I was talking to a friend today about the difference between the willingness for Indians in India to take risks versus the ones in US to take risk. It is well known that there are several problems with the inability for Indian investors and entrepreneurs to take significant risks (which usually results in breakthrough returns). Most Indian entrepreneurs face different challenges than Americans OR even Indian entrepreneurs in America.
He boiled it down to one specific thing: Other People’s Money. Its a very powerful concept which I have not completely had the time to think through but the more that I think about it, the more it makes sense. I’d love any alternative opinions.
What does that mean?
He argues its easier to take large risks with other people’s money (which is the case in US) versus your own money and assets (which is the case in India).
Its well known that entrepreneurs in US look to get funding from VC’s to grow. So many entrepreneurs (who dont bootstrap) dont put their own money into their startup. They put sweat equity but not their own cash (most cases). You could argue its the same or more vaulable, but its not the same thing.
The Venture Capitalist does not put their own money in also, it comes from their Limited Partner.
The Limited partners (like pension funds, etc) dont put their own money in, its the money they are managing for retirees, investors.
So in some terms there is a fourth degree of separation between the money and its owner, who feels the pain when its “lost”.
In India however its your money or your own assets on the line(though that’s changing with more VC’s coming in), or from friends and family. You have an obligation to return their money with “interest” – its usually debt not equity.
When its your money or your collateralized assets, you tend to take less risk.
What do you think?