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Nothing succeeds like success. Venture Capitalists came to India in droves since Hotmail succeeded. When nothing could do, IT, Internet and Hotmail did the trick. And as the success stories of selling out of Rakesh Mathur's Junglee.com to Amazon, mega billion successes of G. Deshpande's Sycamore Networks, Vinod Dham's and others' started rolling in, VCs decided to come home to tap the talent at the source. With over 700 software companies in Silicon Valley with market capitalization of over 200 bn. dollars, Indian IT talent could not be ignored any longer. So they came, to incubate the brilliant Indian mind. For the uninitiated, the word "incubate" has originated from some eastern European country (I recall it as Czechoslovakia), where a poultry farm was opened in early 1900s. It shut down soon for various reasons and the owner decided to offer the incubation facilities to other people interested in rearing poultry, for some consideration. Thus, word spread that owner is offering its business premises to others for incubating their stock (developing and hatching of young birds from eggs). Thus, word "incubate " came to be associated with providing services & expertise to help a fledgling business grow from a nascent stage to a stability level.
As the first news of Rajesh Jain's selling of Indiaworld.com to Satyam for Rs 499 Cr. tricked in, everyone suddenly started talking of Internet. People with ideas rushed in and found people who had oodles of cash to support these ideas, with aim of making a quick buck a la Jain, much like Property scramble in early 1990s in Bombay. Many VC funds also entered India soon and invested. Everyday media carried reports of VC investment in some portal or an Internet firm. But after the NASDAQ crash of April 2000, things are not the same anymore. Focus has radically shifted from B2C to B2B. And though the number of VC funds has increased, VC investments have gone down in absolute terms. So the question arises, "Where have the cowboys gone?"
With VCs running shy of investing in B2C, things are pretty confusing. With all the hype given to B2C by media and VCs, suddenly faults are being identified in it. B2C portals, media says, are burning cash. Is that a reality? Consider the fact that Internet is an evolving phenomenon with unlimited potential. To increase the user base to attain profitability, one has to invest in more customers by reaching out to them, by creating a brand, not for people to just talk about, but a brand people need to believe in like SONY. (When one thought of a television, one used to visualize SONY). As a result, the customer acquisition costs are high. So one has to invest in reaching out to customers in a country where disposable incomes are low, Internet penetration is low, technology is not as sophisticated as in US, and data transmission time is abysmally low. Rather than promoting a product, it becomes more of promoting a concept, and thus, the costs are higher than normal. And if VCs say there is no market for B2C in India, on what basis did they invest in earlier B2C sites? How dramatically the size of market changed/ constricted in past six months? What new problems/ parameters have suddenly appeared on horizon that makes B2C less viable than 6 months earlier? Was their investment in B2C sites 6 months ago a part of "herd mentality"? Where was the rigorous business analysis then as they invested in a string of B2C actions?
Another issue entrepreneurs deride is that instead of backing on the ideas, concepts, VCs and investors are nowadays backing on team/ promoters. They are willing to provide funding to guys, who have been to Harvard and worked for a year with Goldman Sachs, rather than supporting a man with a simple degree from India, who has worked in a brick and mortar company. Their logic being, they would rather place a bet on known jockey rather than on an unknown horse. But the questions arise, whether the entrepreneur, who has sweated it all out, has had exposure to ground realities, should be considered an unknown horse? Or a person educated in best B-schools, working with a blue-chip company, evaluating multi-million dollar proposals on paper, is more likely to succeed? If that were so, Microsoft, Oracle, Apple, Virgin would not have been there today. Remember that, the greatest and biggest companies of today are those which were started by entrepreneurs, who did not had education of best b-schools. What they had was drive, determination to succeed and tenacity to fight it out. With the present trend of funding, a serious question comes, "What is the criteria of investment by VCs?"
VCs have indicated in recent times that they would prefer funding a guy who has come from a ivy league firm rather than a guy who comes from successful brick and mortar setup because he knows the practical well but does not have the right credentials. A guy who has rolled his sleeves and got beneath the problem, who has worked in sales and marketing and knows how to sell a product to customers, and found a solution and made the things work all fine and brought back the better profits is of no importance. VCs would much rather prefer a white collared guy who has just sat in his chair and evaluated some proposals by looking at papers.
Running after myths of B2B is the in-thing and B2C is out of fashion. But another question that one should answer is why would a big firm like to go through a B2B Portal when it can enable direct business through its own site and own network management going online (supply & demand both). This is what happened when 3 major auto manufactures in US decided to have their own common site to purchase the goods from suppliers. Unless the B2B portal is an independent body supported by Industry, it would survive, but big businesses will not use that as a message board? They would rather go and have their own portals. Remember in Korea, LG started its portal for selling goods to its employees only. Later seeing the tremendous response, it was opened to all the people resulting in its becoming one of the most popular sites in Korea. It has also launched this in India as lgezbuy.com. Point is that, unless B2B portals are supported by Industry body, it would be very difficult to survive, as big firms would not use it as a message board. They would rather go and build their own portals, managing it with an in-house team.
Another related thing should be the "uniqueness" of idea. Is there anything "unique" about idea of indya.com? How is that different from rediff.com, indiatimes.com, indiainfo.com, and sify.com? How are the four auction sites (modeled on US's e-bay.com) different from each other? How's B4U different from MTV or Channel V?
Therefore, one can safely assume that though B2B being currently the flavor of the season, and B2C falling out of favor, it's unlikely that B2B will rule the roost for long. Everything that goes up must come down. But the real point is that VCs would do well to look at ideas rather than just academic credentials of the promoters. They should invest in any portal, be it B2B or B2C as long as the idea is good and conviction of promoters is strong, rather than blindly following B2B bandwagon. Because human beings aren't horses and jockeys.
Also Read "Why do dotcoms die?" by Sandeep Dhaka
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