Indian Entrepreneurs Face Financing Challenge

India’s thriving entrepreneurial environment made it possible for Namit Malhotra to expand his business from a garage studio into a worldwide entertainment services company employing nearly 1,500 people.  Malhotra told his remarkable story during a panel discussion on “Entrepreneurship in India: Challenging the Status Quo,” at the Tata India Business Conference on May 17 at the Charles M. Harper Center.

Moderated by Tanya Menon, associate professor of managerial and organizational behavior, the panel was one of several events at the Tata India Business Conference, which was hosted by the student-led South Asia Business Group.

“I had no major educational credentials and a modest financial capital of about $15,000,” said Malhotra, managing director of Prime Focus Limited (http://www.primefocusworld.com/india/), one of the leading camera rental, post production, visual effects, and content management companies in the world.

In the early days, investors weren’t exactly excited about Malhotra’s vision, but the needs of the market skyrocketed him to success. “I took my dad’s advice and built my own post-production business in the garage. There were four of us inexperienced in business and technology. Private investors gave us no capital. We borrowed money at almost 28 percent—after giving our houses as collateral. We were a very small organization dabbling with creative services and technology for an industry—Bollywood—that was completely averse to using new technology. Now, we have close to $90 million in revenues.”

Entrepreneur Pranay Agrawal said that between 1999 and 2000, a lot of funding became available in India “to smart professionals who wanted to get into entrepreneurship. Before then, entrepreneurship had been restricted to the big family businesses, the large houses, and so on. In the last ten years, for the first time, the opportunity came for professionals to get into that space. A lot of people took that plunge.”

Agrawal was able to raise a small amount of money in 2000 to cofound Fractal, a data analytics company. He now heads the company’s business and client servicing functions out of New Jersey.

“We have about 200 people now, and we expect to grow 100 percent in the next two to three years,” he said. “Ten years back, it was very difficult for people to get funding based on business plans. The scenario is different now. Capital is definitely far more easily available than earlier.”

Naimish Patel started as a violinist and ended up an entrepreneur.

“I originally wanted to be a violist and had even played at Carnegie Hall — until my dad convinced me that music was not a good business to get into. I was in high school and listened to my dad.”

Patel earned numerous degrees in electrical engineering from the Massachusetts Institute of Technology. In 1998, he was a founding member of Sycamore Networks. “It was a very opportune time. It was crazy growth. It was a lucky time to be in that business,” he said. “The telecom market in the U.S. had just been deregulated and that gave rise to the opportunity for optical networking. We grew the company from four of us in the abeginning to about 1,200 people in two years, and the revenues were about $200 million per quarter. The beginning of the downturn was in 2002. I learned more in the downturn. I left the company in early 2007.”

Today, he is entrepreneur-in-residence at General Catalyst Partners, where he is actively investigating opportunities to build businesses in the areas of clean energy, life sciences, and emerging nanoscale phenomena.

Malhotra said he believes Indian banks are still not willing to lend to entrepreneurs. Agrawal said the biggest problem with financing is that if something goes wrong, the problem cannot be resolved quickly in India’s ineffective court system.

“The fear that a lot investors have is once a contract goes to court, it takes forever to resolve,” Agrawal said. “There is definitely an issue of corruption in India that is a concern of international investors.”

Agrawal said that in the United States, “the written word on a contract is the most important thing. In India, it’s literally the opposite. It is the spirit of your discussion and your personal relationship that are more important. It’s almost impossible for anyone to emerge victorious.”