How the risk appetite of entrepreneurs affects their exits in Silicon Valley, India and Africa

I run this fun experiment each time at most events I speak at. I ran is again yesterday at the CII event yesterday in Bangalore. The experiment is to gauge the risk appetite among entrepreneurs. It is not scientific nor is it structured. It has though, given me a sense for the risk appetite among the entrepreneurial class.

I have run this experiment now over 30 times and have had fairly consistent results. If there are over 100 people in the audience, I ask folks three questions and request a show of hands.

Q1. If I gave you a 10% chance of making $2 Million from your startup, how many of you will take that outcome? I get a show of hands at this point.

Q2. If I gave you a 1% chance of making $20 Million from your startup, how many of you will take that outcome? Show of hands again.

Q3. If I gave you a 0.001% of making $1 Billion from your startup, how many of you will take that outcome? Final show of hands.

Over the last 3 months, I have spoken at 2 conferences in the US, 1 in Zurich, 1 in Africa, Singapore and over 5 in India.

The results give me a quick sense for the hypothetical risk appetite for entrepreneurs in that community.

In the US at both the conferences, the distribution was 30%, 10% and 60%. In Zurich it was 60%, 30% and 10%. Africa was very close to the US surprisingly, at 35%, 15% and 50%. It is almost as if Africans have nothing to lose and Americans don’t care for small outcomes, but both end up at the same place.

In all the conferences in India, it has been 70%, 25% and 5% (and that’s being generous in 2 conferences including yesterday, where 2 out of 150 people opted for the 3rd choice).

Rather than draw quick conclusions about the risk appetite, I thought I’d think about it more and understand why Indians are happy with smaller outcomes.

Given that the effort over several years to create a $10 Million outcome at your startup is the same as one that has a $1 Billion outcome, why dont we focus on the large opportunities?

  • Is it fear of failure?
  • Is it that we are “happy” and content with even the small things?
  • Is it that $2 million is such a large change in our lives that the $1 Billion does not seem worth it?
  • Is it that we really don’t aim big? Notice I did not say think big, I said aim big? Nuance, but a big difference
  • Is it lack of exposure to large markets?
  • Is it that we are not hungry enough?
  • Or is it something else?

I don’t quite have an answer. When I mentioned that I dont have an answer to the moderator Mohan Reddy yesterday, he expressed dismay. He was looking for an answer – was it our cultural background, our education system, our values, our government – someone or something had to be blamed.

I dont know the answer, but have a deep desire to find out.


As we start to invest in the early stage startup ecosystem in India, it is important to calibrate the possible returns and allocate funds associated with the returns. If most entrepreneurs in India are okay with smaller returns, it makes sense for us to allocate fewer fund here than China, Israel or Africa.

From our experience at the accelerator, where, over the last year we have “invested” our time, resources and energy in 23 startups, we know that the risk appetite is much lower among startup founders in India, compared to those in Israel for example.

We have already had 2 small “exits” and 3 closures in India. Israeli companies are still out there, fighting for their series A and beyond, while 1 company had pivoted dramatically in Israel, only to start again.

Is the reason something completely different? Is it that we are realists and don’t think the billion dollar outcome is even possible?

As Henry Ford said:

“If you think you can do a thing or think you can’t do a thing, you’re right.”

17 thoughts on “How the risk appetite of entrepreneurs affects their exits in Silicon Valley, India and Africa”

  1. Mukund,
    One exercise that might help you find the answer is to pose the same question to the investor community in each geo – often, the entrepreneur’s risk profile is congruent to that of her investor.
    PS: That aside, you have spoken in more than 10 conferences in the last three months – Why do you spend so much time on this? I dont know the answer, but have a deep desire to find out.

    1. I enjoy meeting people and learning. The beat way I learn is by debating and discussing not reading. These events are the best way to meet 100’s of people at the shortest time.

  2. This is a very good question. I’m actually facing the other side – that people aren’t interested in the smaller opportunities, in reality. If you tell people there’s a $20 million exit chance in five years with a small chance this actually becomes massive, they’re not really keen on signing up. (If you get funded, I’ll come on board types). Mostly the risk is in the fact that the educated middle class are risk averse by nature. The richest and the poorest among us are far far better at risk taking than any of us with college degrees (that’s my anecdotal experience).

    Coming to your question, I think it’s the way the questions are framed, they are thought of as independent questions. I can have all three probabilities at the same time, and it’s not like you can have one but not the others. So if I had a 10% chance of a $2 million outcome, I can also have (and most likely, will have) a 1% chance of a $20 million outcome, so I should keep my hands raised.

    To be fair, if I had 0.001% chance of a $1B outcome but a 0% chance of any other outcome than failure, then even the guy in the US or Europe would dither.

    And failure of a startup doesn’t mean failure for an entrepreneur – he might still be able to raise funding and make a decent salary while exploring a tiny sliver of a $1B opportunity. In that case, it’s like saying [funding]+0.001% chance of big exit or [no funding] and 10% chance of a million, you’d take the first anytime. Then the answer is about the probability of finding funding for big ideas with a tiny bigexit probability – answer, at least for the US, is yes, while for India is what-are-you-smoking.

    1. I’d have to agree with you here Deepak. Really like the “nuance” you brought in, of the other outcome. Is the other outcome “some funding” and that 1Billion Silver lining or no funding / complete bankruptcy and/or the 10% chance of a milion! Really the incentive on either side, and we have the case for risk story.

  3. Hi Mukund,
    Its a brilliant question even though it looks very simple upfront. We have a very diverse history our risk maturity is poor. If someone has to be blamed we have to blame the history which has kept our ancestors in slave mentality say for several hundred years. In my personal experience if we say $2 million to an Entrepreneur who has a middle class back ground its too much of money and I have not been culturally, even mentally prepared as have been taught that its greediness not ambition to think that way. When I cant really believe about $2 Mn your question on $1 Billion seems completely unrealistic for us. Its like I can see only some distance and I believe thats the end. Unless we see more people going to $2 Mn we will not focus on a Billion. I hope with all the efforts made in the eco system that day is not far.

  4. 2 million $ makes a lot of difference to a entrepreneurs life…but that damn flat and big car, get married, shut parents, Inlaws mouths and then take aim at the billion $ opportunity.

  5. I think one of the issues is risk-aversion where we are avoiding targeting for a smaller probability scenario even if the stakes are high. Will you buy a lottery ticket if the 1st prize is smaller but you are guaranteed a prize or one where the 1st prize is high but the chance of winning are very low. We are moving towards the instant gratification economy 🙂

    Also add to the equation the fact that you feel more motivated if you have had a small success and you have lost 3 years if you have not succeeded financially in your last venture.

  6. Hi Mukund,
    By Africa , You mean South Africa ? , Kenya ? , Uganda ? , Nigeria ?.
    I am curious as to how you came to the `Africa` conclusion

  7. Some interesting insights, feel that as because major exits in india are far and few compared to US and Israel.

    Maybe some reasons:

    1)The public/ founders therefore are sceptical of the 3rd option ever happening and therefore settle at the first alternative of getting some money. The faith to hang on there for longer is not there.

    2) As the family structure is, the peer pressure of family makes them settle for less. What the surrounding family people say also makes that impact. Since the situation is always boot strapped getting early revenue is more of a panic situaion and hence the premature submission.

  8. My experience has been that there seem to be two very disparate Indias. If you go to someone like a Aramex or any of the listed companies in India (who have cash reserves), or even a name like Airtel for that matter, even a billion doesn’t move their needle by much.

    We have two Indias, where on one hand we have an emerging new entrepreneurial caste (so to speak), defining its values etc and learning the ropes against the odds that many hail from – almost like the founding fathers of the US. The future seems to be unclear and it is oft repeated to them that they cant do much in India.

    One other data point that I came across while talking to Karthik of Blume was that, there are very few entrepreneurs who have actually managed a budget of a million or so. In the US or in most other markets, entrepreneurs get a chance to handle it, but in India a lot of people are well pampered in a large organization with no clues to revenues or expenses, but suddenly they find themselves managing a million, and they arent exactly sure how it will turn out.

    The other India is thinking big, and very very big, that everything else that the new class is doing seems like noise.

    Next time, add the question: “How many of you have managed a budget of a million or more and have been responsible for it”. I have a feeling that the data will correlate.

    Its also possible that none of those who are thinking big are in any of the conferences that you and I attend.

  9. Mukund,
    My personal experience probably correlates with one of the earlier comments. There is a sense that investors here will not buy a broader canvas of a billion $ opportunity as much as they will a smaller opportunity.

  10. Interesting read.

    Another factor is not just risk appetite, but also founder/entrepreneur willingness to cede control/ownership to raise big capital with right strategic partners – to achieve the big 5 year exit.

    When we started to raise capital for our start up we were fortunate to be asked a great question: Do you want to own 10% of a $ 100 million business or 40% of a $ 20 million business.

    We always wanted to scale to be big so it was an easy answer and it guided how we went about raising capital and which investors we wanted. In the fund raising period we drove business traction as hard as we could to maximize our ability to keep our stake in the business significant while raising the right amount of capital.

    Interestingly as an African business, we did find American Investors that met our ambition and risk appetite.

  11. I think many of us entreprenuers do not start out with the intention of changing the world, but of being on our own, making a decent living and possibly leaving a reasonable legacy for our future generations. Currently a USD 2 MM nest egg, goes a long way in that. I believe that the point raised by Deepak shenoy. The question should be a role that gives all three options against their relative probability AGAINST a steady state job that will Guarantee USD 100 thousand for the next 20 years.

  12. Entrepreneurs may be responding to what they will be happy with given their environment (respective markets in which they operate) – rather than responding to the value and odds you are providing. So responses (in India) may not be only about their risk appetite; they perhaps do not believe that there is even a 1% chance of a bln $ company coming from India

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