How VCs Can Help Indian Software Startups

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How VCs Can Help Indian Software Startups


This article is a continuation of my series of articles on software startups in India (a topic I know very little about, but am hopeful that I can spark interesting conversation in the comments).


I’ve read in several places that the level of private equity investment (and VC investment specifically) is growing in India.  One example is “Venture Firms Making A Difference In India” from Silicon Beat.


Clearly, the VC industry here in the U.S. is vibrant (2006 was a good year, and software continued to take the majority share of VC investment dollars).  Though I’m generally not big on large VC investments in early-stage software companies (I’d prefer to see startups bootstrap for a little while and prove out the concept), I think the situation is different in India.


How VCs Can Help Indian Software Startups


Here are some ways I think the introduction of a robust VC community in India might help software startups there.


  1. Cash Is Still King:  Just like in the U.S. (or anywhere for that matter), cash is always useful.  This is obvious and I won’t bore you with any further elaboration.


  1. Balancing Employee Risk:  One of the big advantages of a startup in India getting VC funding is that it can then better balance the risk/reward profile of people it hires.  I think it can dramatically improve the quality of people a startup has access to.  For example, whereas a non-funded startup might expect new hires to take on lots of risk (in exchange, presumably for higher equity), a funded startup has the option of finding the “optimal” point of risk/reward.  My guess is that potential employees of a startup in India might respond more favorably to a healthy balance of cash and equity.  In this case, it’s nice to have the option.


  1. Increased Credibility:  In India, credibility and prestige go a fairly long way.  Even brilliant people that are passionate about startups may have a leaning towards a company that has some credibility and stability.  The fact that a VC has funded a startup sends a signal that someone has done some due diligence and likes the idea and team.  This is somewhat the case in the U.S. too, but I think the issue is amplified in India because there is not yet a long history of successful software startups.  By passing the high expectation bar of a VC investment, a startup can demonstrate to some degree that the idea is not completely moronic and that someone determined that the founders were worth betting on.  Of course, this increased credibility does not stop at just employees.  Potential customers and partners will likely be more willing to do business with the startup.


  1. Staying Power:  Even though attrition rates amongst software engineers is still alarmingly high in India, I think employees still seek career paths that provide some stability.  A VC investment provides a fair amount of comfort that the company will be around for at least a little while.


  1. Expanded Network:  Chances are, one of the key challenges for startups in India is getting distribution (either within their local market, or within other strong software markets like the U.S. and Europe).  The right kind of VC connections makes it much more likely that a startup will be able to find effective ways to sell their product.  Of course, this applies here in the U.S. as well, but once again, because the software startup ecosystem is so much more evolved here in the U.S., it is possible for startups to figure out a solution to their distribution problem on their own.  It can happen in India too, but it’s just harder.  The VC network (as long as it’s the right VC) can make this a lot easier.


I’m actually very encouraged by the recent willingness of the venture community to make increasing investments in India.  I was forwarded an article recently by one of the OnStartups readers that describes in detail the lineup at a local tech startup gathering in India called “”.  Swaroop does a great job summarizing the conference.  If nothing else, look through the list of startups that were there.  It’s starting to look an awful lot like an event I might see here in Boston (except there seems to be more telecomm, wireless and enterprise software in India).


What are your thoughts?  Does the entrance of more venture capital into India help startups there, or is it unnecessary?  Will the Indian software startup environment succeed regardless?  Would love to hear your thoughts on the topic – particularly if you are an Indian entrepreneur and have experiences (positive or negative) with raising venture capital.

Posted by Dharmesh Shah on Tue, Jan 23, 2007


hi there, Just saw a post from Om Malik's GigaOM that talks about VC money pouring into india. I've been thinking about having something like the Standford university's support system for their graduates. It's important to catch them young -- I believe with the growing number of engineering graduates who also pursue an MBA, some of these graduates can be enticed to starting their own provided there's some infrastructure, advice and Capital. The capital can be Angel or VC funding. Interesting to watch the space unfold itself. BR, ~A

posted on Tuesday, January 23, 2007 at 3:26 PM by anjan bacchu

I think a lot of it has to with the type of business. For services businesses, VC's can help with market access in the US, but less so on recruiting and operational expertise. For product companies, particularly those focused on the Indian market, the situation is exactly reversed: VC's can help with operational expertise and recruiting product talent from more product markets (like the US).

posted on Friday, January 26, 2007 at 6:34 PM by Rahul Roy-Chowdhury

I cannot agree more with you on points 1 to 4. One of my friends wants funding for primarily one reason: So he can get good employees. The cash will be used for a "glass covered" building [1] and to impress upon potential employees about the "people behind the company". Options are toilet paper. Salaries are predatory. Great work is an illusion. When prestige matters and that's what is left, venture capital is king, it seems. [1] Most buildings in Bangalore are plain crappy to look at. A glass facade provides a sophisticated look that employees seem to like - and desire. After working in a glass building they don't want to "downgrade" to where the concrete is visible - to my chagrin at my last startup.

posted on Sunday, January 28, 2007 at 11:12 AM by Deepak Shenoy

Hi, Dharmesh,

I come across your blog through Himanshu's blog. Gr8 Analysis & research you are doing in the area of Enterpreneour, VC funding, Indian economy(India Poised).

Informative blog you have.(first impression).

Hiral Shah

posted on Tuesday, January 30, 2007 at 12:31 AM by hiral shah

Hi, I totally agree that VC firms can create wonders. After all its money that important to play any game. If you have money you can hire good men, get better quality and in return better projects and good client base. VC (monmey) act like oil that can make any machine run like anything. One thing that comes to my mind is why VC are limited to big or mid size companies. If a small company is looking for funds no one will come ahead. Every one wants to pay big games. If apart from Indian govt takes interest and gives helping hands to these small start ups then sooner or later these companies can also leave a land mark. When i wanted to start a firm i didn’t get any help from any VC or Indian Govt what i got was tons of paper work. I don’t should i follow up clients for projects or follow Indian govt to fill this paper’s I am still looking for helping hand. Regards DA Einfoway

posted on Wednesday, January 31, 2007 at 4:45 PM by Einfoway

Imho, the biggest value that a VC can bring to a startup is help build an ecosystem in distribution and customer acquisition, the two parameters that can go a long way in making the enterprise valuable. I am not discounting the importance or value of cash.

Another contribution is to build the team (non-technical) by bringing in performing CEOs to manage the operations so that the founders can focus on building great products. I am reminded of the Google Story where the VCs pressured the founders to bring in Eric Schmidt. VCs also ought to look at smaller amounts (in terms of their investment) so that they can really catalyze many startups rather than look at a few.

posted on Thursday, February 01, 2007 at 11:50 AM by Badri

My name is P.Gangadhar Reddy.I have completed M.B.A.-Master of Business Administration
and the worldwide famous Microsoft Certified Professional exam.I have innovated six software products on my own.Iam an architect of four websites.Iam going to take the patents for these.As soon as Iam going to take the patents,copyrights, Iam going to sell these products in the international market.My products value is equal to the M.N.C.- Multi National Corporation by the famous The Economic Times business newspaper of India.This is one of the leading business newspapers in India.The Indian top comanies give respect to this newspaper.So,for these projects,Iam going to take
the help of you as a Venture Capitalist.I want Rs.100 crores as the investment to make a M.N.C.-Multi National Corporation for my products.
Thanking you.
Yours Lovingly,
P.Gangadhar Reddy.

posted on Thursday, May 15, 2008 at 2:11 AM by P.Gangadhar Reddy.

Mr. Schmidt owes his success largely to a global network of mobster fiends is what I hear from rival mafia. They  
say it was him that was directly responsible for the colosal profits made from promoting child pornography with the  
Google search engine.!21CCDB1C1E0C985A!130.entry

posted on Monday, January 05, 2009 at 10:21 AM by kj

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