Why should Indian VCs look towards Europe?

In my last past post, “The Desi Startup Boom - What does it mean for European VCs?”, I mentioned the opportunities for European funds to back Indian immigrant founders.?

Incase you didn’t read that, here’s the short summary: A substantial increase in talented Indians moving to Europe to work in tech, and rising up the ladder owing to demand + favourable immigration policies. Additionally, Europe looking to India for talent and setting up offices there. All this paving the way for a strong desi wave of entrepreneurship in Europe in the coming years and European VCs should recognize this and capitalise on this opportunity.?

However - this trend also presents another opportunity - and that’s to Indian VCs

Where have Indian VCs branched out thus far?

Typically Indian VC firms in India have focused on backing entrepreneurs based in India. These firms include both home grown firms as well as India offices of global firms (let's call them franchises). Over the years they have started branching out of India opportunistically.?

Two examples of this:?

1. Both homegrown and franchises have started investing in Indian B2B founders in the US. This made a lot of sense. Because there’s so many Indian origin entrepreneurs in the US (and would often open an India engineering office). The VCs already had strong ties with the US - either via its LP base or because their existing B2B portcos would look to the US as their main market as well as for talent as they scaled (“file the O-1, the moment you close the round” they’d say). And so this made natural sense. The change here is that a lot of funds have or are in the process of setting up US offices, joining the funds that have been at it for a while.?
2. Increasingly, a lot of Indian VCs also started branching out to nearby neighbours like South East Asia and the Middle East - owing to the lack of capital in these regions, despite healthy GDP/capita and demographics. In the case of franchises, the parent entity didn’t have a dedicated SEA or Middle East strategy and so it was an easier sell internally for the Indian franchises to take over the mantle. MENA/SEA are relatively capital starved - and so Indian VCs potentially could become important players in these ecosystems.

Europe has been overlooked by Indian VCs

Europe hasn’t really featured prominently on the investment radars for Indian VCs. And rightly so. There could be a number of reasons for this:?

1. The Indian VC ecosystem is still nascent and focused, having started during the dotcom boom. Additionally, investing in the US, SEA, MENA is challenging enough - adding Europe as an additional geo might have been challenging.?

1. While there are many Indians in tech in Europe - the early wave of breakout European technology companies (Mysql, Skype etc) didn’t have Indian founders - so there was no success story to build a thesis on. Notable European UK examples over the last 20 years have included fintech Funding Circle ($1.5B IPO val), Orchard Therapeutics ($1.2B IPO val), ecom player Boohoo.com (560 GBP IPO val), Shazam ($400M acq AAPL).
2. Unlike the US, the earlier generations of Indian diaspora, while entrepreneurial, primarily made money in non-tech fields like hospitality, steel, mining, pharma etc, and many of these were family businesses. A quick look at richest Indians in Europe validates that. Additionally, well known entrepreneurs were limited to the UK. France produced Amar Bose and JRD Tata, but clearly no one’s giving the French credit for their accomplishment (haha ;)).
3. A lot of Indians (Vindi Banga, Leena Nair, Nitin Paranjape, Rakesh Kapoor, Ivan Menezes (RIP)) did exceedingly well in corporate Europe - but alas - private equity or other corporates woo’ed them away. Win for India Inc - but loss for the startup world [2]
4. Many of the franchises already had a Europe or Isreal office. (Yet somehow, this happened)?

And why should they do it? And why now?

The opportunity potential is massive and there’s clearly a momentum.

Some of these success stories are Improbable ($3.6B), OakNorth ($5B), Quantexa ($1.8B), Mindmaze ($1.6B), Omio ($1B), Razor Group ($1B), IMMO (raised $75M in 2022, val unknown), Carbon Clean Solutions (raised $150M from Chevron, val unknown). While this is < 10% of the 150 odd unicorns in Europe [3], the remaining 90% have Indians earning their stripes and I’m quite bullish that they will form the next wave founders in Europe (look at VP Products at Pleo, Wolt, Tractable, and many more).??

Add to this, the highest number of worker visas in the UK are awarded to Indians, many of whom come to the UK to work in India. The German government has clear to woo India with 30,000+ German tech jobs. Netherlands attracts lots of Indians, who prefer it for work life balance as well as companies like Booking, Miro, Messagebird and employs about 100K people in tech. I don’t know much about France, and there are language considerations, however France has also introduced a tech visa for fast track PR.

In addition to the sheer number of desis in Europe, there’s certain sectors where Europe has a head start compared to India. And if these sectors are of interest, Indian VCs are more likely to come across founders building interesting stuff in Europe compared to India. Here are some of those sectors:

• Climate tech (where Europe and Nordics having a lot of focus)?
• Deep science (much better university research ecosystem churning out research that can be commercialized),?
• Bio tech?
• AI (London/Paris soon becoming the hubs)?

What can Indian VCs do?

Homegrown VCs should potentially start including Europe in their PPMs as they launch new funds or atleast sounding it to their LPs. The initial strategy might be to perhaps have an opportunity fund, or SPVs till their LPs get conviction that there’s a real opportunity here. This will ofcourse require some deliberation in terms of the ensuing inflation at the earlier stages (especially seed) and that might have to be incorporated into their portfolio construction model. This will start reflecting as more funds enter driving the valuations higher.?

But if that is sorted - some funds might have a great opportunity to invest in Indian founders in Europe. When it comes to global funds with an Indian presence - it gets a little tricky - and they might have to figure out a way for the Indian arms to collaborate with the European arms (guess this ties into org structure / carry distribution) to win these deals involving desi founders.?

Infact, over the last few years, I have invested in a bunch of European startups like Partykit, TaxScouts, PonchoPay and few other undisclosed ones and am really enjoying talking to the founders here (not just Indians).

As you can see, I am very excited to see how this plays out.Always open for a chat incase you’re a founder, operator or investor/LP and have additional thoughts around this topic.

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My name is Rishabh Kaul, and I am ex-founder/VC, operator and active angel investor in global B2B SaaS and developer tool startups.

Thanks to Kaushik Subramanian, Nitish Malhotra, Avinash Raghava, Vijay Sharma, for giving feedback.

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[1] Dhiraj Mukherjee, the desi founder of Shazam moved on from day to day operations 4 years into the 18 year founder and assumed a Board role.?

[2] Rakesh Kapoor isn’t a loss though - he’s a legend and he’s started 12 Flags - a fund investing in consumer / healthcare businesses - so I guess one could say he’s taken the entrepreneurial path.?

[3] https://sifted.eu/rankings/european-unicorn-startups