Entrepreneurship in India-

Classifying Entrepreneurship in india

Today, Indian society can best be classified into three categories. The first
category of people is that of well-established business families, such as
the Mittals, Tatas, Ambanis, Birlas and the like. These families have a very
strong base, with most individuals following the family business tradition
passed on from generation to generation. Most of these companies have a
strong management team, and are now going global. World trust in the
Indian corporate sector is increasing like never before.The second
category is dominated by young graduates who are an integral part of
Indian business growth. In fact, India has graduated a huge number of
individuals with management degrees over the past decade. With
information technology and multinational corporations on the rise in India,
young entrepreneurs serve as the backbone of many flourishing
enterprises.The third category of society would be product-based business
entrepreneurs. You will find them in every big city, town, or village in
India. Educational qualifications do not mean much to them; rather, they
rely on sheer entrepreneurship ability that include training, experience,
customer service skills, networking, hard work, and innovation.

Potential Pitfall
There is an overall shortage of start-up entrepreneurs in India compared
to the rest of the world. One of the most significant deficiencies an Indian
entrepreneur may face revolves around capital. Although there is ample
willingness to invest capital in a well-established enterprise, there is little
willingness to fund start-ups. The quality and quantity of venture capital
or angel investors in India is low.

Role of the Government

The wheels of India's bureaucracy still turn too slow for entrepreneurs, the
educational system is not good at promoting entrepreneurial skills and
attitudes, Indian institutes have not been as good as multinationals in
R&D transfer, and India's physical infrastructure ranks lowest among the
countries surveyed in the report - all prime areas for study and
improvement by policymakers, academics and business leaders.

Steps to be taken to promote effective entrepreneurship -

1. Create the right environment for success: Entrepreneurs should find it

easy to start a business. To do so, most Indians would start slow with
capital borrowed from family and friends, the CEO playing the role of
salesman, a professional team assembled months or perhaps years after
the business was created, and few, if any, external partners. Compare this
with a start-up in the Silicon Valley: a Venture Capitalist (VC) or angel
investor would be brought in early on; a professional management team
would drive the business; a multi functional team would be assembled
quickly; and partnerships would be explored early on to scale up the
business.
To a large measure, culture shapes this style. Silicon Valley is abuzz with
ideas to build global businesses; deals are continually being negotiated,
teams are pulled together and partners are identified. There is almost
unlimited access to multiple VCs and angel investors. Critical support
services abound, including professional managers, legal firms, venture
capitalists, angel investors, and placement agencies. Combine this with
excellent infrastructure – connectivity, communication, and office space –
and getting started is easy.
2. Ensure that entrepreneurs have access to the right skills: A survey
McKinsey & Company conducted in 2000 revealed that most Indian start-
up businesses face two skill gaps: entrepreneurial (how to manage
business risks, build a team, identify and get funding) and functional
(product development know-how, marketing skills, etc.). In other
countries, entrepreneurs either gain these skills by hiring managers or
have access to “support systems” such as universities or other institutions
that may nurture many regional businesses. In addition, business schools
give young graduates the skills and knowledge required for business
today.
3. Ensure that entrepreneurs have access to “smart” capital: For a long
time, Indian entrepreneurs have had little access to capital. It is true that
in the last few years, several Venture Funds have entered the Indian
market. And, while the sector is still in its infancy in India, VCs are
providing capital as well as critical knowledge and access to potential
partners, suppliers, and clients across the globe. However India has only a
few angel investors who support an idea in the early stages before VCs
become involved.
4. Enable networking and exchange: Entrepreneurs learn from experience
- theirs and that of others. Much of the success of Indians in Silicon Valley
is attributed to the experience, sharing and support TIE members have
extended to young entrepreneurs.

First International Conference on Entrepreneurship at the ISB –

Focus on Policy Framework

June 6, 2009: The First International Conference on Entrepreneurship

policies was hosted at the Indian School of Business (ISB) between June 5-
6 2009. The theme of the Conference was 'Catalysts of Entrepreneurship -
Policies for Growth'. The Conference was organised by the Wadhwani
Centre for Entrepreneurship Development (WCED) at the ISB, in
partnership with the RAND Corporation and Legatum Institute.

Education and a sustainable infrastructure ecosystem,

aided by appropriate policies, can generate the next
wave of great entrepreneurial activity in India - this
thought alone motivated the theme for the
Conference. The two day symposium witnessed the
coming together of policy makers, industry, academia
and entrepreneurs, who shared a common forum to
deliberate on and evolve an effective, pragmatic and
comprehensive set of policy recommendations to promote
entrepreneurship in India. It also aimed to recognise the opportunities
available for an entrepreneur in India, and how an innovative policy
regime can best take forward such opportunities.

In his inaugural address Dean Ajit Rangnekar said, “Entrepreneurship was

the first focus area for ISB when it was setup. Hosting India’s first
International Conference on Entrepreneurship is like coming a full circle
for us, but believe me this is just the beginning.”

An overview of the Conference and a sum of the entrepreneurial activities

at the ISB was delivered by Dr Krishna Tanuku, Executive Director, WCED.
He said, “About a third of the US Economy, that is $ 4 trillion, comes from
companies that are less than 25 years old, showing that encouraging
entrepreneurship has a huge multiplier effect on the economy. Using that
as a benchmark for India, the opportunity for new Indian entrepreneurs
including the growth opportunity in SME sector is about $ 500-600 billion
in the next eight to ten years. Entrepreneurship at the ISB is supported
through various initiatives and programmes supporting enterprise
creation and enterprise growth. We accomplish that through people and
partnerships.”

A talk by Bruce Nardulli, Director, RAND-Qatar Policy Institute and Senior

Political Scientist with the RAND Corporation on ‘Entrepreneurship-Global
Trends in policies set the tone of the Conference. He mentioned, “RAND is
engaged in some pioneering research work around the world, where we
partner with the best institutes. In India, ISB has world class faculty and
students, and that makes it the perfect choice for doing the kind of work
that we want to.”

This was followed by a keynote address by Nagarajan Vittal, Former

Central Vigilance Commissioner, Former Chairman, Public Enterprises
Selection Board. Vittal spoke on ‘Entrepreneurship and policies in
economic growth’.
 A session on ‘Overview of ISB-Rand Research Findings’
provided a summary of key findings by ISB-RAND
researchers on the existing policies and gaps in
promoting entrepreneurs development in India. It also
identified areas for further research. During the
research overview, Krishna Kumar, Senior Economist,
RAND and Professor, Pardee RAND Graduate School of
Public Policy said, “The examples of Ireland and South Korea, amply
demonstrate that the right policy measures from the government can help
entrepreneurs succeed, which in turn massively benefits the economy and
society as a whole.” Fred Kipperman, Fellow, RAND-Kauffman Institute for
Entrepreneurship Public Policy, US, Shamika Ravi, Assistant Professor,
Economics and Finance, ISB and Liz Brown, Doctoral Fellow, Pardee RAND
Graduate School were the other panellists for the session.

The highlights of Day two were the keynote address by Evan Feigenbaum,
Senior Fellow, Council on Foreign Relations, US. He mentioned in his
presentation about his experience in the US government and the bind
between the US and India. He said, “When I served in the US government,
until just a few months ago, I did have the privilege of helping to push
forward the strategic partnership between the US and India. Like
entrepreneurs, who question assumptions, take risks, and ultimately turn
big ideas into path-breaking innovations, those of us who have worked on
behalf of US-India relations have, in some sense, been entrepreneurs.
Much like the entrepreneurs in this room, both governments have had to
turn bold ideas into policy innovations. And the US-India relationship itself
became a kind of exercise in entrepreneurship.” Feigenbaum added, “We
have 95,000 Indian students in the US – more than from any country in
the world. We have nearly three million Indian-Americans, who’ve played
a vital role in forging closer ties between our countries. And for its part,
India has made great strides in welcoming non-resident Indians living in
the United States and elsewhere to become entrepreneurs here in India.”

Another session on research findings, presented a summary of ISB-RAND

key findings. It was about how policies influence entrepreneurship.
Panellists for this session were Reuben Abraham, Executive Director,
Centre for Emerging Market Solutions, ISB, Neeraj Sood, Economist, RAND
and Professor, Pardee RAND Graduate School, Arnab Mukherjee, Pardee
RAND Graduate School, IIM-B and Krishna Kumar.

During the session on ‘Entrepreneurship in India’s educational sector-

policy framework, panellists addressed the effectiveness of current
policies to spur entrepreneurial activities in the education sector in India,
how India can encourage entrepreneurial approaches to bridge both skills
and competencies, what policy changes are required, the role of
government, how to replicate successful models of entrepreneurial
ecosystem etc. The session was chaired by Manish Sabharwal, Chairman
and Co-founder, Teamlease and also serves on the Prime Minister’s Skills
Commission. Other panellist comprised V Raghunathan, CEO, GMR
Foundation, Parth Shah, President, Centre for Civil Society, Economist and
Former Professor, University of Michigan, Anand Sudarshan, MD and CEO,
Manipal Education and Shantanu Prakash, Chairman and Managing
Director, Educomp Solutions Limited.

This was followed by another session on

‘Entrepreneurship in effective infrastructure
development - policy framework.’ The session was
chaired by Sushil Handa, Chairman, Claris Lifesciences
and the panellists were Jonathan Zasloff, UCLA Law
School and the Ziman Centre for Real Estate, US, B P
Acharya, Chairman and Managing Director, Andhra
Pradesh Industrial Infrastructure Corporation (APIIC)
and Reuben Abraham. This session attempted to address policy related
issues required to build a strong entrepreneurial focused network of
entrepreneurs and SME for faster and efficient implementation of mega
infrastructure projects. Highlighting the role of entrepreneurship in
infrastructure development, Acharya said, “Very often, we lose hope
saying that the Indian infrastructure cannot be improved. But right here in
Hyderabad we have shown that it is possible through public-private
partnership and the model can be replicated all over India.” Speaking of
public-private partnerships, Acharya added, “If the government alone has
to do everything it is not possible. There is a shortage in infrastructure
and the government budget and this is where private sector participation
is required. There were a lot of inefficiencies in public policies and the way
they were implemented. And that’s when we felt we could learn from the
private sector. The main goal of public-private partnerships was to attract
private capital and efficiency for infrastructure projects.”

A final session on ‘The journey to action’ was chaired by William Inboden,

Senior Vice-President, Legatum Institute and the panellists were Som
Mittal, President NASSCOM, Professor M R Rao, Dean Emeritus, ISB, Sushil
Handa, Chairman, Claris Lifesciences and Manish Sabharwal. This panel
kind of summed up the key points discussed during the previous panels. It
sought to provide guidance to various key stake holders to develop a time
bound action plan. Panellists highlighted key policy changes needed and
provided a basis for a constructive dialog between policy makers,
industry, and other stake holders of entrepreneurial ecosystem. During
the discussion Mittal said, “Most of us think entrepreneurship is about
taking money from a VC, putting up a company and taking that risk. But
people like me, who have never set up a company, have been an
entrepreneur all my life setting up new projects. I think there will be two
kinds of entrepreneurs, one who will branch out and setup something on
their own and others who will become entrepreneurs within a company.”
Mittal concluded with the thought that apart from risk and creativity,
which are considered to be pillars for entrepreneurship, there is also the
capability to take frustration.

Venture Capital In India

Early Days

In the absence of an organised Venture Capital industry until almost

1995, individual investors and development financial institutions played
the role of venture capitalists in India. Entrepreneurs have largely
depended upon private placements, public offerings and lending by the
financial institutions. In 1973 a committee on Development of Small and
Medium Enterprises highlighted the need to foster venture capital as a
source of funding new entrepreneurs and technology. Thereafter some
public sector funds were set up but the activity of venture capital did not
gather momentum as the thrust was on high-technology projects funded
on a purely financial rather than a holistic basis.

Regulatory Guidelines & Framework

Later, a study was undertaken by the World Bank to examine the

possibility of developing Venture Capital in the private sector, based on
which the Government of India took a policy initiative and announced
guidelines for Venture Capital Funds (VCFs) in India in 1988.

However, these guidelines restricted setting up of VCFs by the banks or

the financial institutions only. Thereafter, the Government of India issued
guidelines in September 1995 for overseas investment in Venture Capital
in India. For tax-exemption purposes, guidelines were also issued by the
Central Board of Direct Taxes (CBDT) and the investments and flow of
foreign currency into and out of India have been governed by the Reserve
Bank of India's (RBI) requirements. Further, as a part of its mandate to
regulate and to develop the Indian capital markets, the Securities and
Exchange Board of India (SEBI) framed the SEBI (Venture Capital Funds)
Regulations, 1996. These guidelines were further amended in April 2000
with the objective of fuelling the growth of Venture.

Policy Support
Given the proper environment and policy support, there is undoubtedly
tremendous potential for venture capital activity in India

. The Finance Minister of India, in his 1999 budget speech, announced that
"for boosting high-tech sectors and supporting first generation
entrepreneurs, there is an acute need for higher investment in venture
capital activities." The SEBI committee on Venture Capital was set up in
July, 1999 to identify the impediments and suggest suitable measures to
facilitate the growth of venture capital activity in India. Also keeping in
view the need for a global perspective it was decided to associate Indian
entrepreneurs from Silicon Valley in the committee.

Objectives and Vision for Venture Capital in India

Venture capitalists finance innovation and ideas which have potential for
high growth but with inherent uncertainties. This makes it a high-risk, high
return investment. Apart from finance, venture capitalists provide
networking, management and marketing support as well. In the broadest
sense, therefore, venture capital connotes financial as well as human
capital. In the global venture capital industry, investors and investee firms
work together closely in an enabling environment that allows
entrepreneurs to focus on value creating ideas and allows venture
capitalists to drive the industry through ownership of the levers of control,
in return for the provision of capital, skills, information and
complementary resources. This very blend of risk financing and hand
holding of entrepreneurs by venture capitalists creates an environment
particularly suitable for knowledge and technology based
enterprises.Scientific, technology and knowledge based ideas properly
supported by venture capital can be propelled into a powerful engine of
economic growth and wealth creation in a sustainable manner. In various
developed and developing economies venture capital has played a
significant developmental role. India, along with Israel, Taiwan and the
United States, is recognized for its globally competitive high technology
and human capital. India has the second largest English speaking
scientific and technical manpower in the world.The Indian software sector
crossed the Rs 100 billion mark turnover during 1998. The sector grew
58% on a year to year basis and exports accounted for Rs 65.3 billion
while the domestic market accounted for Rs 35.1 billion. Exports grew by
67% in rupee terms and 55% in US dollar terms. The strength of software
professionals grew by 14% in 1997 and has crossed 1,60000. The global
software sector is expected to grow at 12% to 15% per annum for the
next 5 to 7 years.Recently, there has also been greater visibility of Indian
companies in the US. Given such vast potential not only in IT and software
but also in the field of service industries, biotechnology,
telecommunications, media and entertainment, medical and health
services and other technology based manufacturing and product
development, venture capital industry can play a catalytic role to put India
on the world map as a success story.

Where are VC’s Investing In India?

• IT and IT-enabled services • Software Products (Mainly Enterprise-

focused) • Wireless/Telecom/Semiconductor • Banking • PSU
Disinvestments • Media/Entertainment • Bio Technology/Bio Informatics •
Pharmaceuticals • Electronic Manufacturing • Retail

Issues and Challenges

Indian VC

yet to be established as a sustainable asset class among institutional

investors. Moreover a limited amount of true “risk-capital” impacts
entrepreneurial activity.Exit challenges exist mainly due to shallow capital
markets and dull M&A environment for small companies. Most
importantly, India is yet to create a brand-name for IP-led companies, like
Israel has successfully done

Capital activities in India

Industry Size, Activity and Participants

Pursuant to the regulatory framework mentioned above, some domestic

VCFs were registered with SEBI. Some overseas investment has also come
through the Mauritius route. However, the venture capital industry,
understood globally as "independently managed, dedicated pools of
capital that focus on equity or equity-linked investments in privately held,
high-growth companies", is relatively in a nascent stage in India. Figures
from the Indian Venture Capital Association (IVCA) show that, till 1998,
around Rs. 30 billion had been committed by domestic VCFs and offshore
funds which are members of IVC]. Figures available from private sources
indicate that overall funds committed are around US$ 1.3 billion.
Investable funds are less than 50% of the committed funds and actual
investments are lower still.

Angel Investors

Indian Innovators Association

Angels are the earliest of early-stage investors. For many entrepreneurs,

angels provide capital and frequently, valuable guidance and strategic
assistance–that they would likely not find anywhere else. The ideal angel
is someone who is a generation ahead in creating value in the industry.
They'll provide financial capital as well as intellectual capital, which could
be even more important than the money. According to estimates from the
Center for Venture Research at the University of New Hampshire, angels
invest a total of more than $40 billion a year in 50,000 companies. Web
ventures such as www.garage.com and www.venturehighway.com, work
to match investors with businesses,

The picture in India is different - Angels are hard to find. To bring Angel
Investors and Innovators together, Indian Innovators Association made
arrangements with selected Angels to examine the Business Plans of
Indian Innovators.

Innovators looking for angel investment may contact the association with
an executive summary of their business plan. Detailed plans can be
submitted to the interested Angel after the preliminary examination.

Working of Angel Investment networks

The prospective entrepreneur submits the investment proposal either

free of cost or by paying some minimal Referral fee. The details of the
proposal are sent out to the database of investors. The angel investor
interested in the project, would then contact the angel network firm acting
as the intermediary between the entrepreneur and the angel investor. The
proposal remains active for a pre-defined number of days and the
Referral Fee gives access to the contact details of ALL the investors
interested in the proposal for this entire period.

Challenges faced by Entrepreneurs

The following are the challenges or problems faced by small

entrepreneurs:
1.Production problems: Include raw material availability, capacity
utilization, and storage problems,high cost of raw materials and other
inputs

2.Marketing problems: Arises because of dealing in only one product, cut

throat competition, adopting cost oriented method of pricing, lack of
advertisement, not branding their products, unfavourable market
fluctuations etc.

3.Financial problems: Include investment risks, procurement of loan from

banks and their repayment, meeting day to day expenses and the like.

4.Labour problems: Include highly demanding employees, absenteeism

lack of skilled workers and transportation of workers.

5.Infrastructure problems: Unless and until you have the infrastructure in

its place the rest of the efforts are futile.

6.Legal aspects:Complex rules, regulations and procedures framed by the

Government

According to the study, majority of small businesses considers

finding and retaining qualified workers as the most significant
challenge to the growth and survival of their business. Other major
concerns of small businesses include: state and federal regulations ,
economic uncertainty , keeping up with the technology and access
to adequate capital.