India’s startup ecosystem, now ranks third globally with more than 4,200 new-age companies.

Kavitark Ram Shriram, one of the first investors in Google, wants to make his next early bet on a tech product startup in India.

The Silicon Valley investor, who has backed early stage firms including online retailer Zazzle, Paperless Post and DataFox Intelligence through his Sherpalo Ventures, said he loves the idea of companies creating jobs. Mr. Shriram also likes the fact there are now many small product companies in India focused on applications as opposed to outsourcing and said he finds the Indian startup environment ‘vibrant and energetic’ .

“I think that is the level of disruption that I would love to encourage, if I can,” Mr. Shriram told startup founders and venture capitalists during a recent visit to Bengaluru. The 58-year-old Google board member has a net worth of about $1.9 billion (Rs. 12,663 crore).

India’s startup ecosystem, now ranks third globally with more than 4,200 new-age companies according to IT industry body Nasscom. Three to four startups come into being every day, and almost five billion dollars of funding has come in this year.

Mr. Shriram, who puts money in early stage firms and backed Google cofounders Larry Page and Sergey Brin when they were just young students, has an investment philosophy based on team, technology and the space. He prefers people who haven't yet succeeded because they tend to be hungry and listen better. He also looks at people who have thought through a problem and have a built a team “not just a bunch of friends or their drinking guys.”

He believes the need for entrepreneurs to get along with other founders is as important as spouses getting along.

India is also not a new market for Sherpalo Ventures, which seven years ago backed mobile ad network InMobi. Prior to founding Sherpalo, Mr. Shriram worked at Amazon.com with its CEO Jeff Bezos. He came to Amazon in 1998, when Amazon acquired Junglee.

“I was an entrepreneur many times over. I failed a couple of times; I succeeded three or four times. If you fail six or seven times, then it is better to work for a big company because it is not good for your health.”

But identifying a space for investment can be tricky. For instance, despite knowing Uber cofounder Garrett M. Camp really well, Mr. Shriram passed on the idea when Mr. Camp came to him for investment.

“He said I am going to buy a fleet of Lincoln Town cars and hire a bunch of drivers; I said I am not going to touch this, because I am not into high capital intensive businesses.” But then Uber’s model morphed in to something better. And many other people invested in it.

The key to development, is to create products that don’t just meet a consumer need but generate demand, he said. “Steve Jobs was good, because he said ‘I know that is what the consumer wants’.”

Also, one needs to iterate quickly. When Amazon started, their model was an inventory-based model with warehouses in the US. Then another ecommerce firm eBay started and it didn't even touch the goods and it turned out to be a better model. Amazon eventually became a marketplace and out executed eBay, according to Mr. Shriram.

He said it does not matter if India will have 400 million Internet users, but what matters is the speed at which they will be able to access data online.

The country needs to have 4G or at least 3G or WiFi spots if entrepreneurs have to disrupt markets like education, where knowledge can be delivered over the phone.

Also, Mr. Shriram sees availability of talent as one of the biggest challenges. The country is still talking about a few IITs and engineering colleges, some of which are good and some which aren’t. Mr. Shriram sees two big trends in the country — large investments are chasing consumer facing businesses and software-as-a-service ventures. Also, a lot of outsourcing companies are now transforming themselves into software-as-a-service companies.

Though the switch to mobile has been an interesting transformation among innovators, everybody thinks the next mobile app they are building is going to be a huge success. “But I would caution everyone in the room to think carefully” said Mr. Shriram. A mobile app in itself does not create success. Only a couple of them are $10 billion businesses: Uber makes revenue, while WhatsApp and photo-sharing app Instagram have highly engaged users.

“By revenue I am not talking about food delivery and those kinds of businesses, because it is a hard business to scale up, eventually you lose more money as you scale.”

The other challenge over lack of exits isn’t unique to India, he said. Exits are tough even in the US, as the market has consolidated around large companies like Google, Facebook, Apple and Amazon.

These firms are not buying as they are frequently building technology inside the company. “You have to at least inflict some pain on the bigger competitor to want them to buy you,” he said.