Volume 14, Number 1 Article by Anand Sudarshan March, 2002
Venture Capitalism: A Close-up :
Anand Sudarshan, CEO of Planetasia, recounts his interactions with the ?deified and pilloried? breed of venture capitalists and takes the reader through the phases of venture capitalism development in India.
In the early years up to 1996, the concept of venture capital was just taking root. The initial foray was from institutions, and funds that were mobilised were small in value. The accent was on the asset-side of the balance sheet, and the focus on innovation and business building was low. Value creation as a focus had not yet been fully discovered, and exit strategies were being thought of more around the life-term of the funds. The participation of the VC in the growth of the investee company was confined to the Board Room.
In the boom years between 1997 and 2000 the rapid growth especially of the high-tech sector and the dotcom boom meant that ideas, entrepreneurs and momentum were available in full measure. Short decision cycles, back-of-the-envelope mode business plans and professionals turning entrepreneurs overnight, were encouraged by VCs. While the energy and enthusiasm was undeniable the scenario was so unreal that it had to come unstuck. The crux of the problem was the whole venture-funding-leading-on-to-quick-IPO game. The biggest disservice the VCs did was to try and pass on their role of risk-takers to the public investors.
The aftermath of the crash of 2001 however has brought on a different scenario. The glamour is being replaced by hard-nosed reality and the metrics are returning to square one. Venture capitalism has to return to the basics - finance early companies that have a bright idea, excellent people, and a sound business plan; play with them for the long-term; assist the company through active participation in areas where you can help - in scaling the company up, in activating the network for synergy, and in standing by and helping the company through the difficult times that will invariably come; and take greater risks with the clear expectation of greater rewards.
Reprint No 02106e
