One question that is often raised to us from the startup ecosystem is — How come India hasn’t produced global behemoths like Google, Facebook, Apple and so on?
The answer is quite obvious. These companies had the luxury of abundant risk capital available to them at every stage of their growth. In India, of the total risk capital that is available to startups is approximately US$ 12 billion. This is a pittance if one considers that we have over one lakh registered startups in this country.
To build technologically unique companies, two key things are needed: abundance of institutional capital; read venture capital, and a culture of celebration of failure as much as we celebrate success.
The current market cap and contribution to the US GDP of companies like Microsoft, Netflix, Apple, Google and Amazon is unparalleled. They have created jobs not only in their home country but all around the world. This is what the success of the VC industry looks like. It can change the goalpost for wealth creation, job creation and finally leads to progress of humanity.
In India, policymakers see the VC industry as being separate from the startup ecosystem. The VC business is clubbed in the larger BFSI grouping, which to my mind is a wrong classification. Without risk capital, there won’t be epoch-defining startups. Without ambitious founders there won’t be a VC industry. The two share a symbiotic relationship which isn’t evident at the first instance. Founders like Steve Jobs, Bill Gates, Mark Zuckerberg could build with the kind of audaciousness that is rare in Indian founders rarely have only because of the abundant risk capital was and the policies supportive policies. It takes many startups to fail before these kinds of mega outcomes happen.
This brings me to the topic of failure. Last year has been tough on founders, with less reduced capital availability pushing many of them to cut back on growth. A narrative has been built that startup founders are either corrupt or have a poor understanding of the true purpose of building a business. Nothing could be further from the truth. Keeping aside the few bad actors—which damage all parts of business and public life in India—most founders are struggling to defy gravity.
The very reason for venture capital to exist is to help a founder find the product-market-fit. This is by no means an easy task. Some of the greatest products fail the market test and it requires risk capital to help overcome these glitches. In this endeavour, there are always more failures than successes. India has seen its fair share too, but instead of celebrating these founders — who despite all the odds, stepped out of their comfort zone to build something unique from ground up —, they are projected badly.
Without failure there cannot be a startup ecosystem. If fund-of-funds and other stakeholders appreciate this, India too can have its own Nvidia, Microsoft, Amazon and so on.
If the policymakers were to create incentives for investors like limited partners (LP) who participate in venture capital funds, it will help our founders get the kind of cushion of capital that can help them build for large outcomes. Currently, an LP has to pay capital gains tax if they do end up makeing some money from their investments in startups.
There has been growing discomfort that productive capital — which could be used to back startups, extremely essential productive for an emerging economy like India, is being diverted to pure trading via the futures & options platforms.
Startups create jobs, create wealth for employee and shareholders wealth, add impetus to our capital markets, apart from the brain gain that it encourages. If we want outr billionaires and other votaries of public and private wealth to participate in the productive part of the economy, then it’s even more important that they are incentivised adequately.
Capital and founders are a composite whole, and not divisible parts of an ecosystem. For Indian founders to flourish, Indian VCs too need to flourish and vice versa. If policymaking is seen through this prism, we will leapfrog to become the number one startup ecosystem in the world from our current third position. This is what we should set our sights on.
- Author
Archana Jahagirdar,
Founder and Managing Partner,
Rukam Capital
No VCCircle journalist was involved in the creation/production of this content.
