“Something is wrong in Venture Capital”

An interesting presentation from Adeo Ressi, founder of TheFunded:

I’m not sure this is specific to the VC industry – the same thing happens in PE, hedge funds and other managed asset sectors. Money goes to those who don’t need it.

How much of this is relevant to India? I don’t mean the facebook wannabes that did not get funded; the internet is an overhyped model catering to an extremely small population in India. I’m asking about sectors that are promising but have not received any serious (equity) funding because of VC affiliation to the internet, telecom, media and lately, alternative energy sectors. I know of the odd kaatizone that has gotten funding; but in general, what sectors are starved of cash?

And is it a problem of too much money? Businesses, in India at least, seem to need either way too much or way too little. Power plants and energy projects are part of the former and they’ve got their place in the sun. But “way too little” has been common too – starting a company and growing it today requires a lot lesser capital than it ever has, and the micro levels of funding, with similarly micro levels of exits, seem to be non-existent. As an example in the US, take Wallstrip which was funded by Howard Lindzon for $500K, and was sold for $5 million in a year. Yes, this selling ecosystem needs to happen here, but is this kind of deal totally absent or have I just not heard of any?

I think this will be a very interesting space. Perhaps the reduction in available money, and reappearance of “risk” capital will make way for path-breaking VCs who’ll invest in places where you didn’t know there were places. Venture Capital to Adventure Capital, in a way.

6 Responses to ““Something is wrong in Venture Capital””

  1. Sushrut says:

    I think one of the major reasons in Investment advisers that we have managing Indian portfolios of multinational funds. Also success stories of many starts like youtube, facebook has given fuel to greed of VC in finding the next so called big thing. Thats why we see 10+ million dollars in investment in mediocre companies that do not have any potential to give 10x returns at all. But since these companies are positioned to target growing Internet consumer market, VC are willing to bet on them. This mindset needs to change.
    I think VCs are concentrating too much on teams that come from branded institutions. VCs should at least meet entrepreneurs before deciding he/she is not entrepreneur material. First screening should only be based on solidity of the business plan and target market.
    Also to find a micro level exit deal, which will typically come from acquisition, we will need to have a bigger India centric product company which can acquire such smaller product companies. Unless we have such bigger player looking to acquire smaller players, I do not think funding scene for micro-fund raising requirement is going to improve.

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