Global Themes

On Globalization & Venture Capital

How do you find flat world VCs?

Came across this thought-provoking post by Basab Pradhan in which he talks about “flat world ventures” and how the traditional approach to VC “is leaving big underserved gaps in the market”…Although the article is largely about Indian start-ups and their approach to global markets, a lot of it is probably relevant to Chinese start-ups as well…

Basab defines “flat world ventures” as startups whose product or service is largely put together or provisioned in India for global markets. He cites his own company as an example which does research in India for the US market (there are of course others including Aranca and RocSearch – both run by friends and fellow LBS alumni, Hemendra Aran and Neeraj Bhardwaj)

Basab argues that the reason why flat world startups are underserved by traditional VCs is because of the fact that they straddle two worlds and “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.”

While finding such a person may well be impossible, the situation is not really as bleak as it looks…In most cases the entrepreneur (and his/her team) will have connections and network in at least one (if not both geographies)…so what they can look for is an investor who can complement their relationships and networks…reminded me of a report on the Indian VC marketby Alok Aggarwal, head of Evalueserve in which he talks about some of these issues… (see 4.3 and 4.7 of Alok’s recommendations) (also see “Another hot day…in an over-heating market“)

Another way of achieving that balance is to actively try and cultivate a network in more than one geography…this is even more critical as startups and markets increasingly becomeglobal and move beyond traditional VC boundaries…(see my earlier post on “GlobalizationWhat’s it got to do with me?”  )

And I slightly disagree with Basab’s 4th point (re. what should VCs do?) where he says “The reassuring handshake will get rarer, unfortunately.”…I think the opposite will be true…as global travel becomes increasingly feasible and economic, the value of personal touch in a relationship is likely to become even more salient…

February 6th, 2007 Posted by | Entrepreneurship, India, Venture Capital | 2 comments

2 Comments »

  1. Very interesting, Shantanu. Indian entrepreneurs are culturally somewhere between USA/ California and Europe/ Britain. I would hypothesise this would require willing investors to be a bit culturally flexible themselves, something they may not have had to do before.

    The huge numbers of the special breed needed to re-assure may be a few years away. That said, as you point out, there are some already in action and they could be called pioneers in the space.

    Comment by Shefaly Yogendra | February 7, 2007

  2. Shantanu,

    I guess the definition of “flat world ventures” needs to be thought out properly.

    I don’t think a venture which leverages offshore resources to service a remote geography is really that new or novel. Exploiting the offshore/onshore arbitrage is a fairly well established model. I’d go as far as to say it is becoming a fairly ubiquitous model for any resource intensive venture.

    Development (as in coding) and manufacturing is one thing, but I’m yet to be convinced that markets are uniform enough for entrepreneurs/teams with little first-hand knowledge or exposure to the target geography to be able to develop the core value proposition or product, the local market is not likely to be a reliable indicator for trends elsewhere.

    The net result is that such distributed ventures currently still rely on some key personnel who can and do bridge the geographical and cultural gaps. Such people have no problem working with sources of funding who are most likely located in the target geography.

    I don’t think it is environmentally responsible to jump on a plane more often, and would prefer an approach where networks are built up to minimise the need for air travel. It may be in the form of a distributed firm, or a collaboration between firms in different geographies.

    In either case, it will mean that there will be demand for VCs/PE professionals etc who have a good feel for the developing entrepreneurial geographies, whether they be in India, China, Eastern Europe or elsewhere.

    Hopefully collective memory will not let us forget the mistakes of the previous attempts at global VC expansion, which mostly appeared to be sending people on ex-pat assignments to a geography and culture which they were unfamiliar with.

    Comment by shin | February 7, 2007

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