Tête-à-Tête with the Indian Investor Who is Convinced India Deserves to be No Less Than the #1 Startup Ecosystem in the World
Indian entrepreneurs have been able to find solutions to capital constraints and have been able to grow out of issues surrounding growth says Pranav Pai of 3One4Capital
Seldom do I come across investors who are bullish. In my meetings with scores of Indian investors in the last three years, I have often asked questions that are unsettling about the ecosystem. Why do startup pioneers feel the need to sell their baby, why are companies not looking at India as their home base for listings, why are startupreneurs not working hard enough to acknowledge failure as a part and parcel of an entrepreneurial cycle – these questions have often got sorry responses. Ranging from policy deadlocks to dearth of credit from India's own investors to biting competition creating pressure to perform and finding failure unbearable, investors have flagged an array of problems that the ecosystem is ardently fighting.
But this February, I got a different response to a question I pose to every investor – Are Indian entrepreneurs smart?
Pranav Pai, the founder of 3One4 Capital, got on an 8 am call with me to tell me all about the Opportunity Fund that his firm launched to scale companies and ended up speaking about his fondness for the startup ecosystem, the opportunities that lie ahead for India's startupreneurs and how the country has moved from a risk-averse one to a risk-taking one.
At the individual level, Pai came back from the US for this every reason – "working in India, working with Indian entrepreneurs is terrific. They are very smart people, very dedicated; an overwhelming majority is doing startups for the right reasons – to grow value, to solve a problem, want to do something unique," Pai said.
His view is that Indians are now taking risk. Today, youngsters are shunning corporate jobs that are secure to become startup founder and shows the risk appetite has gone up, Pai thinks on an individual level, India has made good progress.
At the ecosystem level, India took some time to mature according to Pai. "We are a capital constraint country. We never had enough local capital betting on entrepreneurs in a big way. We still don't have a $1 billion VC fund that is fully Indian capital. In China, there are dozens of VC funds. The Indian capital participation in venture is still very low," Pai said.
Indians participation in venture is estimated at about 10 percent. A recent study showed 13.5 billion venture capital has come in just from Japan. Over the last 10 years, there has been $50 billion in venture capital but unfortunately less than $5 billion has been Indian money.
With a good diversity of geographies investing in 3One4Capital,Pai has investors from 4 countries – India, Japan, US and Singapore. And he has spoken to investors from Europe and China.
One important takeaway that Pai details from conversation from all over the world is that investors recognize India as a maturing system, a growth economy, a large economy driving towards scale.
"We have finally crossed the perception gap that existed. Everyone is looking at India very closely. China's growth engine is slowing down. There is a lot of capital trapped in the top 10 countries in terms of GDP and where to deploy that capital next, where will it grow are all relevant questions and India tends to be a preferred destination to deploy capital in the growth area," he said.
Growing Risk Appetite
Pai thinks the last 7-10 years saw some good set of policies being unleashed to allow FDI to come in and out easily. Today India has more than 25 Unicorns. Pai's estimate is that India will have at least at least 30 Unicorns over the next 1-2 years. He is ecstatic about the way in which Indian entrepreneurs have been able to find solutions to the capital constraints and have been able to grow out of it.
In global perspective, India is now amongst the top 3 startup ecosystems in the world. India is always tying with China for second and third positions after the US. Indian ecosystem is much bigger than that of Israel or any other European country's ecosystem. India has 40,000 startups, more than $50 billion funds raised over the last 10 years. In that sense, we have hit a critical mark such that the whole world recognizes us. And that is why so many good companies and good people are getting into entrepreneurship thinks Pai.
At a fundamental level, Pai feels Indians aren't used to taking much risk. "If you look at other countries and their path towards becoming superpowers, from Russia, China, Japan, Korea, Germany and to the US on how they have done it, the common thread to all these countries growth is the way they have mobilized their own capital into technological development," Pai said.
He thinks in India, we haven't had the same kind of volumes of capital. At the same time, we are not in a protected market; we are in an open market. After liberization, we welcomed anyone in the world. Technology, capital and companies can come in India from anywhere. We just never had a chance to give our companies the opportunity to grow at par with the world. The only exception is what the IT companies did –the Wipros, the Infosys, the TCS, Cognizant – they went the service route. They have built large companies; we have showed tenacity in creating big companies and create value.
It's a nuanced problem believes Pai.
Every time we have a meaningful company at scale, it is liable to be taken over by some other bigger company, some other country. That's the nature of competition; the world wants a new market thinks Pai. What India needs to do is to incentivize Indian capital to participate more meaningfully in all Indian technology companies according to Pai.
The second big achievement is that the government has shown interest. People have started creating companies – from AI to ML. "We need to show one cycle of exits. We need to show that these companies create value for everyone. So, more technology companies listing would be a great thing to see. Startups to go and list will show the entire cycle has worked," Pai said.
He is convinced the next 10 years of India should see that the cycle proves itself out. In a new cycle, India is likely to have much more experienced people and the country will finally find its way through these nuances and India should stand out.
"We deserve to become No 1."