Venture capital:
Where have all the diaspora gone?
Of all the paradoxes of the last millennium, perhaps the least expected is the one that concerns return of the diaspora to their homelands, metaphorically if not physically. Almost everywhere around the world, the discussions on where to bring the money from have had bizarre imprints of the discussions on how much can and will its global diaspora put in.
Let’s look at the Silicon Valley: The man with the cure of China market fever is Lip-bu Tan, a member of the Chinese diaspora and one of the first US-based venture capitalists to begin investing in China who has now hit #28 in Forbes’ Midas List and has become the fastest entity ever to hit one billion dollars in annual sales.
Another Silicon Valley example is Sanjeev Aggarwal of Helion Ventures who earlier founded Daksh eServices in New Delhi and expanded it to a company of 2,000 employees after IBM bought it. A large number of angel investors of the Silicon Valley’s venture capital industry in fact were the expatriate Chinese and Indians who later saw the chance to replicate the Silicon Valley back home–much as returning Israeli entrepreneurs helped to create in their homeland the world’s second largest venture capital industry.
But making venture capital work is not without challenges. And maintaining an edge to innovation is another fish to fry because the process of innovation is chaotic, complex and interactive. A World Bank report shows that more than two thirds of early stage technological development (ESTD) projects in the United States come from angel investors and venture capitalists. ESTD requires high-risk tolerant investment capital to fund early, pre-revenue stages of research, development, and commercialization. Yet filling the funding gap requires specialized investors with the skills to evaluate and directly manage the risks of ESTD.
Venture capital investment strategies are so formulated that they can absorb a high number of failed investments, which means, the VC funds aim to earn very high returns from one or two investments to compensate for others that flop. The deal flow is critical and so are local and global venture capital networks that generate it.
The silver-lining behind the cloud, however, is that increasingly the diaspora, who often have a panoramic view of the investors’ and investees’ worlds, have a unique advantage in ESTD investments back home. If they have the right technological and business qualifications, and if they have accumulated enough capital, they might as well see venture capital back home the best investment options. Intuitively, brain circulation and venture capital networks seem to overlap increasingly. If hatched well, the diaspora across the world might as well be instrumental in creating innovation centres back home.
Of course an Indian or Chinese style dynamics is unlikely to happen spontaneously for smaller countries with bigger challenges. Diaspora initiatives are often too enthusiastic at the outset and too feeble when tested against the blows. But seasoned and concerted efforts from the home country institutions might actually help the diaspora initiatives to achieve quick results and maintain the momentum in the long run.
