New Delhi: In an effort to ensure that start-ups get adequate funding, India’s science ministry is looking to channel the money it disburses to these companies through various programmes through state-owned banks which will also play a part in identifying and evaluating these new companies.
With the government routing the money through them, the banks can use their inherent expertise as fund managers to help start-ups with their expansion plans, says a technocrat involved with the proposal who did not wish to be identified.
The ministry is also working on a $185-million programme with the World Bank to actively encourage innovation of the country. “Funds from that programme may also be available to the banks for disbursal,” this person added.
Typically, start-ups approach venture capital (VC) firms for funding after they have readied their prototypes or proofs of concept. “Very few companies (however) manage to catch VC attention, as they limit themselves to a narrow range of sectors such as biotech and communications,” said Amanpreet Dhingra, an economist who has provided consultancy to government on funding programmes.
A 2007 report by the World Bank on innovation in India said that only 13% of VC deals involved funding such start-ups through the so-called early stage funding.
The ministry runs several schemes to allow innovators and start-ups build and test prototypes. This includes the Technopreneur Promotion Programme, the National Innovation Foundation, the Technology Business Incubators, but very few of these actually manage to help the start-ups grow in size and scale.
Since 1989, when the government launched the first of its programmes to encourage innovations, only a handful have been successful.
“I don’t think more than five companies, with initial stage funding have been successful,” said an official with the Council for Scientific and Industrial Research, or CSIR, who did not wish to be identified.
“We need a certain amount of critical mass (in terms of really great ideas) which hasn’t been achieved yet,” said A.S. Rao, who heads the Technopreneur Promotion Programme which provides up to Rs10 lakh for developing a prototype of a possible invention.
Money apart, there is a considerable amount of ‘hand-holding’ involved.
“That’s usually in the form of consultancy and networking with future buyers (investors who could buy your company),” said A.M. Dogra of the Indian Institute of Technology, Bombay, that has one of the best known technology incubators (Society for Innovation and Entrepreneurship, or SINE) in the country.
“Without hand-holding, it’s hard for even the most promising of companies to survive,” he added.