Chennai: There’s something about these companies.
One offers inventory management software for small- and medium-sized enterprises. Another sets up websites for NGOs (non-governmental organizations). The third builds robot kits for educational purposes.
All are run by people who are still in their early or mid twenties.
All are small. Some may grow. Others may fade away.
Welcome to India’s student start-ups—companies founded by people in graduate and postgraduate schools across the country. When the National Entrepreneurship Network conducted its First Dot National Competition for student start-ups earlier this year, it received 99 applications from 19 cities; 44 were from non-metropolitan cities. Interestingly, the founders of 54 were from non-metropolitan cities. And only four of the 99 came from families that earned more than Rs25 lakh a year.
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“Whether it is IT (information technology), clean-tech, education, media, or retail—the exciting thing is these entrepreneurs are not rich, but they are putting in money of their own,” says Laura A. Parkin co-founder and chief executive officer, National Entrepreneurship Network (NEN.)
NEN, through its eCells, builds a comprehensive set of programmes to create an entrepreneurial ecosystem on campus. It is present in 540 campuses across the country today and offers games, skill-building workshops and mentoring sessions.
There’s a pattern in the 99 applications received by NEN that is true of student start-ups in general. Areas requiring low capital investment such as IT services, mobile communication services and e-commerce are hotspots for start-ups. There aren’t so many student start-ups in capital-intensive sectors such as infrastructure. Some service sectors, which have seen activity, are the health-care, education, financial services and entertainment sectors.
“There’s still a hangover of the dot-com era and it does make me worry when a student talks about a Web-based business,” says R.S. Veeravalli, who oversees the entrepreneurship cell at Great Lakes Institute of Management. “The grim reality is that just 10 out of 1,000 ventures succeed.”
Still, niches such as agriculture, biotechnology, nanotechnology and clean energy are seeing traction because of a policy push. Recently, the government’s department of science and technology, the Council of Scientific and Industrial Research (CSIR) and International Crops Research Institute for the Semi-Arid Tropics (Icrisat) said they would give access to their technologies for people interested in starting agricultural ventures. As a result, the Hyderabad-based Indian School of Business is creating a national level seeds and biofuels business plan centred around two technologies of Icrisat.
And the Indian Institute of Management, Bangalore, currently hosts start-ups in the space of security solutions for public banking transactions; back-end regulatory processes for the stock exchanges; a bio-informatics firm that helps scientists quickly search databases; a venture to help computer illiterate users access Internet content using a television remote; and a firm that measures and optimizes carbon footprints for organizations.
Whatever be the areas they choose to operate in, there’s no denying the increase in number of student start-ups.
“The number of entrepreneurs setting up shop each year has tripled compared with three years ago,” says Aditya Mishra, co-founder and director of HeadStart, a Bangalore-based organization that promotes entrepreneurship. “But start-ups require smaller investments and as angel and seed funds funded by multinationals look at bigger investments for returns, no one has stepped in to fill up the gap.”
The number of deals receiving seed money or angel investment halved to 11 in 2010 from 22 in 2008, according to venture capital-focused news site VC Circle. In 2009, 16 were funded.
The size of the deals has increased as the 11 deals in 2010 got $6 million, or double the $3 million that 16 deals got in 2009, signalling VC interest in bigger investments.
“By the time a great idea receives approval and the funds arrive, the people behind the ideas move on to accept high-package jobs in multinational companies,” says Dhrubes Biswas of the Indian Institute of Technology, Kharagpur. Biswas is in charge of IIT-K’s Incubation and Entrepreneurship programme.
Indian venture investors are still miles away from cranking up student start-ups in the country. And they may be getting further away.
Even as Indian colleges set up entrepreneurship cells and incubators—free facilities with office space and computers—and see a surge in student entrepreneurs, private equity is yet to be impressed.
Investors complain that student start-ups do not seek to expand their businesses and remain sceptical of college goers overusing the incubators as a free office space and nothing else. Besides, initiatives such as “deferred placements”—that allow students to line up for a campus interview in case a business turns sour—aren’t helping.
This year IIM-C also introduced the concept of “deferred placement” where students can pursue alternative careers or “start-ups” and in case of failure, come back and participate in the campus placements programme even three to four years after graduation.
Such carrots may hurt student entrepreneurship drive, says S. Sriram of Chennai-based Great Lakes Institute of Management.
“What tends to happen with deferred placement is that there will be people who give up,” says Sriram. “Part time will become spare time and then a hobby and inertia will set it and it will go for a toss. I try to assess if they are ready to live with it.” So, Great Lakes has steered clear of offering deferred placements and instead of a generic discussion within entrepreneurship cells, the focus is increasingly on one-on-one discussions with prospective student entrepreneurs.
Investors cite similar issues with incubators.
“I believe incubators are increasingly used as a stopover point rather than research and development hubs that also allow access to resource people,” says Anuradha Ramachandran of Ventureast, a Chennai-based $300 million investment fund. “Some college-housed incubators believe that the reason they are there is to provide a physical space and help save rental money, which is the most disgusting thing I have come across.”
Still, the lack of investor interest hasn’t stopped the start-up itch at IIT Kharagpur, which recently started a five-year dual degree programme, apart from a bachelor in technology degree. So, students can get an additional masters degree in entrepreneurship after they launch ventures of their own.
“Output is the only grade when it comes to entrepreneurship programmes. So we have stressed upon launching a start-up as a pre-requisite to get the degree,” Biswas said.
Apart from the 15 new ventures that IIT Kharagpur students launch every year on an average, 20 additional ventures will automatically emerge from the dual degree entrepreneurship programme, he said.
At the IIM in Kolkata, the Centre for Entrepreneurship and Innovation (CEI) offers various entrepreneurship programmes for postgraduate students and people with work experience. The courses incorporate the current business realities of globalization and outsourcing. It also encourages research projects on different aspects of entrepreneurship. CEI also provides direct support to prospective ventures by proving consulting services, helping in identifying opportunities and resource requirements, providing the necessary industry interface and arranging the funds.
“In most cases, students who plan to pursue their own venture do so after working for five to seven years in a company. This exposes them to the necessary social network for starting a company.” says Anjan Raichaudhuri, who teaches an entrepreneurship course at the Indian Institute of Management, Calcutta.
“You need to be both romantic and realistic to start a new venture.”
Sapna Agarwal, Priyanka Pulla, Manish Basu and Prashant Nanda contributed to the story.
This is the first in a series on student-start-ups that Mint will run through April and May. The second part will look at the financing landscape for student start-ups.