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Want to be an entrepreneur? Read this!

October 05, 2007 08:16 IST

As far as the new-economy Indian entrepreneurial ventures are concerned, a combination of factors seem to have inspired the remarkable growth of demand for Indian services in the world market. Some of the important triggers for entrepreneurial activity in the new economy have come from environmental conditions, financial considerations, education and experience of the entrepreneurs. The background that provided a positive climate for entrepreneurship to take off and created motivation for setting up new ventures is explained next.

The worldwide interest in business process re-engineering, the economic imperatives in developed countries of outsourcing, cost-efficient maintenance of existing mainframe systems and continuous development of new software for PCs have played significant roles in the creation of enterprises which could provide such services to the world market. India's comparative advantage in the software industry, generated from its relative abundance of skilled software personnel, coupled with its rapidly improving communications infrastructure and lower costs of manpower even amidst competition from other countries, have played a key role in creating confidence among buyers of Indian software products and related services.

The funding scenario was another major catalyst for increased entrepreneurial activity in India. Up to 1996, the concept of venture capital was virtually non-existent in India. The initial foray into financing was predominantly from instructions. Funds that were mobilized for venture investment were small in value. Unlike the current times when there is plenty of venture capital chasing great ideas and entrepreneurs, in the 80s they had virtually no access to venture capital. The VCs in these times were mostly from banking background, and they approached the subject of venture funding much like they would approach debt financing of a project.

The accent was on the asset side of the balance sheet, and value creation as a focus had not yet been fully discovered; exit strategies were being thought more around the life-term of the funds, and perhaps as nothing more. There was little or no active participation in areas where a VC could have contributed, such as financial structuring, business strategy, business enhancement through networks and creation of business through synergy amidst investee companies. In the absence of VC funding, most of the initial enterprises had to rely upon their personal savings, family support and, ia few cases, support outside the family through friends, the equivalent of `angels'.

The ecosystem was not 'venture friendly', with most people being doubtful about the success of entrepreneurship, given the immediate history and experience of Indian business which had to go through a long struggle to establish or grow, be it with the bureaucracy for the necessary permissions to set up the manufacturing facility or the international customers who were very weary about `Indian quality'. Yet, there was a hope and dram that some people cherished, and the burning desire to do things differently prompted them to jump into the fray of entrepreneurship.

While the venture funding activities accelerated in the US in the early 90s, the rapid growth especially of the high-tech sector meant that idea, entrepreneurs and momentum were all available in full measure. Added to this, of course, was the Indian version of the dot com boom Professionals working in organizations were actively wooed to transform themselves into entrepreneurs, backed by venture capitalists. The range of investors now spanned incubators, angels, classical VCs and even private equity players.

The one positive aspect was the sheer energy and enthusiasm that was generated, which accelerated entrepreneurship in India, hitherto largely confined to business communities. VCs were instrumental in introducing risk-taking to many members of the `professional class'. Innovation was the key, and idea flows started equaling deal-flows at a frenetic pace never seen before (Sabarinathan, 2002). As Bygrave and Timmons (1992) found in their research, the presence of a VC investing community had a positive correlation with the level of entrepreneurial activity, and VC investing played a key role in fostering innovation.

Another factor that has been responsible for venture creation has been the high-quality technical education infrastructure created by universities in India. In addition to this, the access to state-of-the-art education in the US through thousands of young engineers each year and the experience of working with leading technology firms in India and US have possibly provided an opportunity to study the market requirements, understand customer behavior and observe technology trends from close quarters, all of which have been triggers for new venture creation.

Surveying 46 technology firms in India funded by venture capitalists, Ramachandran (2001) states that most of them chose their product and technology in the same area in which they already had received exposure by way of training or earlier work experience. Some others were more radical and used their background to explore new avenues in emerging areas, especially in the context of the Indian market.

Excerpted from:

Unleashing the Knowledge Force by Ganesh Natarajan, Uma Ganesh. 

Copyright 2007 by Tata McGraw Hill Publishing Company Limited.  Price: Rs 395. Reprinted by permission of Tata McGraw Hill Publishing Company Limited. All rights reserved.

Dr Ganesh Natarajan is one of the leaders of the Indian knowledge industry. He has led two successful organisations, Aptech and Zensar, to global success.

Dr Uma Ganesh has over two decades of experience in managing the confluence of technology, processes and people in manufacturing and the ICE (Information, Communications & Entertainment) sector.

Ganesh Natarajan, Uma Ganesh