The Creation of a Sustainable Ecosystem.

This is perhaps a wee bit of eerie timing, as there are posts by Sujai* and quite a few others circulating around the blogosphere with some very serious questions about the Indian entrepreneurship ecosystem. Perhaps its of relevance to go through the basics yet again and what it would take to make this ecosystem mature, robust and something that can even remotely come close to being competitive to the valley.

As an entrepreneur very rightly put it, “A VC is part of the ecosystem, not the entire ecosystem”. Knowing that he is a startup entrepreneur, I am of the opinion that the ecosystem is learning its ropes.

I have always maintained that the main objective of a company is not about funding. Well, those with money and those with access to capital are quite readily available in the ecosystem and in public gatherings, but most of them are there to serve other purposes than to pull out their cheque books and start signing them away – that only happens when there is a bubble in the making, and I really hope and pray that these are not such days. I strongly believe that a sign of a healthy ecosystem is when a company can bootstrap and get to a comfortable market valuation without having to raise money from investors. If the ecosystem is rich and is keen on growing startups, then there will be means to grow traction, gain customers and expand your markets without having to blow too much of money for the same. That is the environment that we should aim for.

A Lot of folks ask then as to why VCs attend all these networking events. Most of them are sincerely looking at deals, but not right away. These events, serve as an initial point of contact for most of these investors, and then through time see how the company grows and validates itself – which is a good alternative for a track record deficient ecosystem. And plus, a VC is probably the most influential person when it comes to word-of-mouth marketing as he sits across various boards and manages his portfolio of companies. There will be opportunities that will arise for partnerships, alliances and perhaps even mergers (fingers crossed).

In a recent post in the proto blog, I have started compiling a list of companies that are effectively leveraging other channels and going after the money that truly matters – making revenues out of customers, and using that as a means to enhance their valuation before they go raise money from a Venture capital firm.

All this might sound as if I am against VC firms, but truth be told, I am not. I do sit on the other side of the table with some VC firms in terms of investment analysis and most of the time the thought that is at the back of our mind is that of backing potential winners. And winners are identified when they come knocking on the door, even better when we go knocking on their doors, trying to raise capital to scale up, not when they need money to assure their mere existence. That’s too much of a risk – no matter where you may see it.

We need to stop comparing the west with what prevails in India. In the west, just acquiring capital, mostly assures that since the ecosystem is quite rich – more big corporations are standing with open doors for alliances, there is enough mentorship pool available, and there is more than enough research and technology at your disposal, an entrepreneur who is even half as smart has a chance of success. It’s not the case in India. It takes real guts and courage to survive a year of operations here.

Let me point you towards some numbers, something that has been shown and pointed at many times in meetings, I would gather: 24,000+ companies are angel funded in the US, and the number of VC funded deals are around 1700+. Take a look at the ratio. Though its not a translation figure, as this are both of the same year, within a three year gap (if we hold that as the time it takes for a seed funded company to raise VC money), the ratio is 24:1. In India, 150 companies get seed funded, and around 50+ of them make it to a VC round. The ratio is 3:1 which is enormous. But we do have this high success ratio (or passing rate) because of the struggle it takes to survive till that point. On a positive note, if you make it through the initial stages, there is a much better chance of you succeeding.

Perhaps the point I am making is that, starting a company – most importantly a product company is very tough in India. And entrepreneurship is no easy journey – it is and was never meant for the faint of heart. We do make certain things a wee bit eeasier at Proto and there are certainly a host of other activities that are going on to make things easier for entrepreneurs, but we wont be seeing such ratios as 24:1 in India anytime soon. If you are an entrepreneur, learn and love to embrace it. What we also forget is that, thats the reason why you still haven’t seen competition from abroad yet. That’s the bright side to it.

There is absolutely no way to fast track this entire ecosystem without also layering it with frailty. The only way this can happen, is if it evolves on its own and thats going to take time.

Note: This post was earlier titled as the Proto Impact. Tweaked it finally for a neutral tone for the sake of a wider audience.