Venture Capitalist prefer investing in Startups to Stock Market

I was reading the Business & World section of the Hindustan Times and something caught my fancy - VCs prefer start-ups to stock market. The realm of VCs, Angel-funding, Startups is rather new in India and more importantly weird to most of the common Indian masses - be it IT, ITES, Programmers and budding entrepreneurs.

Many overseas Venture Capitalist and Non-resident Indian (including India returned Indians) have realized that investing in Indian start-ups would be far more rewarding than the country’s current booming stock market. This may, in a way, sound rather too optimistic with the fact that the Indian rupee is competing very well with the US Dollar at the moment.

Many VCs have tied up with investment banks to reach out to the budding entrepreneurs in the country. International funds such as US-based Kleiner Perkins, Mayfield, Quantum and Evergreen and Switzerland’s VGD have either tied up, or are in the process of tying up with Indian banks to leverage India’s blinding economic growth.

The current trend in India is that of the budding entrepreneurs sprouting left, right and centre; and these VCs are ready to tap that spirit. Investment bankers say financial services, infotech services, pharmaceuticals and real estate are real hot sectors to be in.

Out of these, real estate and infrastructure has already very high valuations, making them unattractive for smaller VC funds. Other sectors like insurance, for example, has set a scorching growth rate of 50 to 55 per cent. It will be apt to point out that India’s high growth sectors have consistently outperformed annualized returns from the benchmark BSE Sensex that has given average returns of 33.5% in the last five years.

However, first time entrepreneurs should should be aware that these VCs are not too keen on seed funding nor will take personal favors to invest in you. One has to understand the fact that VCs are looking for exponential returns and will thus invest only in sectors or works that has/is showing good prospect and progress. Not necessarily to go against the VCs but The Funded is a good place to keep a tap on VCs (Paid Membership).

Tip - apply for the SUN Startup Program

Here is a personal tip to those budding, first time entrepreneurs and startups in India. Sun has recently expanded its SUN Startup Program to India (and China), which are similar to what they have in the US. Take advantage of that and apply for the same if you are in seed-stage of your startup.

The SUN startup program comprised of some cool high profile IT Programmer, consultants and marketing people located in the US, India (Bangalore for the Tech team and other teams spread across Mumbai and New Delhi). As part of this program, you get heavy discounts on purchase of SUN products, up to $150,000 (that’s pretty good for a startup in India). Sun is committed to provide you with enterprise-grade equipment and make it easy to get your startup up and running quickly, easily.

What do you get out of the SUN Startup Program? Here are some for the start;

My experience with my first Startup has taught me so much. Nonetheless, I’m pretty sure I still have lots to learn. My first startup stint started with a San Mateo company as a founder member (with development team in India). After that, I got involved with a small team for the second startup of which I got into the SUN India Startup Program. I should be able to release the Alpha of this Web Application within weeks. I would then be involved with my 3rd Startup (yes, I’m a bit excited these days).

After the initial hiccup with the Sun guys in India (perhaps, it is a pretty new realm for them), they are now very communicative, helpful and in regular contact with me trying to help me go through things smoothly.

Apply for the Sun Startup Program yourself or contact me (I might be able to help you). Why am I sharing this tip? Well, if an investor comes in at the early seed-stage, s/he is very likely to ask for a major chunk of the percentage of your venture. The Sun Startup Program is one and perhaps the only one in India that I find can help you get away from that dilemma, get your business running instantly. Of course, you’ll need a VC at a later stage; however, the cool thing is that you are already in business at that time to be able to ask for a bigger sum for a lesser percentage trade-off.

But isn’t India in a skilled worker crunch!

Yes, with the *PO (BPO, KPO, XPO, ZPO and all other POs) stashing huge cash to get any-button-pushing-person who can power up a computer, we in India do have the skilled-worker crunch at the moment. Well, the way around this is NOT to go for the already working skilled programmers or engineers but work along with budding (even college going) engineers, programmer. Budding engineers and programmers are awesome developers, you have to have brakes to control them and calm them down from their “I can do that”, “should add this feature”, “I’m adding that feature”. My recent experiences with few college going engineers are mind-blowing. They can come up with ideas after ideas, features after features. I’m perfectly fine with the experienced ones but they are hard to find these days.

I’m an American and I lost (or almost lost) my job to some Sankaracharya Venkateshwara Narayana Swamy in Bangalore, India! How can I take revenge?

There is a better way than taking revenge, invest in India. Not necessarily like the VCs but I’m pretty sure you’ll get agents or investment firms that knows where you can invest in many sectors in India (IT, ITES, BPOs, Banking, etc). That way, your income will be balanced - if the pointer is down in US, it will be up on the Indian side and vice versa.

Don’t worry, your own US government invest in India. The largest pension fund in the United States, the California Public Employees Retirement System (Calpers), invest billions of dollar in India and other Asian countries. The Calpers fund manages over $150 Billion in retirement savings. They have invested in technology, pharmaceuticals and manufacturing and is looking at other booming segments like hospitality and tourism.

This applies the same to Indians whose primary income is the US Dollar (exports, IT expoters/freelancers and small IT firms); invest in sectors like real-estate, iron, petroleum, banking, et al that profits when the Indian Rupee rises against the dollar. This will thus balance your income scale and will protect you from both ends.

You talk as if you know a freaking hell about these Startups, VCs and Stock Market!

No, I’m just learning and will continue to do so. Well, I knew those from reading newspapers, magazines, talking to VCs, dealing with Startups. If you are a programmer, a budding entrepreneur or involved with a Startup and are looking for partners, investors or stuck with something, feel free to contact me. I won’t promise but I might be able to help you in few ways possible - the least being that I can give you a bunch of prospective VC contacts that might be interested in your venture.

A Tip-Off

If you’ve a very popular blog/site (Indian), within Alexa rank of 10,000 and huge traffic; a VC is buying. Btw, you can’t lie about your traffic, like most other VCs, they have access to the extremely costly statistics app from ComScrore and they can strip your blog/site naked.