Indian entrepreneurs are often very envious of the Silicon Valley startup ecosystem because they feel that seed-stage investors in the US are far more liberal and intelligent. Their impression is that US angels are more willing to take risks, and are far-sighted enough to be able to back a passionate founder based on just a great idea. Indian investors, on the other hand, are seen as being far more traditional and conservative, because they are not willing back an entrepreneur’s dream unless he can show he has been commercially successful.
There is some truth in this criticism, and I learned a lot about the differences between a US seed-stage investor’s perspective, as compared to those in India, on a recent trip to San Francisco, where I had a chance to listen to Brian from Sequoia and Bryan from Accel (everyone in the US seems to be known by their first names, so I am sticking to this convention!)
One big reason for this difference is that the US start-up ecosystem is awash in capital. There is a lot of liquidity, which means there is a lot of money chasing entrepreneurs with clever ideas. Seed-stage investors need to find good entrepreneurs to back, which is why they hunt for the right entrepreneur. There is actually a competition to find the best founders, and entrepreneurs are respected, because investors realise that good founders have choices.
The best seed stage investors do not wait for entrepreneurs to pitch to them – they go out and seek entrepreneurs who are doing clever things and ask them if they want to be funded. They market themselves and want to be seen as being the first choice of a good entrepreneur. They’re patient and track them over time. Personal relationships take time to cultivate, investors are willing to be patient before signing the first cheque.
Silicion Valley Ecosystem Is More Mature
We need to remember that the US is a much more mature ecosystem, which can boast of a lot of high profile success stories. Investors have funded ideas scribbled on the back of a napkin, and because they have become wildly rich as a result of this gamble, they are happy to publicise this fact. India is still lagging behind because we don’t have these local success stories as yet.
The startup ecosystem in the US is open and transparent and investors try to be more supportive. They listen respectfully to entrepreneurs and are usually well-behaved. They guard their reputation extremely jealously, because they have a long-term perspective. They think of themselves as being partners with founders and have imbibed the service culture which is now a part of their DNA. The question they ask themselves is, “What can I do in order to make the entrepreneur succeed?” This is one of the reasons why so many of them have an active online presence, and are happy to share information.
This is why good investors in Silicon Valley respond to cold emails from entrepreneurs, if they feel that the founder has an intriguing idea which is worth backing. Investors are willing to learn from founders and spend time and energy in creating win-win relationships. They understand that their reputation depends on the last successful deal which they have done, and they will invest a lot of effort maximizing their deal flow.
Of course, let’s not forget that US entrepreneurs are much more mature as well. They don’t spam investors; and don’t criticise and disparage them either! They understand that they have to compete with lots of other super-smart founders when raising funds and they work hard at trying to impress investors. They do their homework, and spend time in finding the right investors, rather than using a spray and pray approach.
The Halo Effect Of Silicon Valley Startup Ecosystem
However, it’s not that the US ecosystem is a bed of roses. A major downside of this “entrepreneur first” approach is the halo effect. “Brand name” entrepreneurs are allowed to burn gobs of money because the culture is supposed to be supportive of them. The entrepreneur is treated as a hero, which means that investors will not push back and they end up allowing him to burn a lot of money which goes down the drain. Throwing money at problems is not a sensible way of supporting entrepreneurs! Indian investors are far more frugal, because they are much more focussed on getting a good return on their investment.
The other issue is that it’s a very myopic system because all these people seem to live in their own little bubble. Their primary focus is on solving problems for rich Americans, and they seem to have a very limited worldview. This is because money is a commodity and they need to deploy it to get a quick return. They have little ability to think long-term or to provide impactful solutions which can affect the rest of the world.
The truth is that investors and entrepreneurs in both US and India can learn from each other, and adopt and adapt best practices, so that everyone benefits.
A final note of caution. I agree it’s not fair to generalise, and individual VCs can vary widely in their behaviour whether they are in India or in the US. VCs, just like entrepreneurs, come in all shapes and sizes, and smart founders spend a lot of time and energy in finding the one who is right for them, no matter where they are!
[This post by Dr. Aniruddha Malpani first appeared on LinkedIn and has been reproduced with permission.]