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Mumbai/Bangalore/New Delhi: The national budget for 2013-14 could boost the funding of existing incubators on college campuses that nurture and grow start-ups, and also encourage more colleges to start incubators of their own.

Budget 2013 allows funding to such incubators to be included in the corporate social responsibility (CSR) expenditure of companies.

The new Companies Bill requires companies to report a spending of at least 2% of their net profit on CSR. Experts say that including funding provided to incubators under this head would boost the cause of student enterprises.

With this initiative, incubators now have the potential to raise capital from the private sector, according to K. Srikrishna, executive director at National Entrepreneurship Network.

“This will lead DST (department of science and technology) founded incubators to think about long-term funding because government funding is for limited period of time and they still need to establish models which allow them to grow beyond that," he said.

For incubators, it is a new source of capital, which also has the virtue of bringing the industry closer, Srikrishna said.

Money apart, the move will also help increase the interaction and engagement between companies looking for new ideas and products and colleges looking to work with them.

Directly involving companies in supporting incubators is a big, positive step, said Poyni Bhatt, chief operations officer, Society for Innovation and Entrepreneurship (SINE), IIT Bombay. While the start-up ecosystem is beginning to develop in the country with the number of incubators, accelerators, angel networks and early stage funds rising, one of the biggest grievances of incubators is the lack of involvement by companies who are best equipped to indicate what innovations are needed based on customers’ preference.

“It will give incubators a direct access to funding resources. Companies, on the other hand, can get involved with innovation and business ideas at a very early stage," Bhatt said.

In his budget presentation on Thursday, finance minister P. Chidambaram said incubators play an important role in nurturing new businesses which start as a small or medium business. “I am glad to announce that the ministry of corporate affairs will notify that funds provided to technology incubators located within academic institutions and approved by the ministry of science and technology or ministry of medium and small enterprises will qualify as CSR expenditure."

The move will help companies in two ways—fulfil their CSR obligation while making smart investments, said Anil Joshi, vice-president at Mumbai Angels. Some of these incubated ideas will become big businesses in the long term, he said. “The finance minister has created room for grants and donations to incubators. This will fuel more initiatives in educational institutes," Joshi said.

Companies too, seem open to the idea of backing tech incubators. Zensar Technologies Ltd, for instance, has created a Zensar Innovation Scheme.

“If tomorrow, funding is required to set up a tech incubator, we will not just help people within our organization; we will also explore options outside the company. If certain academic institutions have an interesting concept that needs to be developed, we will be happy to help them set it up," said the company’s chief Ganesh Natarajan. “It’s a tragedy that in a $100 billion IT industry, hardly $2-3 billion goes into product development."

Experts say it is likely that with or without the CSR requirements, companies will continue to grow their investments in this space to remain future-ready. Technology in many ways and forms is becoming a critical enabler to companies across industries—be it core tech or non-tech, said Shouvick Mukherjee, vice-president and head, Yahoo India, research and development.

“Even non-tech companies might look at investing in incubators or fund programmes which are related to technologies that are relevant to their operations," Mukherjee said.

Indeed, there may be a case to expand the scope of the provision, said an angel investor.

While educational institutions provide engineering and technology knowledge, business orientation and mentoring is often stronger at incubators outside educational institutions, said Padmaja Ruparel, president, Indian Angel Network. “We would, therefore, prefer that this provision should apply to all incubators approved by the department of science and technology or ministry of micro, small and medium enterprises."

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