• In Conversation

Pune-based angel investor and mentor Shrikant Patil talks about why India is actually a Dharavi to the world, and why the government needs to step back to let entrepreneurship flower in the country.

You were once a part of Intel’s Pentium design team. From there to being an angel investor in India is a long way off. Take us through your journey.

Yes, it has been an interesting journey. From 1991 to 2005, I had built up many mental models about technology, business issues, etc. I was also looking for new challenges. So I left Intel in 2005 and started making investments, with my personal savings, in small companies that spanned everything from real estate to food.

I had one clear direction in mind: I will invest in concepts, not trends. If I can understand and believe in a concept, I invest in it. The kind of company I look for has three things going for it: technology, people and policy. If these three aspects converge successfully, you have a winner.

As such, my investments have been very diverse. I have invested in education, real estate, food processing, hospitality, etc. I sit on the boards of some of these companies, helping them with my experience, my network, and generally open doors for them.

Since you are based in Pune, it would be safe to say that there are IT companies sprouting up around you. Yet, there are none in your portfolio.

I understand IT. I believe IT should add a competitive advantage to your business, rather than being the business itself. I often hear parents telling their children to learn computers—but that shouldn’t be the case. Computers should be used to enhance what you already know.

Even in the companies I am invested in, I have made sure that IT is used as a competitive differentiator. For example, Town Essentials, which is in the food distribution business, sources 1,000 SKUs (stock keeping units) at once, sorts them, grades them, packages them, and distributes them—all thanks to the proprietary software that they have developed. Without this software, they would be hard-pressed to do the same for even 100 SKUs.

Is India lagging behind in product development and innovation? Why are there no Intels coming out of India?

To be honest, the root problem lies in our education system, and more so in our social system. You see, when an engineer joins a product development company—usually a small one—he is put under the radar by society’s many questions. What company is this? What is it developing? Why not work for Infosys or Wipro? Parents are always worried about things like this, because where their son works decides his rate in the shaadi market.

Have you ever met a parent whose son works for Infosys? He is so thrilled and proud of him. But what is the son doing but servicing some client sitting in the U.S.? Let me put it in the shortest way possible: India is a Dharavi to the world. But how long are we going to go on like this? Are we not going to push the trend [in a new direction]? These are hard questions that the Indian civil society must ask itself.

So, do you think we will continue being a Dharavi to the world? Will the next decade just see another slew of services businesses?

Many people come to me with ideas for services businesses. However, I personally think that the services story is over. Ten years ago, the arbitrage was higher—salaries were lower, power rates were lower, and even food costs were lower. These have all become expensive now; the margins have shrunk.

What may work, though, is location-based web- and mobile-based services and products. One should look at making applications for Indian businesses and the government. For example, there are a few hundred thousand societies in India. Why not make an application that can manage the society association? It could be a web- or mobile-based service that acts as a notice board, provides the minutes of the last meeting, sends out alerts, etc.

What has been your learning from the sectors you are invested in? Which sectors are likely to show the most promise in the next decade?

The best pointer I have for entrepreneurs is to get into a sector that the government does not understand.

Until 1998—which is when, I believe, Pramod Mahajan became the IT minister—the government had no idea what the IT sector was about. Once they did, they realized they could make money on it. So, what did they do? They started acquiring land—both legally and illegally—as IT companies needed offices.

I will give you another example. I had the privilege of meeting Richard Li and his team. Around 1991, Li began broadcasting Star TV into India by satellite. At the same time, they pushed receiver boxes into India via Nepal. Within two years, the cablewallas had wired 60 million homes in India before the government had any idea about it. Once they did, they ran helter skelter and established what you now call the Information and Broadcasting Policy. But by then, the cablewallas had already done their deed. Look at where two of them are now; Subhash Chandra of Zee and Ronnie Screwwalla of UTV were once cablewallas.

You believe that the government’s involvement is hampering the growth of many sectors. What kinds of reforms can be undertaken?

In my opinion, these are the two things that are impeding the growth of private enterprises in this country: bureaucracy and the judicial system.

You see, there is a heavy price to pay for being honest in this country. Assume you run a company with your books in order and somebody comes to check them. Now, if he still asks for a kickback to give you a clean chit, but you refuse to, he will merrily go ahead and bring down roadblocks on to you.

You can fight him, but the problem is that our judicial system is so slow and laggard that it will be years before even the first words are spoken about your case. And all entrepreneurs know that time is money. So, they decide that paying up is a better option. As I see it, it is very difficult for us to come out of this mess.

If you had to point out a single step that must be taken to foster a wave of entrepreneurship in India, what would it be?

Open up the educational system and you’ve won half the battle. Unfortunately, reforming education will not be easy. Here again, the government is sitting with its hands deep in. Do you know that to start a school in India, it needs to be a non-profit organization? If you did start it, you will be subject to a charity commissioner.

Suppose I, an MS in Engineering from the U.S., wanted to teach at the local school in India, I’d have to first get myself a B.Ed. degree. This degree is the biggest scam going around. To get it, you typically have to enroll yourself at a college owned by a politician. And if I do get the degree and join the school, I am at the mercy of an inspector. If he finds me teaching there, he will either bar the school or throw me out. See the loop? That’s the power they have. That’s why the educated are kept out of the system.

Does the fact that our educational systems are hampering the growth of innovation and enterprise point to how good the system in the U.S. is?

The fact remains that the U.S. will lead the world in terms of innovation and enterprise for another 100 years. And there is one reason for it: their excellent educational system. Their system is their biggest export to the world. Thousands of people every year go from India, China, South East Asia, Africa and almost everywhere to study there. And this brings them billions of dollars in revenue. How many come to India from elsewhere? How many come to China?

The problem with India is that we are obsessed with exceptions. We will take one IIT graduate or one Nobel Prize winner and position as that as signs of us being superior to everyone else in the world. That is laughable. We need to be honest with ourselves.

Portfolio
Clover Estates, Clover Greens, Town Essentials,Educational Initiatives,BrewCrafts India,Vitage Technologies,Nine Motion, Outreach Media Services, Squotient Analyzers
©Entrepreneur December 2009

Tags:
angel, innovation, investor, Shrikant Patil