There has been much debate over the last few days over why India doesn’t produce deep-tech startups like China, and Perplexity CEO Aravind Srinivas might’ve hinted at one of the reasons.
Srinivas, whose AI-powered search engine Perplexity AI has gained significant traction since its launch, recently offered a candid assessment of the Indian venture capital landscape. He suggests a fundamental difference in mindset between Indian VCs and their counterparts in other more established tech hubs.
“VCs in India are still very risk-averse,” Srinivas stated. “They like to invest in things that they wouldn’t lose money on rather than investing in things they will potentially make a lot of money on, but are okay losing some money on some incorrect paths.”
He continued, outlining an ideal investment philosophy: “The mindset should be like, ‘Okay, 95% of my investments would fail, but 5% of my investments would return me 100 or 1,000x, so that the 95% that fail doesn’t matter.’ I think that mindset doesn’t quite exist in Indian Venture Capital right now.”
Srinivas also touched upon the potential of India’s talent pool, particularly from its premier engineering institutions like the IITs: “If that changes and more people from IITs are convinced to raise venture capital money and found companies there, and try to take on the big tech starting with the Indian market and then expand to the rest of the world, there are some unique things that come out of it.” He further illustrated this point with examples of global tech products that initially gained significant traction in India:
“You take products like YouTube, or WhatsApp, or Chrome. All these are products that grew a lot in India in the beginning. Like YouTube offline downloads, for example, WhatsApp particularly, Chrome the browser couldn’t really beat Internet Explorer or Safari in the United States for a long time but they captured the mind share and market share in India.”
Srinivas’ observations come at a time when there has been much hand-wringing, both by the government and a section of the startup ecosystem, over the lack of innovation in Indian startups. Union Commerce Minister Piyush Goyal had said that Indian startups were more focused on things like faster grocery delivery, while their Chinese counterparts were building in EV, AI and robotics.
While there are several explanations for this — India spends much less on R&D compared to China and the US, and India’s startup ecosystem isn’t yet as mature — but the attitude of the country’s VC’s might have something to do with it too. Indian VCs have long been focused on funding copycat ideas, and prefer funding ideas which have already found traction in the west. This has meant that Indian entrepreneurs have been nudged into building copycat products, as opposed to innovating on fresh products. The lack of innovation in India’s startups is a complex problem, and it does seem likely that Indian VCs have — perhaps inadvertently — contributed to it too.