Start-up lending has to be based on optimism, not on success

Start-up lending has to be based on optimism, not on success
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First Published: Thu, Nov 15 2007. 11 18 PM IST

Dean of Haas School of Business Tom Campbell
Dean of Haas School of Business Tom Campbell
Updated: Thu, Nov 15 2007. 11 18 PM IST
The dean of Haas School of Business, University of California, Berkeley, Tom Campbell, has long-standing ties with Silicon Valley, the hotbed of innovation and entrepreneurship.
Dean of Haas School of Business Tom Campbell
He was elected five times to represent the Silicon Valley area of California in the US Congress and served as California state senator in 1993. He was appointed director of the California Department of Finance in 2004. He was also a law professor at Stanford University for 19 years before his current academic role.
Campbell, who was in India for TiE-ISB Connect 2007, the annual networking event organized by The Indus Entrepreneurs and the Indian School of Business, spoke to Mint about entrepreneurship and the role played by governments and educational institutions to drive its growth. Edited excerpts:
What role should the government play to encourage entrepreneurship?
In India, regulation is a key to building a good start-up ecosystem. Government regulation should be kept to a minimum. Start-ups need complete freedom to grow rapidly. The present government rule has not resulted in over-regulation so far, but that is the risk to watch out for.
Secondly, there should be low capital gain taxes. Thirdly, companies should be encouraged to give stock options to employees. That is how the Silicon Valley, and markets such as South Korea and Taiwan grew so big.
How do you see the start-up ecosystem shaping up in India?
You can draw many parallels between the Valley and what is happening in India right now. Venture capital is growing in the market, as are the number of start-ups.
One of the most positive signs is that people are now prepared to fail. In many parts of the world, failure means you do not get a second chance. But that is changing here. If you have a failed start-up, it could mean you have past experience and learnt lessons from it. This is similar to the environment in the Valley, where you frequently find that the CEO of a successful company has failed three times ­before.
In fact, on an average, only one in 10 companies is successful there. But because the number of start-ups is so large, you can afford to have such failures and still have a thriving ecosystem.
What could hold back the growth of entrepreneurship here?
The lack of sufficient angel investment into new ventures is a serious concern. The state of California has more angel investments than entire India. Angel investment and mezzanine financing are crucial to a start-up. You can get that out of venture capital firms, but they have to be bold enough to take bets on younger companies rather than growth stage.
Another problem is that India’s banking system is not as nimble as the US. Financial institutions lend to companies based on success, but start-up lending has to be based on optimism.
How do educational institutions help?
It is very important for educational institutions, especially business schools, to incubate businesses on campus. If you want to encourage entrepreneurship, you have to give students the opportunity to begin working while they are studying. Otherwise, once they join large corporations, they will find it difficult to quit and start on their own.
The university also needs to give due recognition to individuals for any intellectual property (IP) created on campus, otherwise it will just drive them out.
We are in the middle of a proposal that allows the researcher to keep 90% of patent rights for an IP created, and the university keeps only 10%.
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First Published: Thu, Nov 15 2007. 11 18 PM IST