MM Hypothesis - Entrepreneurship

"No one's funding me" was the plaintive howl of an MBA from the Indian Institute of Management who was telling me why he decided to go ahead and be an employee - notwithstanding his supposed passion to start a business

Another started off with the two words that somehow get under my skin every time I come across them. "Opportunity cost," he said. Meaning he was doing some complex mental calculus to figure out if he would be better off by either (a) taking a big-paying job now with a linear income growth or (b) jumping into entrepreneurship with uncertain success - and an exponential income growth when it happens.

First things first. Anybody who even thinks in terms of 'opportunity cost' is not cut out to be an entrepreneur. Don't even bother going there if you're drawing mental curves and seeing in which year of your life they will intersect.

Now to the venture capital thing. Here's my take in two words: it's dead. Nobody's funding start-ups in India. VCs, if they exist here, are funding profitable, successful mid-sized companies. That's the best thing that could have happened for entrepreneurship in India.

Look back and you'll see one thing: In all the entrepreneurial success stories that we hear: Wipro, Infosys, Reliance or even the Tatas, not one had any formal venture capital involved.

Entrepreneurship is a calling. It is not a carefully-calculated decision based on solving quadratic equations. You want to do something big and not work in somebody else's office for the rest of your life. You then take a gulp of air, come to the edge, and step off.

For many, it's an unthinkable risk. You repeat the percentage-player adage to yourself: 95% of all entrepreneurs fail and you're better off being safe. But what that silly statistic does not say is that 0% of the failures result in the starvation or death of the risk-taker. (Talking of probabilities and death, there appears to be a 100% chance of all of us dying. So should we just stop bothering to love?)

In most cases, those who fail simply get up and try again. Some will take recourse to employeeship. Some will do both - keep the home fires burning with a steady job, while they freelance at a side-business.

One of my personal rules is that the entrepreneur has to be committed, body and soul, to the new venture - I want to see bridges burned behind, so there's no relaxing or turning back or career plan B. I've never understood how VCs could fund somebody to freelance at a business - or fund start-ups to such an extent that the founders got comfortable salaries from the outset. Both of these are sure recipes for failure.

At the height of the boom, two Harvard MBA's approached me in Bombay with a proposal for about $500,000 of funding of which $200,000 each were to go into the first-year salaries for the exalted founders. (Yes, opportunity cost was quoted to me again.) While this sounds ridiculous, there were VCs who actually funded other such 'you-take-the-risk-I-take-the-money' plans - all of which died a quick painful death.

Why do I have an issue with VCs? It is because almost none of them in India (with a few exceptions) had ever personally taken or appreciated risks. Successful entrepreneurs make for good VCs, not investment bankers or fund managers. And till we get that generation of VCs here, VCs will be doing more harm than good, and we're better off without them.

So how does one start up without money from a VC? It's easy - like everybody else did before VCs. It doesn't take much money to start a business. Especially in the IT age, especially in India.

Starting a steel plant or an airline may be a different kettle of fish, agreed. But some businesses can be started with just a 100,000 rupess (about US$2,000) or so in the bank. And many others – including virtually any sort of net-based business in India can be started with about US$100,000 for the first 2 years. And you can get this amount from your parents, friends, jewellery (yes, pawn the bloody thing - it's useless otherwise) or even by mortgaging your house. Take a real, personal risk - that's the only way I think you'll earn a real, personal reward.


There are two ways to end up with a million dollars. The traditional route is to start with nothing and work your way up. The modern way, at least a few years ago, was to start with $10 million from a VC and work your way down. In such matters, call me a traditionalist.