Indian Start-Ups Become More Attractive to Venture Firms by Claire Cain Miller

India has been the hot new place for United States venture investors for a couple of years now, attracting billions of dollars in venture capital. Are there enough promising companies to use all that cash?
Yes, said Parag Saxena, who runs the biggest venture fund on the Indian subcontinent. In an interview in his New York office, he said that the opportunities in India and Southeast Asia had improved greatly over the last year.
Mr. Saxena is chief executive of New Silk Route, a $1.4 billion, one-year-old fund dedicated to investments in India, Pakistan, Dubai and Southeast Asia. He raised the fund after leaving Invesco Private Capital in 2006. He is also a co-founder of Vedanta Capital, which invests in companies in the United States.
Many top venture firms in the United States are looking to Asia as well. Sequoia Capital announced this month it had raised a $725 million fund for investments in Indian start-ups. Accel, New Enterprise Associates and the Mayfield Fund are also investing there.
The investment opportunities for all that money flowing east have become “very attractive,” Mr. Saxena said, but he said he didn’t feel the same way a year ago. Then, he said, the sums that entrepreneurs wanted for a stake in their companies were too high.
He attributed the change to tightening credit markets worldwide, not just in the last two weeks but over the course of the year, and to Indian government policies to tighten interest rates and fight inflation.
“There is less money around, and less stupid money around, which leads to an improvement in prices” for venture investors, he said.
For the most part, the companies seeking venture financing in India have been middle- to late-stage companies, not true start-ups like those that get financed in the United States. There are simply not enough start-ups to absorb the capital, so investors have focused on older companies. That is slowly changing, Mr. Saxena said, as “a little trickle of start-up money is coming in.”
Many venture-backed companies in Asia are not technology-focused. Those that are mostly produce products that use technology that has already been perfected in the United States, like digital cable and high-definition television.
But that is changing too, Mr. Saxena said. Tech companies will start leapfrogging the United States, he said, producing cutting-edge instead of copycat technologies. He has already seen this happen with technologies like L.E.D.’s.
Clean technology has the potential to be even hotter in India and China than it is in the United States, he said, but not for the same reasons. “It is not because it is cheap or noble — it is driven by necessity,” he said. For example, one of the biggest users of solar panels he has seen is in a group of primary schools he started in Indian villages, where they have no alternative form of electricity.
In terms of clean technology, he predicted, “the cutting-edge stuff will still be done in Silicon Valley, but after that, big manufacturing plants will open in India and there will be greater utilization there.”