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January 20, 2007

Where are the cross-border VCs, asks Basab Pradhan

Gridstone Research's Basab Pradhan bemoans the lack of cross-border VCs who understand both the developed world and India well.
Why are flat world startups underserved by the venture industry? Like all startups they need capital, connections (customers, partners, senior hires), and counsel. But it is very rare that you will find a VC who is as familiar with the Indian market as he is with the US market. His expertise, his connections are typically more slanted towards one of the two markets, but not both. So if he has spent his entire career in tech companies and VC firms in the US, his networks are in the technology sector in the US and can help in making introductions to potential customers and partners, but isn’t much help in hiring senior tech personnel in India. If, on the other hand, his background is in the Indian corporate sector or one of the early venture firms in India, he can use his connections to hire senior technology or product executives in India but can gain no market access.

...The entrepreneur will have to compromise – take dumb money or settle for a low valuation. Which is a shame because I think there is great potential in flat world ventures, certainly more than in the small Indian domestic tech market which seems to be getting more press than it deserves.

In case there are VC firms out there that realize the potential in the flat world theme, here’s what they would have to do:

1. Have offices in both India and the US with General Partners in both offices. It is important that the Indian office not be perceived as a satellite office staffed with junior staff.
2. Associate two partners with every flat world investee company. One, in India and one in the US. Assuming only one board seat, the other would be observer. But both would be actively involved in the company. This is a big commitment but believe me, it is worth it.
3. Create a culture of sharing and ‘boundarylessness’ within the firm which allows ideas, connections to flow freely across the globe. This will bring a global perspective to firm partners in both India and the US and make them both look smarter to entrepreneurs.
4. Get used to doing business over video conference, telephone or skype. Its that, or constant jet lag – take your pick. The reassuring handshake will get rarer, unfortunately.
5. Be ready to partner. If you can’t immediately do 1 through 4, do the next best thing – build a network of like minded VCs at the other end of the world who you can co-invest with.

Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.