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The next “BIG” thing is the next “small” thing
Gaurav Shah
Thursday, September 1, 2011
It is totally clichéd to say, “The Indian growth story is BIG”. Over the last few years, after meeting several hundred entrepreneurs and investors in Asia, it is a no brainer that the stage for the Indian Entrepreneur has never been bigger. They are arguably amongst the most respected entrepreneurs globally as they are risk driven, especially in the investor circles.

What is interesting to understand here is that the Indian VC industry has grown several notches in the past 5 years and is becoming increasingly matured now. And with the improving domestic entrepreneurial environment and favorable investment scenario, the venture capital industry in India is expected to only expand in the next five years, while it is logically shrinking in developed nations. From the perspectives of the global VC Industry, the Indian share has been a very small percentage of the overall global portfolio. However, it is poised to take a big leap in the next five years, as more and more western VCs are now keen on investing in emerging economies like India, more than ever. The number of home grown VCs have also increased to a substantial number today. Since 2009, we have seen a consistent growth in the amount of early stage venture capital available to the Indian Entrepreneur.

The advent of the Internet and the Telecom penetration in India has brought about a few radical changes in the economic dynamics of the country and also the way business is conducted. Hence, there has been a clear of trend of investments in the Internet and Telecom related ventures in the last few years, and will continue to remain the hot favorites. Ecommerce, as we all know, is in its re-invention phase in India, continues to attract a significant share of the investment pie and will remain the hot favorite in 2011 and the year after.

Other sectors that feature on the hot list are IT & ITES, health care, life sciences, media and entertainment, education alongside the retail vertical which is slowly staging a comeback. Energy is one vertical that has enormous promises for the low risk investors, especially on the installation side and one emerging winner would be the small hydro power space. Biomass and Waste management are also becoming attractive options.

For me personally, the Indian consumer makes up a significant part of my asset allocation strategy. A lot of VCs / PEs are now starting to regain their confidence on Indian consumer, thus making conventional Retail and Internet consumer oriented businesses, the hot favorites. At the same time, there has been significant capital invested in Health care, Life Sciences and Medical Technology. This sector will continue to remain robust in attracting an increasing amount of capital over the next few years. One industry, that I personally feel, should start receiving more and more attention from the VCs / Angels is the R&D vertical. India is slowly becoming an intellectual hub for the world and major MNCs have setup their R&D centers in India. Sovereign initiatives will be ramped up on this one, due to its critical nature in geopolitics. R&D is one industry which has started booming in India, as the entrepreneurs here have realized the importance of innovation and invention to stay competitive. This is where the Indian entrepreneurs would to focus their efforts and ramp indigenous developments and inventions, be it on technology front or on the business model front.

The economic and operational landscapes are rapidly changing in today’s times and there would enormous opportunities available apart from the mainstream. As I would want to put it, the BIG thing is the next SMALL thing.

VC industry is constantly innovating on new asset classes and we are already seeing a shift towards mentoring support being as critical as financial support. The number of VCs focusing on pre-seed, seed and early stage start-ups is consistently increasing, alongside giving birth to entirely new asset classes through vehicles like micro equity or neighborhood funds coming up in India. This is where I personally see the biggest opportunity in the coming 4-5 years. This would be the low down on the Venture Capital landscape in India.

For the Indian entrepreneurs, there is a lot yet to be learnt. After meeting the several hundred entrepreneurs in the last few years, both from the new age start-ups and the old economy SMEs, there have been some critical observations I would like to share.

First, a very small number of them take a scientific approach in creating their business models, thereby missing out on some extremely critical aspects of their businesses, which in turn poses threat on their scale-up plans and their overall growth and efficiencies.

Second, a lot of entrepreneurs, spend a lot of their times on fundraising activities, when they should be busy building their businesses, ideally. Remember, we are not in the days when just an idea would ensure a million dollar cheque from the VCs/Angels. VCs / Angels appreciate when the entrepreneur is spending more time on the ground building his/her business. As a matter of fact, anyone would. As they say, if you build a good business, money will anyways find you.

Third, especially, amongst the old economy SMEs, there is rigidity in their business models and arrogance about “knowing it all”, which is primarily the factor which affects their rapid growth plans. Fourth, mentoring is slowly gaining its due respect, however, as a country we still have a long way to go, in terms of realizing the value of having the right mentors on board. I would personally feel that mentors are more critical than financial investors in most cases.

To cut the long story short, my advice to the entrepreneurs of our country is very simple.

1. Focus on building your businesses more than your fund raising activities. If you build a good business, money will find you.

2. Spend quality time in creating a good board of partners and mentors, who bring immense value to align your business for sustainable growth without compromising on your long term vision.

3. Be fluid in your attitude and be extremely responsive to changing dynamics in your industry.

The author is Group MD & CEO, DeGroup

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