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Entrepreneurship LIMITED

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Earlier this year, Mumbai-based IdeaForge Technology did something unusual. The four-year old sustainable energy solutions startup signed up with CIIE (Centre for Innovation, Incubation and Entrepreneurship), the business incubator run by Indian Institute of Management (IIM), Ahmedabad. It was an odd move because IdeaForge is already incubated at Indian Institute of Technology (IIT) Bombay's SINE (Society for Innovation and Entrepreneurship). For starters, business incubators are entities that offer a slew of support services with the aim of helping entrepreneurs bloom. "An IIM incubation means that we can get in touch with potential investors and hone the financial side of the business," says 27-year- old Ankit Mehta, co-founder and managing director of IdeaForge. He needs fresh funds to boost the firm's production capabilities and grow the team from the current 16.

IdeaForge is an example of the ideal startup a premier B-school incubator would nurture. All three founders, Mehta, Rahul Singh and Ashish Bhat are IIT Bombay alumni and set up the firm just after graduation. Their idea of affordable and sustainable energy devices is attractive for its innovation quotient and scalability. Yet, the decision to switch incubators can only be seen as a cry for help by a startup that has been failed by its original mentor. It is a typical example of the malaise affecting startups in incubators run by India's premier institutes, chiefly IITs and IIMs.

STEP, IIT Kharagpur: DHRUBES BISWAS (right), professor, IIT Kharagpur, with SHWETANK JAIN, founder of P2Power Solutions. IIT Kharagpur holds the distinction of setting up the first incubator among IITs. It has incubated 80 startups, of which 40 have graduated (Subendu Chaki)

Far from being hotbeds of student-driven entrepreneurial activity, like in a Stanford University or an MIT (Massachusetts Institute of Technology), India's B-school incubators now find themselves on the sidelines of the powerful entrepreneurial wave that is sweeping the country. During 2000-10, close to 150,000 startups have sprung up outside such incubators; 37,500 of these are in the five metros, according to Amit Grover, member of angel investment firm Mumbai Angels.

Ground Reality
Among the eight incubators the IITs and IIMs set up nearly two decades ago, SINE is tagged the most successful. Since 2004, it has incubated 35 startups, of which 20 are ‘graduated' and are in various stages of progress. Three have shut operations due to reasons including their inability to raise fresh capital, difficulties in finding customers and gaining scale at the right time. Others have been in the incubator well beyond the incubation period of three years for similar reasons. For example, Vegayan Systems, a communications network solutions venture founded by IIT-Bombay faculty Girish Saraph has been on campus for four years. Saraph, who teaches at the electrical engineering department at IIT-B, says, "The infrastructure at SINE and the credibility of IIT-B help us. But we need time to take the product to the market."

It's a similar story across most IIT- and IIM-run incubators. The first one, Science and Technology Entrepreneurship Park (STEP), set up at IIT Kharagpur in 1986, has incubated 80 firms. But only 40 have graduated so far. Worse, 12 shut down after they moved out of the incubator. The situation at IIT Roorkee is even more bleak. In spite of grants from the state-run Department of Science and Technology in 1987, there is no functional incubator on campus. The only entrepreneurial activity is in the form of an Entrepreneurship Development Cell started by a group of students four years ago. "The Cell is run like a club," says Aditya Sahay, alumnus and founder of Radbox, a video bookmarking service, which was born three years after he graduated from IIT-R. Sahay says he never sought mentorship from the IIT as it lacked faculty commitment and industry interfacing.

At IIM Bangalore, which has a tieup with the NS Raghavan Foundation, only three of the 12 startups being incubated are set up by the alumni. "Our students must gain few years of industry experience before they set up their own ventures," says K. Kumar, head of the incubator. IIM Calcutta, meanwhile, does not even have an incubator. Patu Keswani, a former IIM Calcutta and IIT Delhi alumnus and founder, chairman and managing director of Lemon Tree and Red Fox Hotels says, "IIT-D and IIM-C have no contribution towards the success of Lemon Tree." The inability to draw in their own alumni should worry the IITs and IIMs. Today, out of the 95 startups being incubated at such outfits, only 20 have alumni as founders. This is in spite of the lure of seed funding, a rare commodity in India's startup environment being available from incubators. Since 1985, the IITs and IIMs have invested Rs 50 crore as seed money in startups.
What Ails B-School Incubators?

CIIE, IIM Ahmedabad: KUNAL UPADHYAY (centre), CEO, CIIE with HARDIK SANGHVI (left) and KUSHAL SANGHVI, FOUNDERS OF VMUKTI SOLUTIONS. CIIE is among the older IIM incubators and follows the YCombinator model. It seeds startups, which need not necessarily have been started by on-campus students, and mentors them for two years (Mayur Bhattt)

Ask Avnish Bajaj, co-founder of Baazee (bought over by eBay for Rs 230 crore) and managing director at investment firm Matrix Partners. He says India will never see a Google or Facebook coming out of an incubator, mainly because "you cannot force fit a venture on an entrepreneur". In fact, in India, he says it gets more complex due to academic pressures on an institution. Says Bajaj, an IIT Kanpur alumnus, "I would not have been able to build Baazee from college simply because of the academic pressures of an IIT."

That apart, today, one of the biggest problems in the IITs and IIMs is the disconnect between industry and academia. Take for instance, Minkle, a Mumbai-based mobile application startup co-founded by Pinaki Panda, alumnus of IIT Madras and IIM Kozhikode. IIT Madras, Panda's alma mater is home to one of the country's oldest incubators, Tenet or Telecommunication and Computer Networks Group. It works towards fixing communication and networking problems and incubates high technology ventures. But Panda says he never considered going to IIT Madras for incubation as "you are cut off from the rest of the world". This problem is typically Indian. In the West, institutes such as Stanford and MIT emphasise on industry interface. At MIT, for instance, it is common for the chief technical officer of information technology giants such as HP or IBM to spend up to six months with students on special projects.

In India, part of the problem is being addressed by public-private institutes such as the International Institute of Information Technology (IIIT) and the Indian School of Business (ISB) at Hyderabad. ISB's business incubator, Wadhwani Centre for Entrepreneurship Development (WCED), promotes faculty-industry links through a programme called Research to Marketplace. It helps ISB's research labs tie up with MNCs such as IBM, Google, HP and GE on research projects, like MIT does.


Krishna Tanuku, head of the incubator at ISB, Hyderabad, says, "More than 200 of our alumni have started their own ventures," pointing to the success of their programme. IIIT-H has its regular entrepreneurship programmes for students — Start Up Saturday and Hydcubator. Start Up Saturday is a monthly, 3-hour long session for entrepreneurs to discuss, present, network, partner across seven cities. Hydcubator, on the other hand, is for hi-tech startups; it begins with a week-long orientation mentored by industry veterans and venture capitalists.

IIIT-H now ties up with iAccelerator, a funding platform for Indian mobile startups, to promote tech ventures. iAccelerator is led by a team including Kunal Upadhyay, CEO of IIM-A's CIIE and co-founder of Sarvajal, an enterprise aimed at providing clean drinking water for the masses. Kavita Vemuri, programme coordinator of IIT-H's business incubator, says, "We even allow sabbaticals up to 6 months for students to develop their prototypes, if they want to pursue a business plan."

Another problem for these incubators is the inexperience of the faculty to mentor startups. For instance, at IIT-B, three startups that shut, Embedded Robotics, Mobiance Technologies and Deusco, were all mentored by faculty and had access to IITs rich resources. But they missed the right method to market products.

NSRCEL, IIM Bangalore: SUNIL MAHESWARI of Mango Tech. with professor K. KUMAR. NSRCEL, funded by the NS Raghavan Foundation, is among the few that enjoy private institutional backing. It incubates students from campus as well as startups from outside (BW Pic By Jagdeesh NV)

To address the lack of mentoring skills among incubators, the National Entrepreneurship Network (NEN) conducts programmes in member institutes to train faculty in mentoring. Primarily backed by the Wadhwani Foundation, NEN is a nonprofit body co- founded by IIM-A, IIT-B, BITS Pilani, SP Jain Institute of Management and the Institute of Bioinformatics and Applied Biotechnology in Bangalore. It draws on its pool of 1,200 entrepreneurs, investors, industry experts and faculty from Stanford, London Business School and Columbia University to conduct such programmes. Says Laura Parkin, CEO and co-founder, NEN: "The more entrepreneurship activity happens on the campus, the more likely there will be young people becoming entrepreneurs, and the more different programmes can leverage each other." NEN is already working with 530 institutes including the IIT's and IIMs to help students set up student-led entrepreneurship cells or E cells. Till date, they have backed 326 entrepreneurs.

IIM-A's CIIE, on the other hand, is one of the few examples of an incubator fronted by an entrepreneur. It has had some success in mentoring its startups. Says its head, Upadhyay: "We realised when a startup comes to us for mentoring, more than anything else, they look for industry connections." CIIE helped Vmukti, a video- streaming portal and an incubated venture at CIIE, get its first critical clients. "We got our first clients Google and ICICI Prudential during incubation," says Hardik Saghvi, co-founder and CEO of Vmukti. The role of the alma mater for some goes beyond the incubator. IIM-A alumnus Deep Kalra, founder and CEO of MakeMyTrip and member of Indian Angel Network, says, "CIIE wasn't around when MakeMyTrip started 10 years ago, but my days at IIM-A helped grow the entrepreneur within me."

Often, faculty-run incubators tend towards bureaucracy. Sunil Maheshwari is CEO-founder of Mango Technologies, a mobile applications solutions venture incubated during 2007-08 at IIM Bangalore's business incubator, NSRCEL. He is grateful to IIM-B for connecting him to his first investor, Ojas Ventures, a technology-focused early stage venture firm. But, he says, while the incubator is headed by an academic and entrepreneur, K. Kumar, it needs more links between entrepreneurs and a well-established alumni. Agrees Subramonia Sarma, senior director at ISB: "Academia-run incubators work like mere sounding boards with no tactical guidance for a startup."

ISB Hyderabad: VIPUL KASERA (left), founder and CEO of Life is Outside, with C. KRISHNA TANUKU ISB follows the virtual incubator model; it provides a support system of research centres, project consultants, business development service providers, and business mentors. The K Hub of WCED, the ISB incubator, has been set up with the support of the Andhra Pradesh government (B.K. Ramesh)

Another problem is the lack of funds. Says Sarma: "Globally, all the incubation centres are well funded. Plug and Play Tech Centre, one of the most successful incubators in Silicon Valley, has itself raised $400 million for its incubated startups. Ventures such as PayPal started from Plug and Play." Says Anjan Raichaudhuri of IIM Calcutta: "The lack of tieups between investors and institutes boils down the investor's level of commitment to voluntary work."

The only way to solve this problem is through self-sustaining funds. In India, some institutes are already headed that way. For instance, the National Design Business Incubator (NDBI) at the National Institute of Design Ahmedabad set up its own seed fund with a corpus of Rs 6 crore. Says Mahesh Krovvidi, chief operating officer of NDBI: "Most VCs don't even understand design ventures, so we had to set up our own accounts." CIIE has followed a similar route. Its Section-25 company manages its own seed fund and invests Rs 5-25 lakh in its incubated startups in exchange for 6-10 per cent equity.

Ask VCs about their alleged lack of interest in incubated firms and they defend themselves. "Ninety per cent of our incubatees don't deserve to be incubated," says Sarath Naru, founder and managing partner of Ventureast in Hyderabad. Ventureast manages $300 million in funds and invests in small and emerging companies across sectors. He reasons, "Most of the incubatees work on ‘me-too' ideas or presume ‘this is made globally, but we can do it for cheaper rates'." Then there are others, he says, who "function in such niche areas that their ideas are not scaleable and cannot be taken to a mass market".

Naru is not the only sceptical investor. Sateesh Andra, partner in Draper Fisher Jurvetson and investor in Mango Technologies, says while access to research labs and experienced faculty are a boon for technology startups, institutes need to have closer ties with angel networks to help a startup with strategic inputs and in getting its product market-ready. Andra makes a valid point. Typically, the success of any incubator depends on supporting its startups with the first few clients that give it enough cash flows to move out of the incubator. One such example is P2Power Solutions, an energy solutions provider incubated at IIT-Kharagpur. Says Shwetank Jain, IIT-KGP alumnus and founder of P2Power: "Our first contract with Dainik Jagran brought us a deal of Rs 13 lakh. While the money may not be steep, it was critical in that it introduced us to the industry."

Blending The Old And The New
This is not to say the incubators in the IITs and IIMs can be signed off as being no good. Certainly, if the ongoing study and research in their laboratories and classrooms can be responsible for producing the best talent pool in the country, they can also provide a fillip to the startup ecosystem. But India's institutes need better managed incubators that can get startups market ready during the incubation period.

NEN Trust, for example, backs member institutes with a comprehensive set of programmes, including on-ground consulting, faculty development, leadership development and a resource of more than 1,200 entrepreneurs, investors and professionals who have volunteered to participate in student programmes. Private incubators such as Morpheus in Bangalore and Nirma Labs in Ahmedabad have also made significant progress with their proactive models that help startups get to market faster.

"When we started MakeMyTrip, they (CIIE) weren't around. However, I have seen the incubator ecosystem in countries like Israel and do think we have miles to go" DEEP KALRA, founder and CEO of MakeMytrip, and alumnus, IIM-A (BW Pic By Bivash Banerjee)

"IIT Delhi and IIM Calcutta had nothing to do with the success of Lemon Tree Hotels. I wasn't even aware of the incubators in the IITs and the IIMs" PATU KESWANI, alumnus, IIT-D and IIM Calcutta (BW Pic By Dileep Prakash)

"NEN partners with colleges to help them build an effective entrepreneurship ecosystem on campus by training faculty to develop and support entrepreneurs" LAURA PARKIN, CEO, National Entrepreneurship Network (NEN) (BW Pic By Subhabrata Das)

"Ninety per cent of the incubatees don't deserve to be incubated. Most incubatees work on b-plans that are me-too ideas or whose USP is their cheaper manufacturing costs" SARATH NARU Founder & managing partner, Ventureast (BW Pic By B.K. Ramesh)

Among academic institutes, ISB Hyderabad is also following a similar module. At the ISB business incubator, the entrepreneur programme has a three-pronged approach. Its student forum connects entrepreneurs to VCs and industry experts, while the Entrepreneur Development Initiative helps ISB graduates build their ventures with mentoring and business support from the institute. WCED has a separate programme for supporting its high-technology ventures called K Hub, where besides access to research facilities, the incubator provides venture support and necessary industry connect for technology startups.

However, there is no doubt that the IITs and IIMs, with their vast talent pool, are critical to a vibrant entrepreneurial culture in the country. The new incubation models, beyond a point, will not flourish without the active collaboration of these premier institutes. Fortunately, given the nascent nature of India's startup environment, the IITs and IIMs still have time to catch up.

smita dot sengupta at abp dot in

(This story was published in Businessworld Issue Dated 27-12-2010)

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