Exporting America’s market institutions to Indian entrepreneurs

As Indian entrepreneurs look for American investors to finance their ideas, they have come to realize that technical prowess and good English skills are not the sole ingredients of success. Without local sources of capital and management expertise, the entrepreneurial cycle is never set in motion. To fill this vacuum, American venture capitalists and banks are setting up shop in places like Bangalore to help with tasks that Americans do best – raise capital and make connections.

Silicon Valley Bank, long known for its support of early stage tech companies in the US, has opened a subsidiary in Bangalore to link American investors with local IT professionals that have promising entrepreneurial prospects, but little capital to bring them to market. Last spring, SVB tapped one if its California based vice presidents, Arman Zand, to head up the bank’s first permanent foray into Asia. In September 2004, Zand opened the doors of Silicon Valley India Advisors, and six months later, reflects on the challenges he faces in helping American investors find opportunities in India.

"The two greatest barriers to investments in tech companies by US VCs are lack of seed funding, and inexperienced management teams," said Zand. Seed funding is the critical start up capital, typically $100,000 or less, that entrepreneurs need in order to organize themselves before approaching venture capitalists.

"In India, most companies are not ready for Series A investments," Zand said, referring to the first round of venture capital financing. "They just need the initial start-up capital to get the product off the ground and hire and attract experienced managers."

Though SVB India Advisors does not provide seed capital, it does help pair entrepreneurs with American, and even local “angel investors,” the pre-VC investors willing to risk their money on ideas that have not yet been tested.

"The second barrier, management, is more a cultural concern than a business issue. It is very difficult for young start-ups to attract experienced managers from larger companies, because traditionally Indians tend to be risk adverse and not willing to leave a brand name company, especially a large multinational corporation, to work for a start-up."

To redress this issue, SVB India Advisors arranges networking events to draw experienced managers into "the entrepreneurial ecosystem." Zand also noted that "the wheels are in motion from industry, government and the education system to face all these challenges."

Having opened their doors last September, Zand said it’s too early to tell how successful they have been in overcoming the obstacles that India’s tech community must confront. But he feels strongly that SBV India’s efforts are having their intended effect.

"We know that by helping clients succeed in India, it pays off for Silicon Valley Bank in terms of long-term client relationships."