‘Entrepreneurship is the most transparent way of creating wealth'

Start-ups depend on wealthy individuals, or angel investors in industry parlance, who will not only invest money in their ventures but also mentor them. Some of these angel investors have formed into groups such as the Delhi-based Indian Angel Network (IAN), the Mumbai Angels and the Chennai Angels.

With more than 170 investors, the IAN is the largest and oldest angel investor group in the country. Formed in 2006, the IAN has invested in about 25 companies and has another 20 companies in its incubator. In this recent interview, Ms Padmaja Ruparel, President, IAN, who has more than a decade's experience of dealing with entrepreneurs and venture capital firms, talks about the entrepreneur ecosystem and connected issues. Excerpts:

Tell us something about the entrepreneurial ecosystem in the country. How has it changed since 2006 when the Indian Angel Network came into being?

It was the IT industry that laid a new path where educated people from the middle class struck out and became first generation entrepreneurs. They created wealth not only for themselves but also for all stakeholders. That changed entrepreneurship in the country and it clearly changed the role models. More than just creating wealth, it built a huge level of self-confidence amongst us. It created in well-educated youths that there was an alternate career path, which was not only risk taking but wealth creation and value creation. It helped to contain the flight of knowledge and brains out of the country because people could now commercialise it here.

The breed of successful entrepreneurs has spawned more and they are the biggest brand building activity in the country. It has given the confidence that people have now started accepting failure. This whole entrepreneurship movement has created a huge risk taking appetite, acceptance of failure, created things like ESOPs.

Entrepreneurship is supposed to be fleet footed, it is supposed to be agile. The government is not. The government is supposed to be taking considered steps. It will not move at the speed of entrepreneurs. That is the balancing act that builds the country. It is driven both ways. Entrepreneurship is even driving the government in some ways, to open up.

What does one mean when one talks of the right ecosystem for entrepreneurs to grow?

One of the things is the ability for entrepreneurs to find a market. Otherwise, entrepreneurship won't happen. Second, for entrepreneurs to grow, they need the right resources. To me the biggest resource is human capital. They need to build a team. Capacity building in terms of human capital is imperative. When I look at plans, to me a class A idea with a class B team is secondary to a class B idea and a Class A team. It is execution that gets the cash registers ringing.

Then there is infrastructure. Which includes incubators and mentoring. In that sense India is a young entrepreneurial country. Our entrepreneurial success of this era is largely two-and-a-half decades old. Leveraging of experience is what mentoring is all about. Our pool of mentors is 25 years old. Our highest value add to the entrepreneur ecosystem is mentoring. Which is what we have built IAN on. Every single entrepreneur who touches IAN, gets a feedback, gets a suggestion. The nature of this business is a majority of them will get turned down. But do the majority of them get value feedback. They have taken the plunge. They have taken the risk. They have taken the effort of meeting with us and our investors. They should at least get something back. That is the most strategic mentoring that they get. Even if you are telling that guy, ‘I think you are wasting your time, stop this and go back.' it could be life changing for that guy.

Largely what I see in the incubator system in the country, they are largely in academic institutions. At these places, it is largely academic mentoring. Where is the application? Where is the commercialisation? Where is the industrialisation of that? Where is the venture creation? It could be great R&D, great product, great IP. At the end of the day, just creating great IP is not enough. That IP has to be commercialised. That is what would create value.

At IAN, we have changed that. We have created an incubator that would be mentor and investor led. We are not saying we will give you real estate. We are saying that you will get mentoring, industry connect and feedback.

If you look at countries where entrepreneurship has thrived, such as the US, Canada, Singapore, the government has encouraged entrepreneurship. In Singapore, for instance, the government is even prepared to take equity stake in companies. It encourages private investors. It is leveraging government money with private money.

Entrepreneurship is the highest risk that a person can take in his professional life. The second highest risk in the professional life of a person is equity investing, risk investing. That recognition needs to be built in for the investors to encourage them to continuously invest in the highest risk category.

We are talking about what are the ways you can incentivise these people to continuously invest. You don't want that flow of money to stop. If you say, we are going to give you the same kind of tax equations as public equity, public equity and this equity investing are two ends of the value chain. It is not just the value of the cheque alone, but he is going to assess, he is going to give strategic advice, he is going to mentor.

Most importantly, he has taken the risk at a nascent stage. So the value of money is much higher than putting some amount in public equity. How can I keep this going? This is wealth creation. This is employment generation. You are moving people from job seekers to job creators. Entrepreneurship is an engine. That engine needs oil… It is not an incentive issue. We should move away from that. It is an encouragement issue. If we look at it from that perspective, I think there is an opportunity for a much more open thinking.

At the end of the day, entrepreneurship is the most transparent way of creating wealth.

Where does the IAN fit it?

Ours is a simple model. We have brought in Indian entrepreneurs who have been successful around the world, who want to now remain connected with entrepreneurship but who do not want to be CXOs. They now want to leverage their mind, body, soul and money in creating more ventures and by taking a stake, the commitment levels are high. For the entrepreneur, there is no other place for them to get money at this level. They don't have collateral, they have used up all the family and friends' money. Where do they go? For them this is clean money. More importantly, if there is a Raman Roy (of Quatrro fame) invested in their company, they have the ability to call Raman and ‘say I need this. I am going to the US. Can you put me on to a couple of people. I am getting stuck with this, can you do something.' And when he goes for the next round of funding, he will say I am Raman Roy's company. Look at the power of it.

What is still the single largest challenge for anybody who wants to start a company?

People. Getting good people. People who know the job, who have the right attitude. In a start-up that attitude becomes even more important. After all, what is a start-up. It is all about people. Investors bet on the team and the people. It is so important to have diligent, integrity, trustworthy, intellectually honest and competent.

How do these start-ups manage it?

It is such a big problem for them. When we invest, we really look at the team and say these are the gaps. There is a company we are looking at in the auto sector, we clearly felt that there is a need for somebody with domain expertise, who brings in the automobile industry technology. We found him somebody from M&M. He is on board. Whether we invest or not, we brought him value by finding a good guy. I think that is what we continuously do. We have now started building a database of people.

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