Incubators have been mushrooming across India for the last five years. All these incubators—defined best as organizations that help start-up firms to survive and grow through their initial months (and, in some cases, even years) when they are most vulnerable—try to help entrepreneurs turn their innovations into commerce.
Still, that transition is yet to happen on a significant scale.
Take Chennai-based entrepreneur Manoj Annadurai of CK Technologies Pvt. Ltd. In 1996, he started creating Shakti Office (a productivity suite in Hindi). He later became part of the well-reputed incubator at the Indian Institute of Technology (IIT)-Madras called the Telecom and Networks (TeNet) Group. In 2001, he got funding from TeNet’s venture capital partner VenturEast Funds. But after almost a dozen years at the job, his company still isn’t profitable.
The incubator system today in India consists of many energetic entrepreneurs such as Annadurai on one side and many passionate people, often professors, heading these incubators on the other. But somewhere in the middle, the job of creating viable businesses doesn’t get done.
There are several incubators at work today in India. Some investors, such as IDG Ventures India, are creating, funding and mentoring start-ups based on market need. Large companies, such as IBM India Pvt. Ltd and Intel India Pvt. Ltd, provide resources to large numbers of young firms, although, with goals that also serve their own revenues. The country’s knowledge-themed technology and biotech parks also seek to play a role in being hubs for encouraging start-ups.
Other incubators—which are mostly at universities, largely focused on technology, and united by non-corporate funding—arguably have a larger task. They go up against a magnetic job market and a culture that has traditionally valued the secure job, in trying to foster entrepreneurship at the grassroots level across the country. But, it seems, they are yet to come of age.
The problems are several but at the core is a mismatch in skills. Many heads of incubators have great technology expertise, but little experience in operating a business. Several treat start-ups like academic projects rather than businesses and incubatees as students rather than future promoters. H.K. Mittal, division head of the department of science and technology’s National Science and Technology Entrepreneurship Development Board, who helps channel funding to many incubators, says, although he has access to an annual budget of Rs100 crore, he has spent only Rs25 crore (albeit up from Rs6 crore in 2000) this fiscal because there are few people “who are good at technology and commercially savvy” to head incubators.
As a result, entrepreneurs don’t get the consistent, hands-on expert mentoring they need to avoid mistakes in business. In Annadurai’s case, he took Rs50 lakh from VenturEast and ramped up from four to 60 people in a few months. He says he “forgot marketing” and now realizes it’s the expensive backbone of selling a software product like his. “Once I close my laptop (after a presentation), the sales are done,” he says, but wishes he could have a known brand that could get him meetings with more promoters.
Yet, the blame for this problem doesn’t rest solely with his incubator. India does not have enough people who have built business from scratch and can hand-hold start-ups. The first wave of successful Indian entrepreneurs is only now finding the time to give back to the next generation, such as Sanjiv Bhikchandani of recruitment portal Naukri.com or Sanjeev Agrawal, who sold his start-up call centre Daksh eServices Pvt. Ltd to IBM.
Arya Kumar, chief of the entrepreneurship development and IPR (intellectual property rights) unit at the Birla Institute of Technology and Science in Pilani, Rajasthan, gets over this gap in mentoring by asking successful Indian entrepreneurs in Silicon Valley, California, to hold one-on-one sessions with his entrepreneurs through the Internet.
Even for experienced executives, such as Gurgaon-based Amit Agarwala, who founded telecom server application developer Amdale Software Technologies (Pvt.) Ltd, incubators such as TeNet are an invaluable resource. He returned to India after six years of specialization in telecom technologies at Microsoft Corp., and then “partnered” with TeNet.
Talking to Analog Devices Inc. chairman and mentor Ray Stata at their biannual meetings, Agarwala realized he was “bleeding money in many areas” and cut expenses by 35%. Later, he realized that his software, which was based on Microsoft’s Windows, needed to be based on multiple operating systems. The head of computer science at IIT-Madras showed him how to add that into his code in layers rather than trashing the millions of lines of code to start over.
Experts say that savvy entrepreneurs, such as Agarwala, utilize the unmatched technology expertise, network and brand name of incubators to accelerate the growth of their companies.
The department of science and technology has seen the problems and has been tweaking the requirements for their funding. Mittal now tries to get a complementary duo—one technology expert with one business expert—at the helm of an incubator as is the case of IIT-Bombay’s Society for Innovation and Entrepreneurship.
Simultaneously, new models are being tested. The science and technology ministry’s department of biotechnology is working on several initiatives, including starting a “translational institute” in Delhi and Chandigarh, which will bring together clinical engineers, physicists and entrepreneurs to work as a team to answer a question.
Investors and incubator managers say the next five years will determine whether the incubator has a role in India. Vijay Anand, a Chennai-based entrepreneur who started two companies in Canada and now works with TeNet, says, “Incubation centres are to be obsolete once the ecosystem gets on its feet.”
Indeed, some say incubation itself may not be the right approach, pointing out that the model didn’t work in the US. Laura Parkin, executive director of not-for-profit entrepreneurs’ group National Entrepreneurship Network, notes that “incubation” might even be the wrong word because it implies protection from commercial realities. “‘Catalyst’ is better,” she says. “It should be a launch pad, shoving you into the outside world faster.”