ABCDs – The Poison Pill for Indian Startups ?
[Guest article by Vishal Gondal, founder of Indiagames. He is known for his candid perspective (which incidentally coincides with pluGGd.in’s style as well!] – Read his earlier article: Why Wipro, Infosys and TCS are “Axis of Evil” for Indian startups!).
This article talks about ABCDs ((American Born Confused Desis), their (lack of) understanding of Indian market and how they are a poison pill for Indian startups.
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If you have a start-up and are looking for funding I am sure your first stop is almost always the big names of the Silicon Valley.
And why not! Most of them have set-up 1 man ‘offices’ in India, most probably headed by a ABCD (American Born Confused Desi). ABCD has become a polarizing factor in the South Asian Diaspora in the US, with first-generation immigrant parents and young South Asians of second or latter generations. South Asian Americans use it to criticize the Americanization and lack of belonging to either South Asian or American culture they perceive in their second-generation peers or children.
During your funding round, first these American Accented ABCDs will impress the hell out of you – talking about the Boards they are on, the multiple PhD degrees they have done and the amount of capital they raised or burnt during their time in the states. However they forget that they are looking at start-ups in India and with their impressions of India locked some 30 years back in time they find it very difficult to apply all their leanings in the present and future Indian context.
Now come-on how many times have you heard from these ABCDs ideas like making something around the Panchtantra and Mahabharata, or how about something always around local search just because they did not know where to find the local laundry shop (dhobi is still new concept). Also most of these ABCDs are constantly referring to deals done by their American counterparts and think it is safe to invest in ’similar’ spaces. And yes you will very soon (within their first year of operations) see their investments in companies you would say ‘ouch’. Their favourite spaces hover around Travel, Social Networking, Mobile VAS, Gaming & Ad Networks. And just because they cannot justify spending their huge $ salaries on doing $100k deals they end up funding companies who require $100 with something like $2m in the first round with the excuse that they have to scale their plan.
Post that the story is familiar – some heavyweight CEO from a MNC or existing player in the space is hired at triple his last salary, even before the founding team is settled down. New heavyweight (highly paid) players are introduced CTO, CFO, COO and stuff like politics, bitching and overspending in marketing creeps in.
Poison Pill
I would this this is still the honeymoon period, within a year, these ABCDs talk to their other VC ABCD friends who have just landed in India hunting for deals and make them co-invest in a new round. So this company now raised another $5m for a non existent business plan with no real strategy on how to use the money…
So what do they do??
Television and print advertising!
Now that’s the easy way to make a plan where you can burn $200k a month in the name of brand building and long term strategy. Now that about 3 years have passed and most players of the founding team are gone, the original business plan and idea morphed into something else. With honeymoon period over, ABCDs on the VC who have invested are scared of their bosses in the states.
A hunt for strategic sale or merger is announced.. in a hush hush operation the company announces merger with some unknown company at a very high paper valuation !!
But the story still doesn’t end.
As none of the investors have really made money.. the saddest part is what the ABCDs report back to HQ. India doesn’t really have a good start-up eco-system and most company are just a bunch of copycat start-ups, the founders are very immature and can’t take positively to professional management and the internet as a business has not matured in India due to lack of infrastructure and small advertising market and high revenue shares taken by mobile operators. Final recommendation is the fund should invest in bigger deals with matured companies – deal size $5m to $20m and that’s the only way the US VCs can make money in India.
So finally every so called silicon valley start-up VC in India in 3-4 years ends up in becoming a private equity investor in private and public companies. The good news is that new ABCDs keep landing in India every 3-6 months and the cycle continues and we continue to see more investments in spaces which just do not make sense!
Hey! don’t get me wrong I know in a few cases these ABCDs have also got it right and have had excellent companies and exits, however those are exceptions and not the rule!
Having said that if you are looking for some serious start-up capital i would recommend you prefer funds which are run and operated teams which have spent a large porting of their professional life doing business in India, who are entrepreneurs themselves and have at least invested a small portion their own money in the fund. (a good example is Seedfund check their credentials)! I am sure you can find quiet a few which can fit this criteria.
As far as the ABCDs are concerned, its best to leave them alone doing what they want – its their way of giving it back to their motherland! My request to them is to keep away from Indian Start-ups, and invest in listed companies we want the stock market to touch 25k soon.
What’s your opinion?
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PS: Reproduced from author’s blog. Views expressed by the author is entirely personal.
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While I don’t deny the existence of such cases, we are still probably generalizing the crowd. And generalization is never really a good thing. =)
However, I most agree with the following comment.
I personally believe in a totally different eco system for countries with humongous populations like India. If there is a centralized system that we always refer to in India, the country will continue its trend of “rich getting richer, and poor getting poorer.” We really need to trash the existing concept of capitalism, and rely on the concept of entrepreneurship. India can and should have multiple vendors catering to locales. Consolidation can happen at a later stage. And more importantly, we definitely need companies solving real world problems of Indians. And I sincerely hope these ABCD/not VCs have the galls to fund such ventures.
An exemplary effort to put things in a different perspective. To be honest i didn’t knew such ‘characters’ exists. (On lighter side ,had I known one of them I would have given him some run for his itch to burn cash)
Very good article vishal.Great punchline “its their way of giving it back to their motherland!”. the mailbox pic is apt aswell.:)
I completely agree with observation of the copycat mindset some show in community.just because some socialnetwork/sms texting concept is hot in US,most people back in India try and jump into ship.
I think the basic point missed by these people is,we as a country have to catchup around 50-100 yrs of progress comparing to these western world.
The attempt should not be to catchup bypassing basic needs and trying to stay in rythm with current affairs ,but in trying to finish the basics at a greater pace.
Right now services needed in India are around Education and infrastructure to reach masses in rural not just major cities.Not some service which delivers a stupid message on a mobile saying ” I just chased a frog out of my home…” (one classic twitter message ended up on my blog roll this week)
last note,there are some typo’s in the article.
Lucky Vishal Gondal does not have a permit for GUN. He would have shot down some of the ABCDs at the airport itself
When looking at some of the investment that went in mobile VAS, Social networking and travel start-ups…no wonder this post deserves a special
mention.
Finishing line was marvelous ” My request to them is to keep away from Indian Start-ups, and invest in listed companies we want the stock market to touch 25k soon”… HA HA HA HA
what a way to kick some ass.
“Shun the me2 and embrace the we2 start ups”…go with the challengers and not the copy cats.
a dream which may become true for startups starting in 2015!
May god give them a sense of their own and ability to do their Karma (take risk and fund innovation) and not worry about the outcome. Thats the only way to make returns now.
If people only learn the hard way, this recession is the right time to learn and change the investment approach.
Makes a lot of sense!
Interesting article. May be bold to generilize VC’s behaviour. One more thing I guess these ABCDs most of the time work with ABCDs or NRIs (Non reliable Indians) only, otherwise I always wonder why indian entrepreneur needs $5m to start something. It is whopping sum man almost 20-22 Crores.
Vishal -Even though you aren’t a ABCD, you too invested in a fluffy idea wihch copies stuff from the web and publishes that.
Isnt that a copycat thing to do? The +ve way to look at things is that many of these ABCDs have taken some risks and invested in companies..but most of the desi investors have invested in real estate!
So where do tech cos. go?
Very interesting article , I agree with you partly on some points but i think you are generalizing a bit there may be a few characters but not all of them
Interesting take.
I am also seeing a lot of IBCAs – Indian born confused americans making the trek back to the home market. Folks who came out west 15-20 odd years ago and now want to participate in the (seemingly) bubbling Indian market.
My view is to flip the model Vishal highlighted – i.e. a “1 man” office in the US instead of India. Have majority of operations and decision making in India. Pull from the US for technology, product, etc but only local experience can make a business succeed in India.
And fund extremely carefully – this lesson actually comes from the US. Too much money can lead to too much waste in the wrong places. Indian start-ups are perfect candidates for low burn.
Good article. There are definitely a number of funds in India which have strong connections and experience of doing business in India. Ojas Ventures is one such example.
Incredibly childish article !
thanks all for the wonderful comments and observations…..
I do agree that the article is childish but Don’t Children speak the truth??
@Ram Ojas is certainly a good example of a good VC fund
@Amit you make a very intelligent point and I call these startups “X-Startup” where Indian and teams from Isreal, AU, NZ, russia etc work together
@Rajesh which fluffy idea are you talking about? it will be great if you can elaborate
@guru @pavan thanks for the support
@kasi I do own a gun!
Sensationalized journalism — article not backed with any proper data. I hardly see any ABCD VC on the ground. Almost all VCs would want someone with previous India experience or at least investment experience.
Entrepreneurs beware!!! Vishal invests 10 ~ 20 lacs in a startup and takes 50% stake.
I also heard that he has very little ‘funds’
dont waste your time guys!!!!
@Sanket aka anonymous coward.
I have seen many a time, people like this loser, who don’t have balls/guts to identify himself throwing abuses at others.
We are one of the companies who have been funded by Vishal Gondal’s fund. I can just laugh at you and feel pity for you at the same time.