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— The institution of venture capitalism is a difficult one to initiate through policy intervention, particularly in developing countries with unstable macroeconomic environments and histories of state involvement in the use of national capital and in the composition of production. India has all these constraints. The emergence of a thriving software services industry after 1985 created the raw material that venture capital could finance, thus achieving a critical precondition for venture capital’s growth. It was followed by efforts to create a venture capital industry. After several setbacks, some success has been achieved largely due to a slow process of moulding the environment of rules and permissible institutions. The process was assisted by the role of overseas Indians in Silicon Valley’s success in the 1990s. Yet, in terms of what is needed, most of the work remains to be done. Inevitably, this will be the result of joint work by policymakers and practitioners. 2002 Elsevier Science Ltd. All rights reserved.