Lack of VCs may hit TS startup plans

For instance, Silicon Valley in California, US, has emerged as global hub for startups and the key reason for its success lies in the nearby Sand Hill Road in Menio Park, where all the global VC funds are based. Back home, Bangalore owes its success in startups space – majority of successful startups including Flipkart are based out of the Garden City – to the presence of numerous VC funds, both global and domestic

Hyderabad: When the founder of a Hyderabad-based startup in financial solutions space approached venture capital (VC) firms sometime ago to raise funds for his new, but promising venture, he faced a tricky question from the investors – why can’t he shift his base to Bangalore, New Delhi or Chennai?

That means he will have to move his head office and entire gamut of operations from the City of Pearls to one of the three cities cropped up in the question if he wants them to invest in his venture.

“There are VCs who have spoken to us. The moment they get serious about the business and the moment they want to think about investing on us, the first question they ask is whether we have any problem in shifting our office to Bangalore, Chennai or even New Delhi. I feel bad about it,” the entrepreneur recounts, sharing his experience with The Hans India.

Though he has hastened to add that there has been visible change in the startup ecosystem thanks to the initiatives of the Telangana government, and after the launch of T-Hub, touted as the country’s largest incubation centre, he goes on to admit that it will be a while before VCs ‘recognise Hyderabad as a valid market’ for their investments.

His anguish against the unwelcome request from investors for shifting of his base is understandable as it’s not easier for him to move his company – lock, stock and barrel – to a new city. But that’s how VCs work – they try to invest in startups that function from the same city or area wherein they operate because that way, they can monitor their investments better.

For instance, Silicon Valley in California, US, has emerged as global hub for startups and the key reason for its success lies in the nearby Sand Hill Road in Menio Park, where all the global VC funds are based. Back home, Bangalore owes its success in startups space – majority of successful startups including Flipkart are based out of the Garden City – to the presence of numerous VC funds, both global and domestic.

That’s sole reason why some startups incubated in Hyderabad and other cities shifted their base to Bangalore when they wanted to scale up operations, an exercise that requires higher investments. “One of the significant gaps in the Hyderabad ecosystem is funding.

There is very limited institutional capital available here. And none of the international VCs like Accel Partners and Sequoia Capital has a presence in Hyderabad. Nor do the well-known domestic VCs like Nexus Venture Partners and Kalaari,” says Sashi Reddi, Managing Partner, SRI Capital, a seed fund. A serial entrepreneur, Reddi has invested in over 25 startups.

Though Hyderabad is home to firms like Peepul Capital and VentureEast, they also focus more on cities like Chennai. Besides, there is Hyderabad Angels, a platform that brings together angel investors and startups, but it focuses just on early stage ventures.

“Absence of venture capital funds will definitely impact startups in Telangana. Moreover, it is unlikely that quality startups will come here if there are no funding sources,” feels J A Chowdary, Co-Chairman, Ficci AP & TS.

Citing presence of VCs as the reason for success of Bangalore and Silicon Valley as top startup destinations, Chowdary suggests that T-Hub should set up a large angle fund to take care of some funding needs.

Sashi Reddi also makes similar suggestion saying a new fund backed and operated by T-Hub could be a good way to establish a strong local presence with excellent deal flow. “Once enough deal flow exists, I believe that many of the top notch funds will have a local presence through venture partners, even if they do not immediately establish a full-fledged office here,” he explains.

By P Madhusudhan Reddy