Venture capital is very different form of financing. Venture capitalists finance the unique ideas, which have a potential for high growth but with inherent uncertainties. This makes it a high-risk, high-return model. Venture capitalists do not only provides finance but also are involved in the management of the business. This combination of risk financing and handholding of entrepreneurs by venture capitalists creates an environment that is suitable for knowledge and technology-based enterprises.
An idea which is scientific and knowledge based can create good amount of wealth and can play an important part in the growth of economy, if properly supported by venture capital.
India has the second largest English speaking scientific and technical manpower in the world. Its management institutes (IIMs) and technology institutes (IITs) are well known as centres of excellence. Every year, over 115,000 engineers graduate from government-run and private engineering colleges. Many also graduate with diploma courses in computers and other technical areas. Management institutes produce 40,000 management graduates annually. All of these candidates are potential entrepreneurs.
The time has come when we have to recognize that despite India is doing well in IT, it is still behind in terms of product development. It is the time for us to move to a higher level in the value chain.
The sequence of steps in the high technology value chain is information, knowledge, ideas, innovation, product development and marketing. We are still at the level of ‘knowledge’. In the light of limited infrastructure, low foreign investment and other transitional problems, India certainly needs policy support to move to the later stage – ie, ideas – and beyond, towards innovation and product development. This will take capital and other support, which can be provided by venture capitalists.
In India a large number of research laboratories are carrying out scientific and technical research. With the infusion of venture capital many of these research can be transformed into a viable commercial product.
Indians abroad have leapfrogged the value chain of technology to reach higher levels. At home in India, this is still to happen. By bringing venture capital and other supporting infrastructure, this can certainly become a reality in India as well.
India is rightly poised for a big leap. We only need a dynamic venture capital sector, which can leverage innovation, promote technology and harness the ongoing knowledge explosion. This can happen by creating the right environment and the mindset needed to understand global forces.