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Posts Tagged ‘israel’

Brazil is sort of a strange country to throw into the “emerging market” category. It’s not a particularly young country like India or Israel, nor is it a country like China or Russia that embraced capitalism fairly recently. Brazil is as old as the US and has had a decently built out infrastructure of things like roads and phone lines for some time.

Yes, it’s a growing country with a young and stabilizing democracy that has a long way to go in terms of technology, modernization and bridging a quality of life between very wealthy and very poor. In that sense, it shares enough in common with emerging markets that Wall Street, at least, tosses it in the “BRIC” bucket. Indeed, Wall Street has had a way bigger crush on Brazil to date than Silicon Valley.
That seems to have had two effects on the startup scene in Sao Paulo. The first is that there’s a good deal of innovation in the finance space. Banks in Brazil had to become advanced, many people told me, because of the runaway inflation that plagued the country for so many years. As opposed to other huge markets like Mexico, China or India that lagged in the adoption of checking accounts and other basic services, in Brazil you had to have your money in the bank, because the value of cash changed so rapidly.  So it’s no surprise more of those there’s-a-better-way spin-offs have come in finance than, say, Web 2.0 or mobile. (There’s a ton in agriculture and other sectors outside the cities too, but more on that in a future post.)
My favorite finance company that I met during my February trip to Brazil is called Crivo, and it left me wondering if that great wave of finance innovation might come from our Southern neighbors, not us.

Crivo has developed a way to do lightning-fast, three-second credit checks. Its servers pull information from a variety of sources, including all the places you’d expect but but also sources like utility records to verify an applicant’s address or ensuring that their phone number doesn’t just go to a payphone. “Even a single piece of information can be useful in detecting fraud,” says Daniel Turnini, one of Crivo’s founders. (Pictured above, on the right, with his co-founders.)

There’s nothing like a FICO score in Brazil so, in the past, credit decisions were made based on negative data and positive data. In other words you are “good” or “bad” in the bank’s eyes. There’s little record for positive data in Brazil, because the wealthiest people don’t want how much they paid for a house or a car in public records. It’s a security issue, Turnini says. That only leaves negative data.

So if there’s no information about you, it’s assumed you’re a good credit risk. But miss one payment and you have a “dirty name,” Turini says. It’s a flawed system. Many good credit risks (indeed I’d bet most people) have missed a payment before, and it’s a huge assumption to make that someone with no credit history would be a good borrower. In recent years there have been banks, insurance companies, and similar institutions vying to cash in on Brazil’s emerging middle class and increasingly wealthy upper classes, but had no real way of knowing how to extend credit.

Sound like great timing? It would have been if Crivo wasn’t started in 1998. Back then, few banks in the US would have been early adopters of something like this, let alone banks in Brazil. (Ok, most banks in the US still wouldn’t be.) Nailing that first customer was near impossible. The founders kept thinking they were on the right track because potential customers would freak out when they saw how quickly the software worked, but they’d never quite pull the trigger on a purchase. Always hoping things would finally click the next year, the founders kept bootstrapping the company. Finally, it did. Toyota’s Brazilian financial arm bought their software and used it to rapidly approve people for loans, beating other car makers who were flooding into the growing market. The company has been on a sharp growth rate for five years now. They did roughly $12 million in revenues last year, and expect that to double in 2010, Turini says. Crivo says it has more than 80 employees and 100 customers today.

There are clear ripple effects if Crivo does well. More people getting credit cards helps grow spending and ecommerce, more small businesses can get loans, and more people who can’t afford to pay in cash can buy houses – to name just a few advantages. We’ve seen the benefits of “greenfield markets” when it comes to innovation in telecom and even physical infrastructure, like roads and trains. Might Brazil be able to come up with some greenfield solutions for finance? It’s easy to see how a FICO score could be improved on and, ahem, really easy to make the argument that way too much credit has been extended in the US in the last ten years. But while we have a system in place, who is going to upend the apple cart and force widespread-adoption of a newer, smarter system? It’s South Korea and telecom all over again.

Yes, I realize that to many tech entrepreneurs, the idea of a country amassing an army of middle managers sounds about as appealing as a resurrection ship of Cylons. But a lot of the most talented local entrepreneurs, managers and even investors I met in Brazil had spun out of a year or two in consulting and finance.

An example was Diego Simon of VivaReal (pictured right, working in his tiny home office), a broad Latin American real estate portal that has increasingly been focusing on Brazil. Neither of the founders are Brazilian – or even live in Brazil – so finding someone like Simon was essential. Entrepreneurs from other South American countries say selling to Brazil as an outsider is harder for them than selling to China. That makes Simon exactly the Droid any company like VivaReal is looking for: He had experience running his family’s business, worked a stint for a multinational but left because he wanted to do something vaguely entrepreneurial – although he didn’t know exactly what. I’ve never been particularly bullish on real estate portals, but if VivaReal does well, it will be in no small part due to Simon criss-crossing Sao Paulo in his Fiat extolling the virtues of online listings under the auspices of a common culture and language.

The problem is—like in China and India—the allure of the multi-national paycheck and prestige is strong in Brazil. The management expertise may be there in greater numbers, but convincing someone to take a gamble on an unproven startup for stock is as hard as it is anywhere in the emerging world.

VUDU apps is going to start being a lot more available with the announcement today that Zoran, “the U.S. market share leader in flat panel televisions according to DisplaySearch,” is integrating VUDU apps and VUDU Movies into its SupraHD processor

Excerpt from: 
Zoran SupraHD TV processor to include VUDU apps

I could sit here and talk about the latest big “ hack attack ” to strike the civilized world, but these have become so tedious. The story is always the same: hackers from scary place (here, China and Eastern Europe) attack Western government/corporation (here, corporations) for unknown, shadowy reasons.

Go here to read the rest: 
Oh look, another hack attack that could have been prevented

An SEC filing has revealed that video ringtone sharing community Vringo has filed to raise an estimated $64.3 million via an initial public offering of stock and warrants.

The company plans to trade on NASDAQ, with Maxim Group serving as lead underwriter. Vringo shareholders include Warburg Pincus, who invested $12 million for a 31.9% ownership stake in 2007, and undisclosed private investors.

Vringo operates an online video ring tone sharing community, providing a hosted and client-server-based solution, which allows users to find, choose, create, and share video ringtones. The company provides mobile phone video sharing, and video ringtones and video download solutions. Its content includes licensed material from televisions, movies, and music videos, as well as user generated clips.

Vringo says its application, which is available for Android in beta, is compatible with more than 300 handsets.

According to the filing, Vringo’s product will soon no longer be offered for free to consumers. The company says it will move to a paid service model together with mobile carriers and other partners around the world. The initial revenue model for the service offered through the carriers will generally be a subscription-based model where users pay a monthly fee for access to the service and additional fees for premium content.

The company lacks any revenue to speak of—it only booked $36,000 in first nine months of 2009 and $0 in 2008. The company has only a history of losses, reporting an operating loss of $3.5 million and a net loss of $4 million the first nine months of 2009. The company says it expects to generate more net losses and negative cash flow ‘for the foreseeable future’.

Future income will depend greatly on Vringo’s capability of signing up more carriers, handset makers and mobile services providers, historically deals that take a lot of time and resources to get sealed and implemented.

Vringo was founded in January 2006 and is based in New York. We’ve tracked about $17.3 million worth of investments in the company in CrunchBase.

Vringo’s chief executive is Jonathan Medved, one of Israel’s leading serial entrepreneurs and venture capitalists. Medved founded Israel Seed Partners in 1995 in his garage and co-managed the fund until January 2006.

Israel Seed has $262M under management in four funds and has been an investor in some 60 Israeli companies. Exits include: Shopping.com (acquired by Ebay), Compugen (Nasdaq: CGEN), Answers.com (Nasdaq: ANSW) and Business Layers (acquired by CA).

You can watch a MarketWatch interview with Medved here.

(Via Wall Street Journal)

I’ve been quite fascinated by electric car firm Better Place since I read up on how the company was founded by former SAP executive Shai Agassi in the excellent book ‘Start-up Nation’, which tells of Israel’s historical entrepreneurial DNA and tech success stories.

Basically, Better Place aims to reduce global dependency on petroleum through the creation of a market-based transportation infrastructure that supports electric vehicles, relying on renewable energy from solar arrays and wind farms instead of oil. The startup, founded just 2 years ago, is currently building its first electric vehicle network in Israel, and plans to deploy the infrastructure in other nations on a country-by-country basis with initial deployments beginning this year, and commercial sales beginning in 2012.

As of April 2009, it had already raised $400 million, with several countries offering tax breaks in favor of the ambitious venture. This morning, Better Place announced that it has raised a massive $350 million follow-up venture funding round to lay the groundwork for these deployments, valuing the company at a whopping $1.25 billion.

HSBC led the round with a $125 million capital injection (buying them approx. 10% of the company), with eight other investors participating, including Morgan Stanley Investment Management, Lazard Asset Management, Israel Corp., VantagePoint Venture Partners, Ofer Hi-Tech Holdings and others.

Better Place says it intends to expand into markets where the business model economics and investor returns are “optimized”, citing Europe and Asia specifically. The company also reaffirmed its original target to begin full commercial operations at the end of next year, when industry partner Renault plans to offer the first car with a replaceable battery.

The way venture capital firms are structured makes it almost impossible for outsiders to see what’s really going on inside those 1970s lodge-like Sand Hill Road offices. A firm is nothing more than a collection of partnerships around certain funds that run for ten years or more. So if a partner gets fired? Well, he or she is still technically a partner in an earlier fund, so firms don’t really have to talk about it if it isn’t in their best interest.

And if a firm was one of many that couldn’t raise a new fund last year, who needs to know they were even trying? Unlike a startup, any firm that’s been around for a cycle or longer still has enough money under management from previous funds to keep the lights on. If they failed to raise a fund in 2009, they can always try again in 2010. It could take decades for even the worst firms to “go out of business.” Like generals, bad VCs don’t die, they just fade away.

It’s an industry perfectly structured for sweeping problems under the rug, and as its fundamentals have declined over the last decade, that’s just what it’s been doing. But those big, lumpy problems are getting harder and harder to hide. Aside from rumors, it’s hard to know exactly who couldn’t raise a new fund in 2009, but we know the numbers were down precipitously. And slow economic recovery aside, it’s not going to get easier in 2010.

Limited partners, the institutions that invest in venture funds, are finally accepting what almost every VC I know has been saying for a decade: There’s too much money in the industry and it’s killing the kind of early stage investing the asset class was founded on. And that’s killing returns.

But just as we’re finally starting to see limited partners make the hard decisions to throttle back investments in private equity, so too are some VCs grappling with their own hard decision: Stick with a broken asset class and try to fix it or just leave and start anew.

Vinod Khosla was one of the first to make that decision: Leaving Kleiner Perkins Caufield & Byers at the peak of his and the firm’s power to get back to real, risk-taking early stage investing. Of course, his recent $1.1 billion fund flies in the face of the too-much-money argument, but it bears noting that Khosla invests in some capital intensive sectors like cleantech. Web 2.0 is a different matter. The capital needs are low, and, YouTube aside, the returns are low too.

In the last few weeks, another investor who I respect has made a similar move. Simon Levene of Accel’s UK offices has resigned the firm, despite an impressive track record that includes investments in MyHeritage, Seeking Alpha and Etsy. I spoke with Levene this week about the decision and unfortunately for me, it’s not a particularly juicy story. This wasn’t an intercontinental Accel battle royale. This wasn’t an issue where he wanted to invest in sectors the firm deemed dead. Nor was it a case where Levene wasn’t pulling his weight. And, of course, with investments in as varied and successful companies as BBN Technologies, Marvel and Facebook, Accel itself isn’t in any trouble.

It simply boiled down to the fact that, like many of the world’s best Web investors, Levene doesn’t see the best deals out there needing many millions of dollars. And structurally, a small partnership investing a $525 million fund with $1.5 billion actively under management can’t do a large number of tiny deals and still give each investment the attention it needs. As he puts it: “You see something that needs half a million or a million and you think, ‘That’s a good investment,’ but there are only so many you can do given the structure of these larger funds.”

In London, Accel takes a classic VC approach of putting at least $15 million in each company. That doesn’t leave a lot of room for the kinds of micro-deals that Levene saw netting better returns and frankly, the ones in which he had more fun investing. “I enjoy the bigger deals too, but they are fewer and far between, and they tend to be very competitive, so you have to pay up for them,” Levene says. “When it comes to early stage I’m just seeing a bigger market opportunity in Europe and Israel.”

That VC angst—while similar to what you hear about in the Valley—has a different twist in markets like Europe and Israel. In the Valley, it’s largely a reaction to more nimble angels and seed funds beating traditional VCs in the market. Funds have been forced to adapt or lose.

Witness Greylock’s hiring of uber-angel investor Reid Hoffman. Indeed, even before Hoffman’s arrival, forward-thinking partners like David Sze had been doing less-traditional deals. In 2006 Sze did two deals that didn’t seem to fit with the venture model and had peers scoffing that he’d never make money off either. One was Digg, where he could only invest $2 million, a fraction of the normal-sized series A deals at the time. The other was Facebook, where he invested at a whopping $500 million pre-money valuation. At the time, he shrugged and said, “I don’t know how I’ll make money, I just believe in the teams and believe it’ll work out.” In hindsight, he looks like a genius on both.

Sze’s approach —not just downscaling to do seed-deals, but investing without spreadsheet-induced restrictions at all — is similar to that of newer firms like Andreessen Horowitz, which does tiny deals as well as mammoth deals like the recent investment in Skype. Andreessen has said he wants a piece of the best tech companies in the world—no matter when they’re started, what stage he can get in and what price is necessary to make it  happen. (After all, it was pure, math-based investing that helped wreck the public markets.)

But in Europe and Israel, there’s not that same level of experimentation on the part of venture funds, nor are there many investors like Andreessen or Hoffman who have the clout, confidence and star power to say they’re just going to invest in what they want and trust it’ll work out.

The closest is Saul Klein’s firm Index Ventures, which has had plenty of traditional venture hits with Skype, MySQL and Last.FM, but has been open to plenty of experimentation too—much of it lead by Klein himself, a long-time angel investor and entrepreneur. Index has not only supported Klein in continuing to do investments from his seed fund, The Accelerator Group, it’s encouraged him on a project called Seed Camp, that scours Europe and Israel for good companies and makes Y Combinator-style investments in them.

So far Seed Camp has invested in 21 companies and mentored nearly 300. Klein brought a crop of them over to Silicon Valley this week to meet with investors, get grilled by the press, and get mentored by success stories like Google. “Given that the raw natural material for venture capitalists is entrepreneurs, I find it strange that the venture community does nothing to help develop those raw materials,” Klein says. (There’s much more on his blog about this topic here.)

For Levine’s part, he sees the venture industry in Europe and Israel as “still a work in progress.” He continues, “There’s more of an opportunity to pioneer and strike new ground. That’s part of what was exciting to me when I moved back here seven years ago.” Not surprisingly, Levene spent a lot of time talking with both Hoffman and Klein as he was mulling the ballsy decision to leave one of the top firms in the venture universe.

What’s he going to do now that he’s unemployed? He’s not saying yet. (My guess is he’s not saying because raising a seed fund takes some time, but that’s only a guess.) But the more investors who follow their heart in this uncertain time for the asset class, the better for startups here and in Europe and Israel. After all, that’s what top investors would advise entrepreneurs to do during a downturn.

Not sure why this suddenly came up and I’m not going to get into the politics of this, but Israeli security, in an apparent fit of pique, shot a young woman’s laptop at the airport. I went inside to check on my bag.

See more here: 
Israeli airport security shoots a defenseless MacBook

I’m sitting in Buenos Aires now, but last week I was in Puyuehue. Yeah, I had no clue where that was either when I got talked into embarking on a 20-something-hour day of travel to get there. If you look at a map of South America and trace your finger to the very bottom of Chile, that’s roughly where I was.

I sighed getting on the plane just four days after I got home from India. Having already traveled to Rwanda, Israel, China and India this year in search of the world’s best entrepreneurs, the journey was now quite literally taking me to the end of the earth.

The organization that did the arm-twisting is called Endeavor and thanks to the trip they have the not-too-uncommon distinction of having proved me wrong. For a long time, I didn’t believe any government or non-profit could really help develop clusters of high-impact entrepreneurs. But Endeavor has in very tangible ways, especially here in Latin America and South America.

It started ten years ago to find and help the most promising high-growth companies in emerging markets. It doesn’t actually invest in the 270 or so companies it has selected to be “Endeavor companies,” and a lot of that “help” is hard to quantify—free consulting, coaching and mentoring, and introductions to potential investors.

Indeed, a few entrepreneurs are dubious of how much Endeavor can really do at first blush. But here are a few stats: Endeavor companies have generated some $3.15 billion in revenues, generated nearly 100,000 jobs, and 93% of them are still business. If nothing else, Endeavor has a good eye for talent. (Although you can argue that success rate means they don’t back the riskiest bets that may need them most.)

A more tangible sign Endeavor has made a difference: Nearly 30 of these entrepreneurs have helped develop startup ecosystems by starting venture funds in emerging countries and a whopping 81% of them have donated cash or equity to support Endeavor.

Endeavor pores through hundreds of thousands of entrepreneurs and makes its selections at one of five annual International Selection Panels held in far-flung places around the world. I traveled thousands of miles to this one to see the newest collection of South American candidates and also to see up close how the whole process works. The biggest surprise: It does actually work. Well, that and all the Brazilians were nice to me. (Disclosure: I paid all travel expenses and the regular conference fees.)

The real strength of the Endeavor model is the local teams. They’re staffed by young energetic—and frequently emotional—locals who scour their markets for the best entrepreneurs and nominate them for selection. I’m not quite sure how they find them all.

One of the selected companies was Medix, a medical device company that will generate more than $45 million in revenues this year. 77-year-old Jack Cheja—who never even graduated high school and doesn’t look a day over 60—used to import incubators and when Argentina placed a ban on those imports, well, he just decided to start making his own models. That came in handy a few years later when his daughter gave birth to premature triplets.

Medix now owns 90% of the Argentinean market and is going head to head with giants like General Electric in the rest of the developing world. Cheja is grooming his son, Diego, to take over. The elder Cheja says he didn’t even know he was “an entrepreneur” until the Endeavor crew reached out to him. Indeed, when Endeavor founder Linda Rottenberg started the organization there was no real word for “entrepreneur” in most of these countries. (At least none with a positive connotation.)

Meeting teams like the Chejas I was struck by a deep cultural difference: In America, we can hardly handle Christmas with our families, but most of Endeavor’s teams are like the Chejas—father-son, mother-son, or brother-sister duos. Diego Cheja even joked their succession problems were solved for the next generation too, pointing at his son snoozing away in a stroller.

That DNA-based succession planning can be a good thing and a bad thing. Many candidates are struggling with the transition from family-owned businesses to high-growth startups. For instance, the Argentinean Martinez family has roasted and sold coffee for generations. While most people consider the smell of coffee vaguely comforting, for Marcelo Salas Martinez and his brother Mauro coffee smells like his parents, his grandparents and home. But that warm and fuzzy feeling is also knotted up with a lot of ambition.

The brothers are expanding the business by building a chain of cafes in Argentina, and potentially other areas of South America. But the path is unclear: Building their own stores is expensive, but franchises haven’t always worked out either. That’s one reason they welcomed Endeavor’s advice. “Sometimes in a family business, you need fresh air,” Marcelo said. (Pictured right, with his mother in his grandparents’ original roasting plant.)

Here’s how Endeavor’s selection process works: A panel of experts—investors, former Endeavor entrepreneurs, executives at high growth companies— pair off and grill the entrepreneurs for a day. Then the next day in sometimes-contentious sessions, they vote on who should be selected. There’s no quota—they can select all or none of the companies. But the vote has to be unanimous.

This is where the emotion comes in. Many of these entrepreneurs have no access to mentors, capital or basic how-to’s of building a high-growth venture, so becoming an Endeavor company means a lot to them. But put the entrepreneurs themselves aside for a moment—the local Endeavor teams have investing months researching and coaching these entrepreneurs by this point, and no one wants any of their entrepreneurs turned down. They sit in the corner struggling to be quiet like nervous stage mothers.

That pent-up emotion can give way to relentless lobbying if an expert is planning on voting against a company. I’d argue this is actually a negative in the process, as some panelists said they felt bullied to change their votes. But I have to admit, I even started getting upset watching the deliberations.

Delightfully, Endeavor cuts this tension with a 24-hour open bar, evening karaoke parties and 1 a.m. pool parties. The night after their pitches, the Martinez brothers lead the room in a rousing, boozy, Spanish rendition of “I Only Want to Be with You.” Just like at a winning soccer game, one of the brothers half-ripped his shirt off at the end.

It may sounds like a junket; actually it was anything but. These were intense sessions of tough-love advice, and I was impressed at how many entrepreneurs took it in the right spirit, dutifully jotted down notes and asking follow up questions, even seeking the experts out for follow-up conversations if they weren’t selected. There was none of the defensiveness that you frequently see during pitches at US conferences.

In a future post I’ll write more about my favorite company I saw in Puyuehue, but now, I’ve got to catch a flight home.

Crunch Network: CrunchGear drool over the sexiest new gadgets and hardware.

YouTube cofounder Chad Hurley gets a surprise earlier this week on a trip to Israel – MyBrandz got a guy to put a YouTube tattoo on his bicep. Hurley, ever polite, took a picture. And said “you’re the first person I’ve seen to use that logo on their bicep…or anywhere on their body for that matter.” Hurley, taking care of business, then went on to ask they guy taking the video to make sure they put it on YouTube.

Video is below:

Crunch Network: CrunchGear drool over the sexiest new gadgets and hardware.

There was one complaint I heard over and over again from Indian entrepreneurs during my three weeks shuttling between Delhi, Jaipur, Bangalore, Mumbai and Pune: There aren’t enough angel investors in India.

Now, truth be told, that’s a complaint I also hear in the American heartland, in Canada, in Europe, in Africa, in China and, well, pretty much everywhere I’ve traveled to over the last few years. I’m not sure people ever feel they’ve got enough money being thrown their way.

But there is definitely something that makes Silicon Valley and Israel different from almost everywhere else I’ve been. Both have a wide base of people who made lots of money in the late 1990s Internet boom: The Yossi Vardis and the Marc Andreessens, but also hundreds of lesser known stock option recipients who may not want to start another company, but want to stay in the game $10,000 or so at a time.

Sure, Europe has had some big hits, but a culture of being tight-fisted with stock options has kept the wealth from getting spread widely enough to create a large base of millionaires who feel comfortable backing startups. Bebo’s Michael Birch and Skype’s Niklas Zennstrom are more exceptions in London than the rule. Even a city like Seattle, which had two colossal wins in Microsoft and Amazon doesn’t see a critical mass of angel activity—or even venture activity according to Dow Jones VentureSource. Typically just under one hundred startups raise venture capital in the entire state of Washington each year. For all the talk that Boston’s venture scene is “dead,” Massachusetts still gets nearly three times as many deals.

Note, this isn’t a question of wealth. There are plenty of pockets of the super rich throughout the world. But unless you earned it from a high tech start-up, you’re culturally loath to give it out to a guy you don’t know with an unproven idea.

Angels may be considered a crucial ingredient in today’s modern startup ecosystem, but if you think about it, asking strangers to write you a $20,000 personal check for no guarantee and a chunk of stock is a pretty new phenomenon. It’s the result of a decade or more of broad-based success, not the result of one big hit. That means a healthy angel environment isn’t necessarily a sign that a place is about to take off, rather, it’s a lagging indicator of a healthy startup scene.

That brings us back to India—a place that venture capital has been pulling out of in recent years as the burgeoning 1.2 billion person domestic market hasn’t adopted new technologies, goods and services as quickly as outside investors would have liked. (With the noted exception of telecom.) In 2008, just $1 billion venture dollars went into some 93 Indian startups, according to Dow Jones VentureSource’s Global VC Report. That puts India behind Europe, China, Israel and just barely ahead of Canada. In the first half of 2009, the numbers were even bleaker with just 25 Indian companies getting $213 million in venture capital.

Alok Mittal, a partner at Canaan Ventures in Delhi, agrees with the numbers and says the angel totals are far worse. If there’s about $1 billion in true venture capital in India, he says there’s only about $50 million in angel deals. Compare that to the United States where there’s roughly $20 billion in venture capital and another $20 billion in angel deals that primes that VC pump. That’s a disconnect that gives Indian entrepreneurs fits. “Indians are inherently very risk adverse and many of the entrepreneurs who’ve made money just put it in stocks,” Mittal says.

It’s all the more frustrating to entrepreneurs on the ground because there are so many prominent Indians who’ve had huge success in Silicon Valley and talk a big game about the opportunities in India and their desire to help give back to their native land. The cash just never seems to make it over. What gives?

For a start, angel investing is a local phenomenon, as much about mentoring and connections as it is about the thousands of dollars invested. An Indian who’s made billions in the Valley doesn’t necessarily know the first thing about mentoring an inexperienced kid with an idea in Mumbai. Until Indians start having more big hits in India, it will struggle to improve its angel landscape.

So India—or any region like it that has money, desire and opportunity but a lack of sustained big wins— has two choices: Muddle along without the help of early money and wisdom and churn out some big hits or figure out a way to hack space and time. Not surprisingly, I met several parties in India trying to do the latter. Can it work? Maybe, but there are inevitable tradeoffs.

The most common hack is creating so-called angel networks and there are a slew of them in India. They tend to do a few dozen deals a year. The advantage is by sharing the risk, angels get more comfortable with this type of investing and can pool their resources, and diversify across several deals.

But there’s a clear disadvantage: True angel investing is when a self-made individual with no one to answer to makes a gut decision to back an entrepreneur. Institutionalizing the process makes raising angel funds like raising a small round of venture capital. There are still the same hoops to jump through and demands of near term revenues, there’s just a smaller pot of money at the end of the gauntlet. Mittal is part of one of these angel groups and admits it’s not nearly a big enough solution. “We have done twenty deals, but what’s twenty deals?” he says.

Another idea is a Y-Combinator style incubator being hatched by former Valleyite Freeman Murray (above, right) in Bangalore. Murray ran something similar in Pune, and has relocated to the South where there’s generally more startup activity as kids watching Web 2.0 glamour from afar are quitting boring jobs with multi-nationals to start mostly Web and service companies.

Murray sees the slow growth of India’s Web market as a potential advantage, giving him plenty of time to handhold and mentor smart kids with a good idea but little else. And just $10,000 each can keep these companies running and experimenting for a while.

Where does Murray get the money? Some of it is his own savings, and some comes from those very same Indian Valley successes who want to seed companies in the motherland but need someone to be the feet on the street. A similar approach is being launched by Indus Khaitan, a former Symantec executive who moved back to India and joined Morpheus Venture Partners, which recently closed a new fund thanks also to Valley-based Indian wealth. He’s also based in Bangalore.

Khaitan is one of those natural networkers with an easy smile and an ever-available credit card to buy group dinners. But Murray gets the laid-back, hippie points—he’s constructed a huge Burning-Man like complex in downtown Bangalore where he’ll put on community art and startup events. It’s wrapped in Chinese tarps with a multitude of metal stairs leading to different floors and levels inside. It’s got wifi (natch), and soon, a garden for a roof and solar panels to replace a power chord that’s now being piped in from the neighbors.

There’s something in India called Jugaad — it’s an innate creativity for problem solving that some worry the Zippo-lighter-flashing kids working for multinationals in Bangalore have lost. Murray may be a California native, but he has jugaad in spades.

But even if each effort is successful, they are still just tiny drops in the bucket—and India has a pretty large bucket. Vishal Gondal, founder of IndiaGames and a rare Web entrepreneur who’s made money in India, has had it with the partial solutions. He’s sick of attending startup events where three smart kids win the competition and the so-called “early stage VCs” judging it all say the companies are still too early stage for them to invest in. “Why are they even there?” he says of the VCs. At a recent competition Gondal stood up and personally committed $100,000 to the winner on the spot—giving his wife palpitations.

Like Mittal, Gondal (left) sees scale as the only way to push India out of this early stage funding rut. Twenty new deals is nothing—India needs to be minting 1,000 new startups over the next five years to finally start seeing some big hits emerge, he argues. He proposes a sort of uber-angel network that would look for thirty startups per year from the big major Indian metros and 10 startups from the next largest second tier cities. That leaves five to ten slots for other cities or rural areas. If each of these companies got the normal seed investment of in the $20,000 investment range, seeding 1,000 of them over five years would cost just $20 million—a big sum, but not outrageous.

Having seen loads of cities try to “recreate” Silicon Valley and fail, it’s hard to be too optimistic about any plan to short-cut the natural development of the primordial soup that leads to a complex ecosystem of entrepreneurs, VCs, angels, advisors and startup worker bees. But the fact that these efforts are coming from disparate, frustrated grassroots groups and not some top-down government grant or well-meaning, fair weather rich outsiders, lends some hope that things could change in corners of India’s entrepreneurial world.

The truth is India’s dream of building the next big fast-growing powerhouses will have less to do with angel money or Western venture money and more to do with getting around that ingrained fear of risk-taking.

There’s still a strong cultural stigma to failure in India. Walking away from a prestigious and high-paying multinational job when you don’t have an angel to catch you isn’t easy, especially in a year when India has seen some of the first corporate layoffs. But jugaad is all about finding a way, and the best Indian entrepreneurs will. The others should probably just stick with the high paying job at Microsoft anyway, angel investor or no.

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