Getting funded by US investors vs. Indian investors – a perspective

This is another post to force the debate. I have heard many Indian entrepreneurs say that they would rather be funded by a US investor than and Indian investor. In fact most would prefer specific Silicon Valley investors.

There are many pros and cons to both Indian and Silicon Valley investors.

Lets do the valley first.

Pros:

1. Investors move quickly. They make no decisions fast and yes decisions faster. Some companies (Cucumber town for instance) have been known to take a few days or upto a month to raise a seed round of $300K.

2. Investors are willing to invest in breakthrough ideas, instead of me-toos. In fact they have deep liking for disruptive ideas.

3. Willing to lead a round, and help you syndicate other investors.

Cons:

1. There’s tremendous deal flow. Competition to get funded by a valley investor is huge. Lots of companies that have 3 to 10 times the traction as their Indian counterparts for the same stage of company.

2. Valley investors dont like funding anything outside the valley. In fact an investor told me “I dont like to drive to the other side of the bridge (I am sure he mean Dumbarton bridge, given how close it is to Menlo Park) to fund a company”.

3. You have to move to the US (Maybe this is a pro for most Indian founders). The biggest hassle is immigration. H1B visas (working permits) are much harder now than 5 years ago.

Now lets look at India.

Pros:

1. Competition is a lot less. There are far fewer product companies in India than US. Some might even say there’s too much money in India chasing too few deals. Entrepreneur’s dont necessarily agree with that, though.

2. There are many funds raised just to invest in Indian product companies. They are willing to provide the same amount of money, as their US counterparts from as low as a few hundred thousand dollars to many millions.

3. Traction requirements are a lot less. A lot less in India. For a sapling round (assuming you raised a first seed from an accelerator or from friends and family) many companies are getting funded with far fewer customers or users than in the US.

Cons:

1. Indian investors (angel and seed) move very slowly. Slower than molasses in fat. We have a company with a 2 month old signed term sheet, that’s waiting for the money, and expects it will take 6-8 more weeks.

2. Their terms are lot more onerous and they require a higher percentage of the company during the seed round.

3. They rarely add any value after putting money into the company at the seed round, usually only asking for “3 year financial projections” when the product is in beta.

If I were an entrepreneur and I have the ability to go to the US and have some (small or otherwise) network in the valley I’d go and raise money there in a heart-beat. If my customers are primarily in the US, then I’d also consider moving there.

If I have never set foot in the US and want to stay in India or have my market here (for any number of reasons), then I’d be better off raising money in India.

What do you guys think? Did I miss any obvious pros and cons?

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10 thoughts on “Getting funded by US investors vs. Indian investors – a perspective

  1. Pratik

    Good stuff! Another ‘con’ in many Indian investors would be they’re less willing to undertake product risks, and are more inclined to taking business risks.

    Reply
  2. Anand

    I’m curious why you say there is less competition. My early impression has been the opposite is true, at least at the early stage. Most angels/seed funds can afford to be quite picky, and they are. It’s reflected in the higher equity and stiffer terms as well. Maybe the groups are too small for it to be an elastic market, but it’s hard to reconcile oversupply of capital with stiff terms.

    For what it’s worth I do think it’s going to shift in the direction you mentioned. I’m just not sure it’s happened yet.

    Reply
  3. Ravi

    Great post, Mukund. In the ‘Con(s) India’ (pun intended) point no. 3. you make an interesting observation about value addition (or lack, thereof) from Indian investors. From your experience, could you share the ‘value addition’ aspects of the US investors, please?

    Reply
  4. Vijay Gummadi (@vjgummadi)

    Other points that require due consideration in such a discussion:
    1. Developmental stage of company
    2. Nature of product or service offering
    3. Geographical context and relevancy to the investor
    4. Entrepreneur’s desire to access new markets or relevant resources and investor’s ability to facilitate such access
    5. Stage of fund raise

    Good tradeoff:
    1. US based investors with offices in India
    2. Investors operating in India with partners that have extensive experience in the valley

    Reply
  5. Pingback: US work visa options for entrepreneurs | Be a Force of Good

  6. vamsee

    my observation is that indian vc’s are mostly looking for me-too type ventures – something that assures almost guaranteed success. their risk taking for breakthrough ideas is pretty non-existent….

    Reply
  7. Pingback: Finally a way for H1B visa employees to realize their dream of #entrepreneurship – unshackled | Best Engaging Communities

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