Good article in today's San Jose Business Journal on the rush of local VCs into India. Focus of article is on IT/software, but nevertheless instructive. For example:
"Smart people in India are realizing that their jobs can be commoditized very soon to lower-cost companies eventually and that's why they're looking at product companies," Mr. Stjernfeldt says.
Carl Stjernfeldt is a partner at Battery Ventures. What I find interesting is that the arbitrage that exists in labor/development costs between India and the US is, in his view, unsustainable. Therefore, entrepreneurs in India are shifting away from cost-centric value propositions to product development initiatives.
This is also interesting:
Recognizing this trend of companies choosing to be cross-border at birth, Silicon Valley Bank spent five years scoping out the Indian market while building a network of consulting and business services for U.S. based and India-based technology companies and private equity firms that are pursuing cross-border business. Establishing an international subsidiary in Bangalore in September 2004, Silicon Valley Bank has 12 venture firms as consulting partners.
The bank's global markets head, Ash Lilani, recently traveled to India in relation to events targeted at young product companies in India and venture firms. "We really believe in India and that's why we've invested so much time and money there," he explains.
Developing a global company from scratch is not an easy task. The usual model is to start in the home country first, and expand from there. Now, an infrastructure is emerging to satisfy the demand by companies to be global from day 1. I wonder how many East Coasts banks do this as well.
Lastly,
The earliest of the venture capitalists to enter the Indian market, William H. Draper III explored uncharted waters in 1995 when deciding to focus on venture investments in India through the formation of Draper International, which is now fully invested.
After making an average of four trips a year over five years, he realized that it was better to incorporate companies in the U.S. and have others invest in the companies. Bringing a 15x return to the fund's limited partners, Mr. Draper decided to co-found a domestic fund that actively promotes Indian entrepreneurial activity in the U.S.
"Indians are one of the best talent pools of all times and they're starting to give back to the U.S.," he says. Out of 100 portfolio companies since 1994, Mr. Draper estimates that one-third have a connection to India.
Draper's model is to fund companies here in the US which have operations/ presence in India, and not the other way around (directly fund companies in India). Does this reduce some of the risks discussed in previous posts, e.g., IP risk? Is this model applicable to other industries?
To be continued...
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