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Raising Angel and Venture Capital in India

Over the years, many bright and talented scientists, engineers, and other technologically-adept
individuals have emigrated from India to the United States with the hope of experiencing
America’s free social and economic structure. As a result, they studied at the finest
universities and were recruited to work at well-renowned companies in order to achieve
the American dream. Despite the adversities associated with adjusting to a new country,
most of them worked extremely hard, succeeding in their chosen fields and greatly
contributing to many important causes. One particular field that many Indians have
triumphantly thrived in is information technology. In fact, many Indian-Americans
were at the forefront when the IT industry exploded in the 1990s. Since then, many
Indians have moved on to become successful entrepreneurs,
angel investors, and venture capitalists in the United States.

Indian entrepreneurs in the Silicon Valley
In recent years, Indians have played a significant role in shaping America’s high-tech
world. In a study that was conducted several years ago at the University of California,
Berkeley, it was estimated that in 2000, more than 30,000 Indian IT professionals
had lived and worked in Silicon Valley and were either founders or top executives
of almost 1000 companies in the area. Today, the statistics are much higher. In
fact, it is estimated that currently 40% of all information technology companies
in the Silicon Valley have been started by Indian entrepreneurs.

Well-known Indian entrepreneurs

One such important figure is Vinod Khosla, the co-founder Sun Microsystems, Inc.,
a California-based company that specializes in computers and information technology
products and services. Khosla is known for partnering with a major venture capital
firm (called Kleiner, Perkins, Caufield, & Byers) and investing in dozens of other
startups, both in the United States and India.

Other successful Indian entrepreneurs turned investors are Suhas Patil, founder
of Cirrus Logic, a Massachusetts-based semiconductor company, and Gururaj Deshpande,
the co-founder and chair of Sycamore Networks, Inc., another Massachusetts-based
enterprise that develops and markets networking tools worldwide.

Success in the Silicon Valley leads to investments in India
In recent years, numerous American investors have viewed India as a land of
vast investment opportunities
. This reality has encouraged many successful
Indian entrepreneurs and investors of Silicon Valley to invest in India-based companies.
Successful Indian business men such as Gururaj Deshpande (founder of Sycamore Networks,
Inc.), Vinod Dham (father of Intel’s Pentium chip), Vani Kola (founder of RightWorks
software), and Vinod Khosla (Sun Microsystems, Inc.) are widely known for investing
their time and money in numerous startups in their homeland.

Why invest in India?
There are many reasons why India is very appealing to
international investors
. First, India is considered the second fastest growing
economy in the world. Investors primarily envision this success as an exciting frontier
where they can use the skills and contacts they have developed in America in order
to network in India. This opportunity further diversifies their knowledge and skills
in creating an expansive socio-economic impact. In fact, many investors who invest
in Indian companies bring more than money to India; they are both benefiting from
and fueling a new sense of possibility. Not only do these Indian angel investors
and venture capitalists provide locals with numerous jobs, but their financial contributions
also promote Indian startup growth, stimulating the economy in many small communities
as well as the overall economy.

Examples of success
For many years, Gururaj Deshpande (Sycamore Networks, Inc) mentored and invested
money in helping first-time entrepreneur, Sanjay Nayak, build India’s first homegrown
telecom-equipment company, Tejas Networks. Now six years old, Tejas Networks has
grown dramatically and currently holds the No. 2 market share in India. Similarly,
former McKinsey & Co. managing director Rajat Gupta, who left India more than 20
years ago, used a combination of his Indian savvy skills and brilliant network abroad
to help build the Indian School of Business and the Public Health Foundation of
India (PHFI). Six years after it opened its doors for the first time, ISB is now
the eighth largest business school in the world.

Future success
The growing Indian economy and the positive outcomes of many of these financial
contributions have eventually led to a spike in enormous
investments in India
. In fact, Google billionaire Ram Shriram’s
Sherpalo Ventures is actively seeking investment opportunities in India. Other well-known
Indian-American investors have already taken advantage of the opportunity to invest,
including Hotmail founder, Sabeer Bhatia, who has recently unveiled plans for a
$2 billion infrastructure project in Haryana, India. Bhatia expects that his project,
in conjunction with the Haryana government, will surpass the U.S.’s Silicon Valley.
In addition, Yahoo! and Canaan Partners invested $8.65 million in BharatMatrimony.com,
one of India’s largest matrimonial websites. This newly funded venture will enable
BharatMatrimony.com to expand its operations and increase its paid consumer base.
Furthermore, many venture capitalist firms and angel investment groups started investing
in more Indian-based companies.

Venture capitalists investing in India
For a very long time, Silicon Valley venture capitalists only invested locally.
However, throughout the years, they expanded their investments worldwide. Most recently,
Matrix Partners, a leading American venture capitalist firm, had announced a $150
million India fund, where they will provide internet, mobile, media, entertainment,
leisure, and travel services to customers in Mumbai. Sequoia Capital, a Silicon
Valley-based VC firm, wanted to take advantage of investing in startup companies
and had acquired Westbridge Capital, an Indian firm, for $350 million. Several other
major VCs who are also taking advantage of the growing Indian market are Kleiner
Perkins, NEA, Norwest, Battery, Sierra, and Canaan Partners. It is no wonder that
venture capitalist investments in India have risen dramatically within the past
few years. From 2005 to 2007, VC investments in India grew from $320 million to
about $777 million, respectively.

Angel investors investing in India
While the venture capitalists have provided extremely large sums of money for many
Indian-based startups, many Indian entrepreneurs are still seeking much smaller
amounts for their early stage ventures. Alok Mittal, co-founder of jobsahead.com
and executive director of Canaan Partners’ Indian office (a global VC firm) found
that angel capital for Indian-based investments were rare. He then decided to establish
the group Band of Angels India to address the need for smaller amounts of capital
for early-stage Indian investments. BoA consists of successful entrepreneurs, business
executives, and investors of diverse industries) who not only provide small amounts
of early-stage funding but also mentor in diverse areas (strategy, finance, etc.)
to the entrepreneurs of their invested companies. This has led the way for many
more angel investor groups committing to smaller amounts of capital for early stage
ventures in India. Even though there are more Indian venture capitalist firms than
there are angel investors, more and more angel groups have strongly emerged in recent
years, supporting the idea of investing in smaller amounts. Some of the most prominent
angel investment and venture capital groups in India are:

Go4Funding Angel Network (www.Go4Funding.com)

Helion VC (www.helionvc.com)

Canaan Partners(www.canaan.com)

Matrix Partners(www.matrixpartners.com)

Erasmic (www.erasmic.com)

Cipher Securities ((www.cipher.in)

Darper (www.draperintl.com)

Gujarat Venture Finance (www.gvfl.com)

Indian Angel Network (www.indianangelnetwork.com)

Indian Venture Capital Association (www.indiavca.org)

Investment style
Most of the traditional financers in India provide debt financing (borrowed money)
for qualified entrepreneurs. However, many Indian-American angel investors and venture
capitalists use equity financing as a means for their investments. Through equity
financing, entrepreneurs do not have to worry about monthly debt payments and share
part ownership of their company in exchange for capital. Equity financing is a sure
way to help budding entrepreneurs in taking their young startups forward. Entrepreneurs
in India who intend to raise capital for their companies should therefore network
with such individuals and explore the different possibilities of raising equity
investment.

How Go4Funding can help you
Go4Funding (www.Go4Funding.com) is an online network of entrepreneurs, investors,
and business experts from around the world and is currently seeking investment opportunities
in India. If you are a new or existing entrepreneur who needs to raise capital for
your business, you can increase your chance of securing funding simply by posting
your business ideas and capital requirements online. Likewise, investors can browse
through countless profiles and locate a variety of investment prospects in diverse
industries.

Conclusion
In recent years, there has been a surge in India-based investments by both venture
capitalists and angel investors. This rising trend is primarily due to India’s growing
economy, which has made it very appealing for Indian-American investors to invest
in their native land. Information technology, pharmaceuticals, and apparel are some
very popular industries of investment. While many Indian venture capitalists of
Silicon Valley have invested tens and hundreds of millions of dollars to startups
in India, angel investors have been more inclined to invest smaller amounts in early
stage ventures.

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