IITs’ decision to blacklist start-ups may have negligible impact on banned firms
IITs may have defended their decision to blacklist firms, but start-ups, investors and analysts say the ban has set a wrong precedent for the start-up ecosystem
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New Delhi: The decision by Indian Institutes of Technology (IITs) to blacklist 31 start-ups that delayed or cancelled job offers to their students may not make much difference to these companies, some of which have wound up and others which have frozen hiring.
The website of Zimply, one of these companies, which was engaged in home decor business, is no longer working. Hyperlocal delivery start-up PepperTap closed shop last month amid a funding slowdown. And diagnostics aggregator Medd got acquired by healthcare firm 1mg.
IITs have defended their decision, but start-ups, investors and analysts say the blacklisting has set a wrong precedent. They argue that the IITs could have avoided a knee-jerk action.
“It is a knee-jerk reaction and completely unwarranted. What has been done by start-ups this year, have been done by many IT companies in the past such as deferred placements. Nobody thought of blacklisting them. If students are good, they will find opportunities in other organizations as well,” said Harish H.V., partner at consulting firm Grant Thornton.
“But sending such a negative signal to start-ups is not a good sign particularly from a technology institution which should support start-ups,” he said.
Dinesh Sharma, founder of ConsultLane, one of the blacklisted companies echoed the sentiment. “When the whole country is talking about Start-up India, you can’t just blacklist them. The worst thing is that they have not given us a single chance of hearing,” Sharma said.
What Sharma indicated is that when the traditional sectors are not generating employment, chiding a nascent industry, which has the potential to hire more people and goes well with the Prime Minister Narendra Modi’s ethos of producing “job creators” to address the employment problem, is an ill-advised move.
On 25 August, in a strong message to the recruiters, IITs blacklisted 31 companies mostly start-ups including home healthcare services provider Portea Medical, restaurant search and review website Zomato and online baby clothes and products company Hopscotch, for a year.
Last placement season, some 140 students of IITs were affected because of these companies revoking offers or delaying the joining date by months.
But despite the reasoning, start-ups and investors feel that IITs are making their students risk-averse and second, the subdued start-up environment will absorb it without much impact.
“Considering the current sentiment (slowdown in funding), most companies will have a low hiring plan, that is clearly given. The general sentiment is to be cautious,” said an investor requesting anonymity. He also added that not many start-ups will be affected by the move, especially not the ones who have acquired the status of unicorns. “If it is a rock-star start-up, despite a blacklisting by the colleges, students would still want to go and work. If they advertise, they will get people,” he said.
Zomato is one of the unicorns on the IIT list.
An email query to Zomato seeking its response on the development went unanswered.
According to data compiled by New Delhi-based research firm Xeler8.com, more than 40% of the start-ups set up in the past two years have already shut shop. It had a sample size of 2,281 start-ups that started operations after June 2014.
An April report by KPMG and CB Insights cited that venture capital and private equity firms cut investments in Indian start-ups by almost a quarter on a sequential basis in the three months to March.
IITs have their own defence: “Our main motive is to avoid any such deferral or offer being revoked situation...,” said Dipesh Chauhan, placement manager at IIT-Bombay.
But a professor at one of the older IITs had a stronger message for the critics. “In a market economy, you cannot only safeguard the demand side. The supply side has equal rights. If a company has the right to revoke the offer because it’s putting its house on order, why cannot an IIT put enough checks and balances to defend the career of its students,” said the professor requesting anonymity.
“We are not advocating socialism, but in India, companies are very happy to protect the stock holders but not ready to stand by stake holders like employees,” he added.
But will it affect placements at IITs? Not exactly is the response of both IITs and analysts.
“There would be others who will pick them up,” said Harish of Grant Thorton.
Kaustubha Mohanty, convener of the All IIT Placement Committee (AIPC) and professor at IIT Guwahati, said he does not see any impact on their placement process. “We are making sure that only serious players are in for placements. We understand the market dynamics... but we cannot get carried away by just the start-up wave,” Mohanty said.
What are the consequences? Start-ups may explore leading schools in tier two cities instead of IITs. ConsultLane, for example, is ready to hire students from smaller colleges in Tier 2 cities as well, “in case they have some exposure of having worked at a start-up or other companies”.
ConsultLane said it is ready to talk to IITs through, a point Fundamental Education, another blacklisted company reiterated.
But the bigger question is whether the IIT action will give a wrong message to their own students who wish to pursue entrepreneurship. “IITs themselves are doing incubation and creating start-ups. A move like this is a signal for students to go for established companies and not for start-ups, which is unfair,” Harish of Grant Thornton added.