Budding young entrepreneurs should be excited. The Indian Institute of Management, or IIM-A, will now share the risk in their start-ups. This means greater ownership and involvement from their mentors, in their bid to translate innovative ideas into commercially viable enterprises. Here is a move whose time has come — it is needed for incubating centres across India’s educational institutions, existing or new.
A company formed by IIM-A, CIIE Initiatives, will take equity in the enterprises that its incubating centre is nurturing. The proceeds from eventual sale of shares, once the business has taken off, will go to the institution. So there may be far more involvement, as the faculty managing the incubator will be directors in the company and committed to investing their time and resources that also get shared between their teaching and external consulting work. As of now, there appears to be no clear success metrics or visibility for the IIM-A incubator’s output.
CIIE Initiatives is also creating seed funds — both through tie-ups with government, such as a Rs1.5 crore IT fund, and private funding. The sum so far is small, though, and for incubating even 10 such companies, it would need much more. Money shouldn’t be a problem if the company manages to attract angel investors and industry. The Indian youth has the entrepreneurial spirit, but needs hands-on engagement and the initial seed funding to guide its ideas and energies to their logical conclusion. Seed funding — the early stage before the idea or technology is developed enough to attract venture capital — is a critical gap to create a large number of new small and medium enterprises (SMEs) in India. SMEs are known to drive job creation, besides generating wealth, even in the developed world.
The IIM-A company approach has the potential to cover these gaps. It can help commercialize innovative research in universities as well. We need to go a step further. Let faculty own equity in the incubatee companies along with their institutions, and let them take sabbaticals and work with the ventures they are mentoring. This model needs to be replicated across all good technical and management institutions in India.
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