The venture capital/PE industry that started in India in 2004 saw great returns in 07(mostly on paper) which attracted more firms; firms that had been successful in the US and wanted to replicate the model in India. The macro analysis that started with the $1bn population and 15-20% growth looked great on paper; however, what most of the PE firms missed was placing a higher than normal emphasis on execution capability and promoter intent.
In India, the companies that have done well are the ones which have been able to execute and pivot on their ideas - it's not just the idea, but how well can you do "jugaad" to make that idea work. Right from the start, whether it be setting up an office space to hiring talent, the parameters are very different in India. There is no "plug and play" center nor, do newly minted grads have the grit to work in a start up. It takes more than an average person to work through the logistics, at the same time have a burning desire to execute on the idea. On ideas, the ones that actually succeed are the ones that are "indianized", no point doing the macro math and assuming that the next expedia and amazon idea will be billion dollars exits. Its all about execution at the end.
Innovation is rare to find, when the executive pay sucks up 25% of money raised. The income gap between the developer and CEO cannot be 10x. The executive has a cushy lifestyle with the options being "good to have". Interests with investors need to be properly aligned.
In the more traditional industries, promoters will seldom dilute at the bottom of the company's valuation. For them, these are family jewels that are meant to be passed on the next generation. If a company has lower than 51% promoter ownership, hard to see why the promoter would be motivated. The company would in most cases be the channel for raising money for other promoter entities. Hard to compete with the promoter, where his interests are not aligned with the investors. Most of the PE firms have been burnt by this, not to mention that the stocks are so illiquid and exiting a 10% ownership is likely to drop the stock price by 90%.
No wonder, most of the VC firms are having a hard time finding exits, which is discouraging new money, not to mention the actions of government which have caused the rupee to devalue to 61 from 40 in 2008.
But as Warren Buffett says "Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. A strategy that has proven to work - look at companies with wide and deep moat and good corporate governance and stay invested for the long run.