November 28, 2020

Why VCs and regulators need to hangout more

By Upmanyu Misra

I won’t name names, lest I be deemed biased on either side. But in the past couple of years that I have opened my fund to Indian startups, I have been surprised to see how disconnected the VC fund manager community is from the folks on the regulatory side. It is like watching the offense and defense players of the same team busy doing their own thing, and in the same game. Both sides are equally to blame.

By definition, VC is a high-risk proposition and needs to be regulated so that wannabes do not get burnt beyond salvation. This field is harsh towards the naive, and sometimes even burns the smart ones if they are unlucky. Therefore, many Government departments have created able bodies such as DIPP, Niti Aayog, Startup India, NIIF – to name a few.

Some of these have access to proprietary government capital and quasi-investment powers as well. So far so good? Don’t think so. During my interactions with people from these organizations, and more so with the politicians running these departments, I felt that there is a serious lack of vision and clarity on where we need to drive this sector to. Firstly, none of the management have been a noteworthy investor with a proven track record, or an entrepreneur with any serious success behind them.

According to my understanding most come from highly conventional places (no disrespect here) such as multinational agency, bulge bracket retail banks, or tier 2 consulting firms. None of these workplaces harbor the correct DNA needed to fuel a startup. Whether they landed these roles due to the fact that people at aforementioned institutions are well networked in the political circles, or because the serious VC guys are too well paid to be interested, is something debatable. You may say that their advisory board may have some strong profiles, but that doesn’t count. They only show up for the award functions and at meet & greet events when foreign counterparts show up. Sadly, the result is that our regulation and governance is woefully unsupportive to the startup scene.

The VC investors, on the other hand, are perhaps even more accountable for this gap. I once connected with a senior of mine from school who is now a Partner at a leading VC fund. I reminded him that we also have a political connection via our families. He somewhat brusquely responded that he remains far away from politics. This came from an exceptionally smart individual who has spotted and supported some genuinely disruptive companies, and is a catalyst of the Indian startup ecosystem. But here, the joke was on him given that their fund has now gone through two major disappointments, one each in cloud telephony and eCommerce, where its portfolio companies were at the receiving side of regulations. Notably, a few months ago, they closed their new funding round, which notched up 25% less capital than their last fund. Causality or conjecture, I leave it to you the reader. For now, the fund managers are busy managing the moods of their LPs and senior GPs sitting in the Bay area. In whatever time they have left, they are busy hiring lobbyists and operational experts to help out their portfolio companies.

Should it not be the prerogative of industry leaders such as them to actively and tangibly connect with the Government? Finance, infrastructure, governance, and the entire ecosystem can be upgraded once their strong heads come together to achieve a common goal.

For those who are looking to find possible solutions do read the book “The Code: Silicon Valley and the Remaking of America” which elaborates on the role of Washington DC in the genesis of Silicon Valley.

I simply wrote this article to ruffle some feathers. After all what are feathers for?

(Upmanyu Misra, Co-Founder & CEO, Cianna Capital.)

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