Indian start-ups

Entrepreneurial push

Dec 13th 2007 BANGALORE
From The Economist print edition

Is Bangalore another Silicon Valley in the making?

HYPE knows no borders. So it was probably inevitable that Bangalore would be branded another Silicon Valley, soon to be populated by armies of entrepreneurs and venture capitalists. Reality is more sobering, but something is afoot. More venture capital (VC) is flowing into the country—including some from American VC firms active in India—and a growing share of it is being invested in innovative early-stage firms.

Things are moving in the right direction, but this is hardly Silicon Valley. For one thing, the infrastructure for technology entrepreneurs is at “an early stage”, says Surendra Jain of the Indian arm of Sequoia Capital, a Silicon Valley VC firm. The “term sheets” listing the financing conditions are the same, he says, but the courts may not interpret them in the same way. Similarly, professional networks and the collective knowledge of how things are done are still developing. This is why Helion Ventures, a local VC firm, has made a speciality of advising entrepreneurs by, say, helping them find a chief financial officer.

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What is more, internet start-ups cannot just put up a clever website and hope that viral marketing will bring traffic their way. Internet penetration and broadband access, though growing, are still low. You need to be on the ground, says Kavita Iyer, the boss of Minglebox, a social-networking site whose employees are a familiar presence at college festivals. Enabling access to her site from mobile phones is also a priority, since they are more widespread than PCs.

Yet the biggest hurdle for Indian entrepreneurs may be cultural. Most people prefer a safe job at one of the big services firms, since that is what their parents and future in-laws want, says Ashish Gupta of Helion Ventures. “Our middle class is adaptive, not innovative,” says Subroto Bagchi, who recently wrote a book about his experience co-founding MindTree Consulting, a start-up backed with venture capital.

These hurdles will doubtless fall once a few Indian start-ups make it big. And they are likely to be inventive in ways that Silicon Valley firms are not. The demand in India is not so much for new technologies as for new ways to make technology affordable to the masses. Such approaches are likely to fare well in other emerging economies—and could disrupt rich countries, too.