The Transnational Aspect of the VC Industry: NRI Investments

Despite great nationwide concern about the so-called brain drain of the 1950s “1970s, most Indians who left their country maintained significant ties with family, friends , and classmates from India. In turn , the impressive successes of the Indian Diaspora led the government to seek ways to maintain their involvement in India, resulting in active solicitation of their thoughts, needs, and concerns about their native land.

Indian Networking Practices

Rafiq Dossani is a consulting professor and a senior research scholar at the Asia/Pacific Research Center, (A/PARC) ^[17] at Stanford University, which is responsible for developing and directing the South Asia Initiative. He serves as an advisor to SEBI on VC reforms , and is on the advisory boards of two VC companies, Garage.com and East Gate Capital. Previously, Dr. Dossani worked for the Robert Fleming Investment Banking group , first as CEO of its Indian operations and later as head of its San Francisco operations.

A key representative of the transnational authorities working between Silicon Valley and India, Dr. Dossani exerts important influence on venture funding as well as government finance policies in India. In our interview, he discusses key lessons from the initiatives of NRIs and the Indian government in the Indian VC industry, effects of the economic slowdown on this industry, and the leveraging value of Indian networking practices.

Rafiq Dossani

Lessons from NRI and government initiatives

NRI initiatives in the Indian VC industry took the form of both investments and support for policy reform, but it was the Indian government that initiated policy reform. Both outcomes offer lessons. First, getting the environment right is difficult because of the tangle of laws that affect VC, none of which can easily be changed without affecting other aspects of company law and governance. It is thus easier to create a specific set of rules for VC. Second, good thinking in a relatively new domain like VC policy cannot be done only by government or local industry; it requires global input on best practices as seen by practitioners and scholars. It is also of little use to look at best practices in most countries because the starting points are so different; for example the U.S. does not have very much legislation or civil law regarding VC laws, because the environment did not call for it.

Those who left India found better opportunities outside. If the opportunities in India had not improved since the 1991 Indian economic reforms, I doubt if the emotional/financial commitment to India by NRIs would have manifested in the results that we see today.

The 2001 “2002 economic slowdown has led the Indian VC industry to a major downturn, just like in the U.S., but for different reasons. Their investments have mostly been in small and medium enterprises (SMEs), offering software services rather than tech product firms. While business for the industry is still growing, SMEs in India have lost considerable market share.

Leveraging Indian networking practices

Indian corporate leaders have an advantage because of their strong networks of ready-made and dedicated teams that will stay together long enough to create value, and VCs in Silicon Valley recognize this as an asset.

In fact many of the popular views about Indian immigrants in Silicon Valley ring true: they are highly educated , entrepreneurial, and derive important benefits from their networks. In a recent study ^[18] that we conducted , 80% of Indians worked in firms founded between 1996 and 2001, while 43% currently work in firms with less than 100 employees .

Both formal and informal networks allow Indians to increase the benefits that they can derive from a growth area like Silicon Valley. These benefits are often in the form of better jobs and access to capital or technology, leading perhaps to higher levels of innovation and entrepreneurship.

Generally, informal networks such as current and former colleagues, friends, and alumni are much more important sources of information, capital, and jobs than professional networks. Professional, immigrant, and alumni associations ranked third in our study below business media and business colleagues as sources of technology, business, and employment information, and fourth below family/friends, business colleagues, and alumni as sources of funding for start-ups. Of the Indians surveyed, 89% worked in firms founded by someone from their region of birth, suggesting that informal networks provided employment connections as well.

Drained brains can circulate back to the homeland

NRIs do look toward their countries of birth as places to return to, subject to appropriate conditions like professional opportunities. Half the respondents indicated an interest in returning to live and work in India, with a greater preference among younger participants . Professional opportunities, culture and lifestyle, and a desire to help their countries of origin were all important deciding factors.