ability to survive on a daily basis in one of the most populous countries in the world. However, there is a marked difference between the types of startups looking for funding in India versus what we see here in the Bay Area. While Silicon Valley continues to be a hot bed of innovation in science and technology, Indian startups are more focused on providing services for the rapidly growing consumer class in the country. Instead of inventing new technologies, Indian entrepreneurs are innovating with new business models to meet India’s consumer needs ranging from retail to restaurants and microfinance to education and healthcare. The modus operandi is to leverage existing technologies and India’s labour advantage to offer more cost effective and efficient services domestically and for outsourcing.
The lack of broadband infrastructure for providing high speed Internet services to the consumers has limited Internet use to merely 80 million users (three to five times less than U.S. and China), thus, slowing the emergence of pure web-based online plays that are so vibrant in the U.S. and China.
Indian businesses historically have been family owned. There is a strong inclination to maintain control within the family. This often results in reluctance to bring in VC/outside capital and/or additional investors, sometimes hurting the ability of a startup to realise its full potential. On the other hand, the Silicon Valley culture is more focused on creating a win-win situation for all concerned. Rather than maximising their share of the pie, the entrepreneurs are willing to grow the pie so that everyone turns out to be a bigger winner at the end.