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BW Businessworld

Betting On The Future

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While many businessmen bet on the future routinely, the entire business model of the venture capital (VC) industry is built around being able to predict the future. Venture capitalists raise money from investors and use it to fund businesses with innovative ideas that conventional moneylenders such as banks would not touch. The overwhelming majority of these — though not all — operate in the technology space, and quite a few of them have products or services that are yet to find commercial applications. Most of them have one thing in common — they all focus on ideas that have the potential to disrupt existing markets and create new ecosystems.
A big chunk of the businesses funded by VCs will inevitably fail. But the ones that succeed do so spectacularly and give huge returns. Google would never have reached the market if it hadn't found VC funding at the right time.

Like all others who depend on raising money from investors, the VC industry too had a bad time last year when the financial markets crumbled post the Lehman Brothers fiasco. Apart from the general liquidity crunch, one reason investors were chary of VC funds was that the returns had been less than sterling in recent years. Indeed, the VCs have been struggling to find extraordinary winners in the past few years.

There is a lot of soul searching going on in the VC industry about the future industries that need to be bet on and those that will provide spectacular winners. Our cover stories this issue  look at what that soul searching is leading to, in the US, and in India.

Senior Editor P. Hari reporting from Silicon Valley says the VC firms in the US are increasingly betting on the clean technology space as the next big winner. The bets on information technology — which used to account for 80 per cent of the VC industry money — have come down dramatically.

Meanwhile, Associate Editor Snigdha Sengupta points out that in India, where the VC industry is evolving differently from the classical Silicon Valley model, the smart money is going to spaces very different from what anyone had imagined even a few years ago. The VC industry in India is betting on everything from sanitation projects to backwater purification systems to service apartments and energy from rice husks.

(This story was published in Businessworld Issue Dated 14-12-2009)