Venture capital funding in India has not taken off because those in charge of providing seed capital are from traditional financial institutions which have not accepted the fact that project failures are inevitable in new ventures. This despite the fact that cost of innovation is affordable and attractive in India. This has led to start-up units to approach VCs in the West for funding.
According to Dr Bala S Manian, director, ReaMetrix India, the big difference between Silicon Valley VCs and those in India was that the former understood innovation and failures were inherent in any start-up.
Dr Manian, who is an entrepreneur in Bangalore for a new generation healthcare technology company has, with previous experience of manning start-ups in the US, opined that in the US, bio-entrepreneurs could manage failure, learn from mistakes and move forward. This was only because cost of innovation was low and the VCs themselves headed similar operations prior to offering seed capital.
In India, professionals managing risk capital never had exposure or comprehension of how innovations take place. This has led to the absence of seed stage investment because VCs here do not understand the difference between risk taking and managing risk, he said. They understand asset allocation in terms of capital management and capital preservation.
Though an economic system and ethos for a flourishing venture capital business exist in India, what is really missing is lack of operational background. Angel investors or those who have the financial resources, are not active in this business, he said.
In the case of Dr Manian, after his first company was successful, he became an active venture capital provider and a mentor in a number of companies. The idea of people investing their gains and providing their experience and sweat by participating in the ventures is missing in India, he stated.
Kiran Mazumdar-Shaw, chairman and managing director, Biocon Limited and president, Association of Biotechnology Led Entrepreneurs (ABLE), said VCs here cannot get a risk mitigated revenue-based model from the pharma-biotech research start-ups like in the information technology which is s a services sector. This is because the whole business of R&D takes a long time for gestation, is fraught with risk and is unpredictable. VCs are used to predictable models and don't want to support any venture that is associated with risk.
Naveen Kulkarni, CEO, Polyclone Bioservices, a Genomics and drug discovery research start-up said for biotech entrepreneurs in India, seed funding is a challenge since even the Department of Biotechnology insists on a DST (Department of Science and Technology) approved facility. In the US, seeking financial assistance is simpler which is why the West has the highest number of start-up companies.