Indian Entrepreneurs are one of the most risk-averse in the world. Well not all, there are truly some fantastic exceptions, but most of the demographic is risk averse. Let me explain:
In the business plan of an entrepreneur they do the math, calculate “their” salaries in, the prototyping costs, marketing costs and will assume that “no revenue” is made, and ask for the entire amount from an investor, who has nothing more than an idea and a team (which still demands a salary) that she supposedly has to back. The best pitch for an investor remains the same, Get on the boat, start rowing, and tell them to come onboard or miss the chance.
A lot of the new breed of Indian entrepreneurs have no clue about cash flow management. Its another symptom of the “Bangalore Flu” (that we have caught from the valley). Here’s an example of cash flow management. Air Deccan was started with 5 Crores (1Mn) in the bank. The cost of a Plane is about 60Mn$. The company went on to build the biggest fleet of low cost carriers in the country.
The Present day entrepreneur wants to plan for a fleet of 500, and the cash for it, upfront, at the best valuation, in the bank, funded by VCs. NOT. GOING. TO. HAPPEN.
Want to see who is driving the risk averseness in the market that Indians dont make bold bets? Look at the mirror. It starts with (most of) you.
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Vijay,
Apologies for labeling you as a VC. Bridging the gap is a very important role in this stage of the industry and you guys do a commendable job.
Your response leads me to think that more entrepreneurs will start to take the plunge (from a risk standpoint) as and when ideas are funded at an earlier stage. (VCs completing a few cycles)
So are we left with a chicken and egg situation? Or do you think its a matter of things picking up steam in their current form, which would lead to the problem correcting itself in the coming years?
Abhinav,
FYI, I am not a VC. I doubt I ever will be one, but I do play the fortunate or unfortunate part of standing in between an entrepreneur and Institutional funding most times.
The case in point is that, risk taking belongs in the side of the entrepreneur and it will be so for atleast another cycle of investments and exits before the greed kicks in for investors to take early risks. At this point, there is no incentive and rightly so.
But if an entrepreneur wont risk it, dont expect anyone else to.
Definitely some valid points about accounting for his/her own salary and putting up a “total bill” to the VC.
On the other hand the VC’s tend to respond to a lot of entrepreneurs by asking to see X amount of revenue as a proof of concept. That exhibits the lack of vision and scalability of a well executed project. End of the day if you guys (Vijay Anand and other VCs!) are looking to fund good execution this would be the least of your concerns.
The way I see funding work here is not on an individual basis but based on creating a robust portfolio to diversify risk. That is a myopic approach that does not reward the most talented entrepreneurs. There are clear problems on both sides of the fence.
Vishal,
Are entrepreneurs a reason? Yes. Not entirely, but thatsa major one and most seem to be missing that point. I would also suspect the judgement of anyone who builds ventures because they are hot.
Seems you want to blame the entrepreneurs for the risk averse nature of the entire community. If the business plans are so unreasonable why do the investors fund them?
These guys with all the costs that you mentioned get funded because VCs want to invest in the so called hot sectors / businesses at any kind of valuation.
There are definitely entrepreneurs who are risk averse but then there are investors who are risk averse as well. In fact there are many businesses which are open to take funding at reasonable valuation and without the costs that you mention, just that they are not into a hot sector and are definitely more RISKY…