The Missing Middle

The more I interact with funders in India, the more a gnawing question arises: Is this where innovation goes to die? It’s a bold statement and might just appear as a rant, I know, but observe the landscape, and a frustrating paradox emerges. We talk endlessly about India's entrepreneurial spirit and its potential to lead, with the government funding lots of startups, which is wonderful, but what after? Our funders and capital ecosystem seem designed to stifle, rather than cultivate, genuine breakthroughs.

On one side, you have the venture capitalists (VCs) in the for-profit world. They are eagerly funding startups that are often either direct copies of successful Western models or, worse, models that continue to burn capital at an alarming rate with no clear indication of a sustainable path to profitability or, crucially, an exit. Forget all the startups in the news, these days with unfavourable track records or outcomes.

It is, frankly, mind-boggling how risk capital operates here. For me, observing from the trenches, I really wonder where the money is going. We laud "growth at all costs," but at what cost to the ecosystem's integrity? This approach prioritises quick scaling and potential hype over foundational innovation, often leading to market saturation with undifferentiated products rather than truly groundbreaking solutions. Fast fashion, quick delivery, what exactly are we funding that is innovative and has truly come from India? The quest for the next unicorn often overlooks the sustainable, deeply impactful, albeit slower-to-commercialise, breakthroughs.

Then, on the other side, you have corporates and VCs who have ventured into the impact world. And here, the risk appetite, or any enthusiasm for true innovation, becomes profoundly questionable. Most want to see direct numbers on the ground and solutions that yield outputs fast.

It's truly interesting – the same people who are comfortable burning money like water in a commercial venture are now sceptical of innovative models without an understanding of clear, immediate outputs and meticulous step-by-step process validation. This demand for instant gratification and quantifiable short-term results often forces impact organisations to pursue superficial fixes instead of investing in systemic change, long-term research and development, or truly transformative social innovations, which inherently require patient capital and a higher tolerance for initial ambiguity. Innovation, in this space, is often choked by the very metrics designed to ensure accountability.

This dichotomy creates a gaping void – a "missing middle" in India's funding ecosystem. If "me-too" commercial ventures get endless runways of capital and genuine impact solutions are strangled by demands for immediate ROI, then where does the true, audacious, and potentially world-changing innovation find its footing in India?

We're talking about:

• Deep Tech Ventures: AI, biotech, advanced materials, quantum computing – areas that require significant upfront R&D, long gestation periods, and often don't have a direct "copy-paste" model from Silicon Valley.
• Systemic Social Innovations: Solutions that address root causes of complex problems like poverty, environmental degradation, or healthcare access, which may not offer quick financial returns but promise profound societal dividends over decades.
• Unproven but Transformative Ideas: The kind of moonshots that challenge existing paradigms, but precisely because they are new, lack immediate market validation or a clear path to hockey-stick growth.

These are the ventures that are too risky for the impact investor seeking immediate, measurable outcomes, and too long-term or uncommercialized for the typical VC chasing the next quick exit or a validated Western model. They fall between the cracks, starved of the patient, understanding capital they desperately need.

I am not saying VAll is one of those transformative ideas, but I do think we sit in this middle, so where do we go is the larger question. I am lost when a funder tells me I am ahead of time, or they can’t see the problem because it has just started surfacing as a problem in the West. We are building a giving economy that has not been built globally. Yes, there are volunteering solutions and skilling solutions, but we don’t want to be boxed into those and stop creating a sustainable model for lifelong giving. So, where do we go?

I am sure we are not the unique ones, and there have been others in the past who have changed models based on what funding they received. I am sure we will go down that path too for survival and then just sustenance.

Until we bridge this chasm, until we find ways to nurture the truly novel and the deeply impactful, India's innovation story will remain confined to the familiar and the incremental. India is positioned to innovate. With multiple core industries slowly being replaced by AI, there is a space where we can leverage the existing human skills we as Indians have, giving us an edge over the West. The real genius, the audacious ideas that could transform our nation and the world, might just be left to wither, unfunded, in this frustrating "missing middle” and maybe we will be one of those. Only time will tell.