Is VC choking India's startups?
<p>When a venture capital fund builds a portfolio of early stage investments, it is done with the expectation that at least a handful will fail. There are several reasons why: problems with product timing, the promoters, and governance issues. But what if the VCs are to blame?</p>
<p>Seedfund founder Mahesh Murthy writes in Tech In Asia that VCs bear at least some of the responsibility when it comes to driving startups to an early grave. At least in India. The problem, he says, is the U.S. VC model. Most VCs have 10-year fund lifecycle, with the 3-4 years to deploy capital and the rest to grow and exit the business. Murthy says:<br />
"You can see the problem right away, can’t you? No Indian firm of any stature has had any real IPO (initial public offering) exit within 5 to 8 years of starting up. Even our new economy giants MakeMyTrip and Naukri took more than 10 years, while JustDial took more than 16 years to exit on the market. Look at the big stocks on the BSE (Bombay Stock Exchange) – and make a list of those that had a meaningful IPO within 8 years of starting up. Your list will be an empty one."<br />
To cope with the mismatch, funds are pushing startups to do things against their long-term interests. This includes costly marketing campaigns, a needless pivot, or an ill-advised merger, all in order to drive up the valuation and secure an early exit. If it fails, the VCs will simply "choke the windpipes of startups at year 5 or 6."</p>
<p>The solution? In short: we need a new model, says Murthy. He suggests fewer 10-year funds and more evergreens and 20-year fund structures. Investors, he adds, need a mentatility thats more “Berkshire Hathaway” and less “Gordon Gecko.” <br />
Photo: Gulan Bollsay</p>