Seeding the Future?

Despite the presence of many incubators and early stage funds,

Hentrepreneurialism hasn't caught on in India yet HK Mittal is a relieved
man. Gone are those days, about a decade and half ago, when this entrepreneur
evangelist used to take on angry, threatening parents for doing his job. Working
with the Department of Science and Technology, Mittal has been propagating
entrepreneurialism amongst the student community. He often reminisces about the
good old days and talks about how his parents used to chide him for 'misleading'
their wards and trying to influence them to do business.

But today, probably several parents may be thanking him for showing a
different direction to their children. Contrary to the few entrepreneur
awareness camps, which he used to organize about a decade ago, Mittal has plans
to set up over 400 such camps during the current year. Moreover, colleges and
other educational institutions are thronging his gate, imploring him and his
team to visit their campuses.

But entrepreneurialism goes much beyond college students and usually all
pervasive. In a country of over a billion people, you tend to meet and hear
about many entrepreneurs. However, chances are that great success stories of
people who have made it big would be more of an exception than rule. In the IT
world, we all know and look up to the six men who started out small and made
their company into a billion dollar one. Think again, how many such companies
have you heard about. Are companies like Infosys an exception than rule? While
it might sound hackneyed, let us look at the US to find answers and you will
find that a majority of IT companies of today, have entrepreneurialism embedded
in their stories ranging from chip giant Intel to networking major Cisco and of
course not to forget Gates and his Microsoft.

However, barring the Infosys saga, the big-ticket entrepreneur success
stories are quite rare in the Indian IT industry.

And if you are thinking, why in a country of over a billion people, we have
not seen many big-ticket success stories? You are hitting the nail on the head.
It is not that India and Indians lack entrepreneurialism. One can babble of
numerous success stories ranging from Dhirubahi Ambani to Prem Sagar, Dosa Plaza
in New Mumbai or the high percentage of Indian origin people becoming
entrepreneurs in the US, especially in the IT segment. Even in Indian IT
industry, the number of first generation led businesses would be on the rise,
yet the big-ticket success stories revenues continue to evade.

The hype is missing; the pizzazz is just not there.

Has anyone heard about the Goggle like success stories out of India? We
continue to see entrepreneurs coming up with another novel service driven model
and making reasonable success stories, yet.... the entrepreneur flavor and
excitement seems lacking. Rare are instance of students from premier education
institutes who have gone the entrepreneur way and stuck gold.

So what's happening? Are social and economic conditions very different in
countries like US and Israel, that we associate these countries bubbling with
entrepreneurialism? Is there an entrepreneur block out in India? What are the
key reasons stopping Indian to chew on the entrepreneur pill in the tech
segment? Failure, nah!

Even in the US, the success rate is barely five percent yet people keep
trying. While the stigma of failure would weigh heavily, would it stop people
from trying? Not really. It has not stopped them so far. When yours truly
traveled with a delegation of US-based VCs and discussed at length the reasons
for the same, one of the key factors that came out was the lack of an active
incubation/early stage-funding environment in the country. On further analysis,
it was found that they are quite a few early stage funds in the country and most
of the leading IT/engineering institutes have incubator facility, yet...most of
the first time entrepreneurs adopt the usual strategy -fall, get up, learn;
fall, get up, learn. A little help at the initial stage can go a long way,
unfortunately that has still not happened.

Incubators Where?

Way back in 80's, the Department of Science and Technology (DST), under
the aegis of the Government of India, took the lead and pioneered the incubators
initiatives in India. The DST has so far about 35 incubators with premier
educational institutions such as IITs, IIMs, REC/NITs, etc. So the first step
had been taken a long time ago, however, high tech business incubators can still
be counted on your fingers. In recent times, the IITs have set up tech incubator
based on similar successful model like those of Technology Incubator of the
University of Texas or Campus Ventures of the University of Manchester, UK.

Comments Dr Arya Sengupta, MD of the Tech Incubator in IIT-D, "I think
that the global model can be successfully developed in India. We have the
technical resources, a rich alumni network and now active government support to
make incubators a success."

In terms of private initiatives, not many have happened. The most prominent
ones are the Pune-based Indico and the recently announced NirmaLabs. However, if
we look at the Indian tech incubators, they have been largely affiliated with
the education institutes. While the student community has shown some interest,
it's still not in large numbers. Here it's the cliched chicken and egg
story. Given that success stories are so rare, the student community has not
taken in to entrepreneurialism in large numbers. If the success stories start
pouring in, more students would start taking the plunge, possibly. We have some
success stories from education institutes like CorDect technology from IIT
Madras and the Simputer from Indian Institute of Science (IISc).

Agrees RK Lagu, the IIT Bombay Electrical Engineering Professor who is in
charge of the incubator in IIT-B, "If there are big successes in high tech
start-ups (preferably incubated in IITs/IIMs and funded through bootstrapping),
they will become role models for others to follow. Then big time VCs will start
looking at this segment in India seriously."

However, moving beyond the educational led incubators, India is yet to see
private or government—state and central—level initiative to build the
necessary infrastructure for entrepreneurs.

The lack of such facilities across the country has had a telling effect on
entrepreneurship in the high tech segment. Moreover, such incubation facilities
can help companies move into the beta stage and give a helping hand and set the
stage for round two in the entrepreneurs life-funding.

Funds-The Other Issue

One of the key reasons why seasoned entrepreneurs are looking at IITs is the
lack of response from so-called early stage funds. According to Sandeep
Srivastva who recently tied up with IIT-Delhi, he sought help from one of the
state-owned banks with mandate from SIDBI to disburse funds for entrepreneurs.
Given the typical asset/collateral based mindset, Sandeep had a tough time to
convince bankers why an IP based company cannot offer any collateral to the
banks. Of course, the bankers were not convinced. So even as the number of
incubators are nothing much to write home about, the other common problem is the
lack of VC funding, rather early stage funding.

Where can entrepreneurs get funds? According to Vishnu
Varshney of Gujarat Venture Finance, "Entrepreneurs can get funds from
state level funds, Tech Development Board, private VC or SIDBI."

Banks are ruled out simply because they are yet to understand
the IP business. The common perspective of other government related sources are
that they are too mired in bureaucracy. Moreover, government based venture funds
still find it hard to accept the Western idea of only 10-20 percent of VC-funded
companies succeeding. Add the handholding component, as another important thing
bankers are not able to do.

Counters Sunil Kolangara, VP, UTI Venture Funds Management,
"Given the short to medium term expectation of our investors, we usually do
not look at early stage funding given the long waiting period." To be fair
to the VC and look at the flip side, barring the CorDect and Simputer, India is
still an application and services case study and not in terms hot technology and
product. From the VCs perspective, services might give him average returns, but
it is the products and technology companies, which can give him multi-baggers.
So while VC funding has been happening, they are more private equity in nature
or happening scale-up, pre-IPO or new capital infusion stage. Early stage
funding, whatever little, did happen in the dotcom boom period.

What's Next?

So the chicken and egg situation continues. However, at the incubator level,
the problem is being looked at from a fresh perspective. Premier institutes like
the IIT are now seeking help from their alumni, spread across the globe, to help
their incubation program.

Quite a few IITs are inviting their alumni to become mentors
for companies in their incubators. This will help the IITs two-fold. First, get
the experience of the alumni, many of them start-up experts themselves, to
handhold the students and also help connecting to global customers.

Comments Kolangara, "The alumni can bridge the knowledge
gap between the students and the market." More importantly, they can set
framework for the second stage of evolution for these companies in terms of
getting VC funding.

However, beyond this, the government—central and
state-needs to re-look and start building the necessary infrastructure. Also, it
is in the government's interest to develop such facilities if it aims to get
low cost technology spread across the country. The example of C-Dot is still
fresh and shows the high success factor if the government puts its resources
behind any project. Given that, RoI purely drives private initiative, the
government can take strategic positions and should be willing to subsidize or
write-off losses.

Until this happens, Indians will continue to show the
entrepreneur zest... outside India.

Yograj Varma

Major Incubators in India

IndiaCo

Rahul Patwardhan, President & CEO

www.indiaco.com



Avishkaar India Micro Venture Capital Fund

Vineet Rai, CEO

www.aavishkaar.org



STEP TREC, Tiruchirappalli

RMP Jawahar, ED

E-mail: jawa_ts@yahoo.com



Foundation for Innovation and Technology Transfer IIT Delhi

AK Sengupta, MD

www.fitt-iitd.org



Birla Institute of Technology & Science

Pilani(Rajasthan)

Prof VS Rao

Deputy Director & Dean

E-mail: vsr@bits-pilani.ac.i



STEP, Noida

Rahunandan R, CEO

E-mail: stepnoida@hotmail.com

Business Incubator, IIT, Mumbai

Prof RK Lagu, Department of Electrical Engineering

www.iitb.ac.in/centers/kresit.html

State Level Funds for Seed Funding

Rajasthan Asset Management Company

E-mail: rvcf@rvcf.org

Kerala Venture Capital Fund

E-mail: kvcf@vsnl.in

Karnataka Asset Management Company

E-mail: rbshetty@kitven.com



Punjab Venture Capital

E-mail: pvcl@ceo.org,ceo@pvcl.org

APIDC Venture Capital

E-mail: sarathnaru@apidcvc.com