One person can change the world – How Dave McClure being in US is disrupting Indian early stage investing

Last week over dinner with 4 top Venture Capitalists in India, the thoughts turned to early stage funding in India. As most entrepreneurs will tell you, seed stage investments in India are hit or miss. Entrepreneurs struggle to get angel and seed stage investors to move quickly. Most AA rounds take 3-4 months to close. Early stage (Series A) takes 6 months. There are angel networks that take longer.

I have been privy to several discussions that entrepreneurs have with their investors and its hard to help them close faster because many Indian angel networks and investors believe they want risk-free investments.

That all is about to change to a large extent.

The VC’s initially told me they were thrilled Dave was making these $50-$100K bets in Indian companies, since it gives them a bigger pool of good startups to fund.

Little do they know that most of the Indian entrepreneurs have different ideas.

Over the last week 500 has announced over 10 investments in the India (in less than 6 months), have hired Pankaj Jain full time to invest in Indian entrepreneurs and have publicly declared their intent to invest in 50 startups in 2013.

Just so we can all understand the magnitude of this commitment:

In all of 2011 angel and early stage investments went to 52 companies in India in the technology sector.

500 will match that in less than 1 year and will possibly do more than all other “angel networks” and individual angel investors in India – COMBINED.

I have talked to all the 19 company founders, who have received money from 500, yCombinator, TechStars, Startup Chile.

They have no intent to come to Indian VC’s to raise their series A.

They have access to US investors who move quickly, respect their time and are willing to make decisions with very little information.

Does that mean Indian VC’s are done for?

No.

It means a big chunk of the best and brightest who want to build global, scale-ready and capital efficient companies in Cloud, SaaS, Mobile and consumer Internet will go abroad and get money from investors in the US.

And Boom – just like that, Dave, Paul and Pankaj have changed the equation for Indian startups.

Sitting largely in the US.

Yes, that Pankaj is in Delhi is not lost on me.

One person can change the world – Believe you can do it and get it done.

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12 thoughts on “One person can change the world – How Dave McClure being in US is disrupting Indian early stage investing

  1. Pravin (@beingpractical)

    Now investors have to compete with the best! The equation is now equal :)

    Indian Startups compete with the rest of the world while building products.
    Indian Investors compete with the rest of the world to fund Indian Entrepreneurs.

    Reply
  2. Arvind Nigam

    It took one American to shoot the vultures? I kind of disagree that Indian investors will now begin to compete with the best. That streak of competitiveness is missing in most, if not all of them.

    What’s gonna happen here instead, is that the Indian eco-system will bleed more and the American dream will live a tad longer. I have noticed quite a few entrepreneurs setting up their shop at Delaware/Chile etc. chewing up only on the technical talent available locally.

    Most investments in technology space, for there are some, are mostly non-technology intensive. Apparently, it’s getting better for entrepreneurs definitely, but things would get hard quickly unless something is not done to get the Indian VCs on track. Should bounce off these ideas.

    Reply
  3. Dave McClure (@davemcclure)

    (dammit mukund, thought I was going to relax this weekend ;)

    a few thoughts on India & startups:
    - 500 is excited to be in India, but we are still *very* new to the scene, and we have a lot to learn… we will be looking for experienced co-investors as well as mentors & partners to work with in India
    - 500 is a big believer in the emerging “local” India market serving over 1B upwardly-mobile desis, and we are equally interested in those opportunities as we are in “global” businesses
    - 500 is certainly disruptive, but not just for disruption sake — we happy to work with folks in India as much as in the US…. or for that matter, in Asia or Latin America or Europe.

    in short: we want to work with the best people all over the world, whether they are founders or investors, angels or VCs, Indian or American, brown or white (or yellow or purple). and we can’t do that simply by shipping everyone across the ocean to the US. we will need to build local friendships & partnerships with smart & capable people who are on the ground and familiar with local best practices.

    BUT we will NOT be tolerant of people or processes who are a) moving too slow in making things happen, b) taking advantage of entrepreneurs or not playing it straight, or c) don’t believe or support the potential of Indian entrepreneurs to change the world. where we find such roadblocks, we will climb over them, crawl under them, and occasionally plow straight THROUGH them if needed. “By Any Means Necessary” if you know what I mean, jelly bean?

    we have a long way to go before India becomes the next global internet powerhouse, or before 500 becomes the Mouse That Roared among Indian startup investors. still we are happy to be getting started, perhaps stumbling like a newborn toddler, blissfully ignorant of what lies ahead but enthusiastic nonetheless.

    Ladies & Gentlemen, START YOUR ENGINES!

    (vroom vroom :)

    DMC

    Reply
    1. Sridhar

      “shipping across everyone to US” is a very much the large American VC thing, as experienced by my biz. For e.g. the Hadoop dev team and contributors at Yahoo Bangalore were “shipped” to US as Hortonworks. In 2010 my venture (working in Hadoop space) was told you should move to valley. Dave therefore offers a different proposition here that tells us- it is really about the idea and not controlling it!

      Reply
  4. Amit Anand

    “In all of 2011 angel and early stage investments went to 52 companies in India in the technology sector.” really?!

    Give them the NOS treatment DMC, rest all is getting there.

    Reply
  5. Elton

    A good morale that – you don’t need to be present everywhere. If you want, you can get it done.
    And good to see Dave’s 500 Startups has come to disrupt Indian VC :D

    Reply
  6. Abhishek Gupta

    Even I had thought, I will not engage with the “social media” this weekend, but Mukund, you have brought something up that is very close to my heart.

    IMHO money doesn’t have a nationality or culture but people do. What we have seen so far in India is riske averse investors raising fund from Outside but still running with the old philosophy of “maximising” their returns with risk-free investments. You know who I speak of that have raised large early stage funds but have not done even 2 investments in last 1-2 years, I remember after Paul’s moneyball presentation a couple Of investors said “good but i don’t think it will work in India”.

    David, Paul and pankaj are fast and I am sure they will bring about a welcome change, but one thing is a given, if Indian investors do not learn to close fast then they will be left behind and good quality entrepreneurs will find a way to the money that is required for their growth elsewhere.

    I dont know about others but i am ready for the change and i confident that india is entering the fast lane. Dave, you bet, I am revving mine hard :)

    Reply
  7. Cherian Thomas

    I couldn’t agree more here.
    20 minutes into my conversation, Paul committed to fund my company Cucumbertown. And that too I was explaining the product to another accelerator company – not pitching to Paul. Later on Paul called up Naval to express his intend to fund (Naval introed us to 500S). 2-3 calls later that day and Cucumbertown had closed 2/3 of its funding (Naval funded us after a meeting in 30-45 mins). This was the 2nd day of our fundraising.
    I came back to India and met with a fund here. I did 6 meetings spread over a month with many excruciating questions. I was asked questions of series B nature (if I had answers to those questions I would have taken a business loan). Finally we were passed on.
    I believe Paul wrote this after article [1] after I told him about my experience here.
    Point being, Dave & Paul takes risks. Risks on you, the team, your passion & your capability to progress fast. No nonsense & no delays.
    This infuses a tremendous amount of confidence, trust & ego into you and your team. There’s so much adrenaline rush.
    When you talk to Paul you’ll understand how committed he is to the Indian markets. And the second time when I met him in Bangalore, he already knew the pulse.
    The truth is, one major win by 500S and all investors here will follow this style. It’s a risk. But I think it’s worth it. And they have their rationale for this [2].
    http://resultsjunkies.com/blog/fund-the-founder-or-the-prototype-but-not-the-idea/
    http://www.slideshare.net/paulsingh/moneyball-a-quantitative-approach-to-angel-investing-austin-tx-aug-2012

    Reply
  8. Rajesh Khatri

    It is good to see such changes, being in business for last 12 years after leaving MNC job , I could not find any business without risks, India is a huge market and have good potential to grow money in coming years, many things changing fast and there is great volume business everywhere, Govt Spending is large on healthcare and infrastructure

    Reply

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