Past Reports

India Venture Capital and Private Equity Report 2014
How do these initiatives stack up against the suggestions made by Professor Lerner? For one thing, there is no
assessment of the financial success or developmental effectiveness of these initiatives that is available in the
public domain. There is some information available in the public domain on the constitution of the funds, their
organizational model and the channels of delivery. While the schemes have been in response to funding needs
identified the market for early stage enterprises, their management has rarely involved private investors who
are thought to be capable of identifying profitable investment opportunities. The size of funding committed
to each of these initiatives is not always defined, making it difficult to assess whether the amount of capital
committed is sufficient to make an impact. However, the volume of activity under each of these schemes is
less than miniscule given the size of the unrealized potential of the Indian economy. It is reasonable to
speculate that the amount of funds allocated is as important a reason for the low level of activity as the
effectiveness of implementation possibly is. Again, most funding initiatives have been organized as
departments of the government often calling into question the incentives for the managers of these funds to
work hard in pursuit of financial returns or developmental effectiveness. 21 In the absence of well-defined
performance milestones many of these schemes do not have clearly identified exit strategies. Finally,
operated out of the capital of the country many of these schemes are rumoured to be hostages to captors of
the regulatory system. In this instance these are intermediaries who specialize in creating proposals that
qualify for funding from these programs.
2.5 The way forward
As entrepreneurship enters a new phase of greater importance and criticality to the growth and development
of the economy the temptation for the government to support it with various funding and non-funding
measures will be strong. Two types of standard arguments are presented to support such initiatives. It is
either that similar earlier interventions has some anecdotal evidences of success, or equally, in an ironic twist,
the inadequacies of earlier initiatives are also used to support more of similar initiatives in future. The trouble
with both the approaches is that it is based on a limited and often an unscientific assessment of previous
initiatives. Although scholarly research into the impact of public policy initiatives is still sparse there is a body
of knowledge based on similar initiatives elsewhere in the world. It would be useful to incorporate some of
those lessons into the design of such initiatives.
Bibliography
Bhide, Amar (1992), "Bootstrap Finance: The Art of Start-ups" Harvard Business Review, Vol 70, No . 66,
November-December 1992, pp. 109-117
Da Rin, Marco, Thomas F. Hellmann and Manju Puri and (2011), A Survey of Venture Capital Research, NBER
Working Paper No 17523, available at http://www.nber.org/papers/w17523.
Dossani, Rafiq and Martin Kenney (2001), Creating an Environment: Developing Venture Capital in India, Asia /
Pacific Research Centre Working Paper Series, Stanford University.
Gompers, Paul A. (1996), Grandstanding in the Venture Capital Industry, Journal of Financial Economics, 42(1),
pp 133-156
Gompers, Paul A and Joshua Lerner, (2001), The Money of Invention: How Venture Capital Creates New
Wealth, Harvard Business Review Press, Mass.
Klausner, Michael and Kate Litvak (2001), What Economists Have Taught us About Venture Capital Contracting,
in Bridging the Entrepreneurial Finance Gap: Linking Governance with Regulatory Policy, ed Michael J
Whincorp, Ashgate Pub Ltd.
•
© Indian Institute of Technology Madras
25