Sunday, June 28, 2009

Venture Funds in India

This article is published on "Theviewspaper"

Entrepreneurship flourished in America not just because of the risk taking appetite of people but also due to the guided supply of money. Google is not only founded by Larry Page and Sergey Brin but also made financially viable by Angel Investor Ram Shriram, Kleiner’s John Doerr and Sequoia’s Michael Moritz. Venture Capital funds are the life blood of America’s entrepreneurship. Even the mighty Google has started “Google venture Fund” to provide support for promising startups. We need to understand whether India Inc. really host such ambitious venture funds.

Entrepreneurship in India is a new buzz word because of the limelight on India’s economic success by western media. Indian media too now treats entrepreneurs as new breed of celebrity and often telecast their interviews on the media. India Inc. is usually patriarchal and also entrepreneurs usually hail from this type of family. But the success of business entity such as Infosys, HCL, etc. triggered middle and upper class to foray into the elite league of entrepreneurship. These people are the ones who find it difficult to raise funds since they often lack the good network of business people. The start-ups by these kinds of people need angel investors as well as venture capital funds. The truth is India does not lack number of good venture funds available.

Indian Venture Capital or Private Equity scenario looks green with players such as ICICI Ventures, UTI Ventures, IDFC, Nexus India Capital, etc. But the current problem is the paucity of information and awareness available to the start ups. People are afraid of the hassles associated with approaching these private equity funds too. Most of time, venture capitalist not only fund the company but also acquire greater management control over the firms. For example, Google’s CEO Eric Schmidt was appointed by venture capitalists claiming that Larry and Sergey lacked business acumen to run the business activities. Founders of any start-up company do not like the idea of their company run by someone. They are also afraid of the investors stealing their ideas and starting a company to compete with them.

A quick look into “TATA NEN Hottest start ups” shortlisted companies of 2009 will clearly show the number of companies which receive Venture Capitalist or other Angel investors’ funds. Most of the startup companies receive their funds from family and friends. To start high tech companies we need to have high capital which obviously requires institutions investing in it. Take Singapore for example, it has institutional funds available for starting small and medium business as well as large entities. It has regulatory boards such as Spring Singapore, EDB, etc to oversee the business deals to avoid any malpractice. All these factors make Singapore a viable country to start business in 6 days and also to pull out from business in less than a week.

Currently, Venture Capital Funds are regulated by Securities and Exchange Board of India. The need of hour is a transparent regulatory board appointed by Government of India which oversees the Venture Capital and Angel funds in India. It has to protect the interest of investors as well as founders of start-up companies.

On June 25, 2009 “The Financial Times” carried an article on the increasing oligarchs in Indian democracy. It seems 80% of the total market capitalization in stock market in India is controlled by Billionaires and Millionaires. This will provoke only crony capitalism in India instead of competitive capitalism with many small players too. Big corporate in India instead of killing other business must proactively help start up companies to flourish entrepreneurship. Established firms must start Angel investor networks and invest in the growing or nascent companies.

Usually institutional investments such as Private Equity funds come only at mature stage of the business hence it is difficult for small companies to raise capital in the initial stage. That is the main reason behind why the Government needs to set up institutional funds to help viable and credible firms in the early stage. As former President A.P.J Abdul Kalam remarked “We need youth to be job creators not job seekers”. For those words to convert into actions, we need good breed of Angel Funds and Venture Capital properly regulated by Government of India.

Green is God!

Ask anyone who has foreign policy expertise; they will certainly agree that energy is going to be a vital force shaping the foreign policy arena. The country which is going to lead other nations in energy sector is obviously going to have a major stake in the pie of external diplomacy. But now energy sector is considered to be one of the beleaguered sectors like automobiles. Green energy investments are substantially low compared to the level fixed by the international Energy Agency. People usually think green energy is all about solar energy though it is just the beginning of it. Even oil and natural gas can be extracted using sophisticated technologies to significantly reduce the greenhouse gas emissions.

Area like Biofuel has always interested scientists who are working on the green technologies. Biofuels are usually the ethanol made from sweet corn, sugar cane and also biodiesel made from vegetable oil. This first generation Biofuels has provoked intense backlash since the land used for Biofuel cultivation might have been used for food production. This is very crucial in getting political momentum since the food prices continue to raise. Recently, scientists believe second generation Biofuels can be made from plant wastes, crops grown for the purpose on land not suitable for food production offer promise and also eliminate the political clumsiness associated with Biofuels. Apparently, this technology is in the nascent stage and needs vigorous experiments.

One of the earliest clean energy technologies was nuclear energy but the fear of arms race in the world has always increased political backlash. Though nuclear energy is considered to be an alternative for low carbon emission, the images of Hiroshima and Nagasaki has appeared in the minds of people who vehemently oppose it. Political protest in their own country as well as scrutiny from International Atomic Energy Agency may force the Governments to use the technology for peaceful purpose. There are several treaties such as Non proliferation treaty, Test Ban treaty, etc to check the creation of most dangerous atom bomb. Nuclear technology is big political muscle in the international diplomacy; US emerged as super power because of its nuclear war heads. But some countries don’t like American hegemony in nuclear technology and started manufacturing bombs in stealth. If all the tension between countries over nuclear technology ends, we can expect greener earth too but it is far too ambitious.

Tide and wave power also has huge potential since tidal and wave are renewable. But there are technology hurdles in developing turbines to tap the up and down of waves as well as ebb and flow of the tides. Recent technological developments have made it possible to harness the wave power efficiently but tidal power is still difficult because there are only certain locations on earth which has good differential tidal waves required. Ocean thermal energy which exploits difference in temperature between surface and deep waters (confining to mainly to tropical regions) has huge potential in the future. Cost competitive technological production is underway. Geothermal is another interesting technology which harnesses the enormous heat from the earth.

The most widely used renewable are Hydro, Solar and Wind because of the availability of cost competitive technology and also it enjoys subsidies from Governments. To combat the climate change we desperately need to replace high greenhouse gas emitting fossil fuel power. Hydro power for instance is used in many countries but failure of monsoon usually results in very poor output so it is not highly reliable source of power. Solar power such as concentrating solar power using mirrors to reflect and focus the sun’s rays providing heat to generate power and also photovoltaic panels now enjoys popularity. Governments around globe are encouraging homeowners and businesses to use solar power wherever possible. Though it has received Lukewarm response so far, it is expected to increase since the awareness level is rising among public.

Wind turbines are famous for its cost advantage. It is touted that wind farms will provide ample economic opportunities for the farmers in developing countries since they can earn money through leasing of lands. Tropical regions are the best places for generating wind power. We need to act fast to save the world by utilizing greener technologies. For companies to use green technologies, consumers first need to change their attitude towards products. It is not right to perceive greener products as most expensive. Actually non green products cause lots of damage to the environment which results in the loss of billions. Let us hope we realize that!