Have academic incubators lived up to their potential?7 min read . Updated: 18 Sep 2013, 11:46 PM IST
With more than 1,000 start-ups incubated, the fact that only about 50 of them have been successful so far is not a good sign
Bangalore: In 2007, Ashok Jhunjhunwala, then professor-in-charge of the incubation cell at the Indian Institute of Technology, Madras (IIT-M), had visitors to his small research lab called Tenet in the electrical engineering department of the campus.
Umesh Sachdev and Ravi Saraogi, who were recent graduates from Jaypee Institute of Information Technology, had come from Delhi after just one nod of approval from Jhunjhunwala for their idea—a speech recognition platform that could process 14 Indian languages.
They joined Jhunjhunwala’s Rural Technology and Business Incubator (RTBI) from where they built an application that would later help in interactive voice recognition (IVR) in mobile banking for rural India.
For young entrepreneurs like Sachdev and Saraogi there was no formal body to help them develop research-driven products. All they had were research groups run by individual professors. Later, academic institutions realized there was no strategically better place to incubate such ideas than at the source of this brimming entrepreneurial effervescence itself—technical institutions and business schools. To fight the lack of market-ready products, academic incubators spawned across the country in the mid-nineties.
Jhunjhunwala mentored Sachdev and Saraogi for two years until their product could become market-ready. Even after their graduation in 2005, the two are still seated in an independent office in the same research park—except now they pay rent.
“Though we were not IITians, Professor Jhunjhunwala and Vijay Anand (who was a part of RTBI then) guided us. We took their word because they had seen many start-ups through their evolutions. Not many accelerators can boast of that," says Sachdev.
With accelerators emerging in dozens every year, the definition of incubators—especially academic incubators—has become fuzzy. An incubator is usually a combination of physical space given to start-ups, basic administrative services and mentoring in return for a small equity in the companies. The only real difference between incubators and accelerators is the time given to companies to reach maturity.
Accelerators believe in expediting the process of preparing its product for the ecosystem by giving rigorous mentoring to the entrepreneurs, while incubators give 1-3 years for the same
Today, Uniphore, the mobile platform driven technology company founded by Sachdev and Saraogi, has 43 major clients in the banking and consumer sector and churns out a great deal of revenue.
India has eight academic incubators, many of them attached to the premier IITs, Indian Institutes of Management and the National Institutes of Technology. The Technology Business Incubator (TBI) at Birla Institute of Technology and Science, Pilani is a big successes because of the engineering school’s tightly knit and magnanimous alumni network.
Apart from the incubator, BITS Pilani offers a three-credit course called new venture creation that pushes “college students to get their hands dirty in building a start-up during their college days", says Rishabh Kaul, vice-president, Spark Angels, BITS Spark, an angel funding network supported by the alumni.
“If the idea is promising, even if they are very, very early stage start-ups, we will take them. In short, we accept people that no accelerator will accept," says G. Sabarinathan, chairperson, NS Raghavan Centre for Entrepreneurial Learning (NSRCEL), the entrepreneurship development arm of IIM, Bangalore.
A well-known fact resonates through the ecosystem: Nine out of 10 start-ups fail. “But the more people trying means the more failure, but it also means the more chance of some success," experts say.
Academic incubators have physical space enough to incubate 15-20 companies at a given time, while they receive hundreds of application round the year. To accommodate more than just physical incubates, they offer a “virtual incubation" model as well, in which case the crucial aspect of mentoring—which some people at the Cell for Technology Innovation, Development and Entrepreneurship Support (C-Tides), the second incubation cell at IIT-Madras, equate with “tender loving care"—is given through an online platform.
While RTBI, Jhunjhunwala’s incubation cell at IIT Madras, will nurture any interesting project with an application for rural India, C-Tides is open to incubating any technology product that comes out of IIT Madras.
RTBI incubates around five companies every year and C-Tides a maximum of 15. Both these cells have their independent selection committees and receive more than 100 applications a year. Three out of 60 applications get through. “As our selection is not channelized into one application process, we sift through applications and send it to the other cell if we think it is more relevant there," says Suma Prashant, director, RTBI. At NSRCEL, the selection process is easier. There are no prerequisites that applicants have to be affiliated to the institution and the products don’t have to cater to any specific sector either. The cell receives around 30 applications every time there is a vacancy; it can seat between 12 and 14 start-ups at any time.
The application success rate is one out of six companies. “We have an informal 3i criteria when choosing our candidates. They have to be innovative, impact-driven and must have that success ingredient, which is the entrepreneur himself," says Sabarinathan. It is justified to wonder why so many entrepreneurs apply to these academic institutions when the wider start-up ecosystem lays out more tempting offers in the form of accelerators and venture capitalists. What have they to gain from an academic institution, probably run by academicians who have never built companies from scratch?
Brand name is the answer. An IIT or IIM brand on the profile of a start-up gives the promoters an edge in recruiting employees and facing investors while pitching their products. Apart from this superficial advantage, entrepreneurs have access to world-class facilities in the form of infrastructure, mentoring (from alumni and faculty), network-building events and the most important, seed money.
Academic incubators provide funding in the form of grants and funds from government bodies such as the Department of Science and Technology and the Technological Incubation and Development of Entrepreneurs. They provide start-ups seeds fund between 5 lakhs and 15 lakhs, and hold equity of 2-9% in the company. Returns from a normal exit go back into the incubator’s maintenance funds—the reason for silent attrition spikes within senior staff in these institutional organizations.
“Professors who head the incubators see the institution get a bulk amount of money from a successful venture, but he still gets a fixed government salary. Where is the incentive for making smart investments?" says Sabarinathan, who fears that this could be a reason for model of incubators attached to academic institutions eventually failing. IIM-B follows the same system.
On the other hand, the Centre of Innovation, Incubation and Entrepreneurship (CIIE), the incubator wing of IIM-Ahmedabad, has a venture fund called the INFUSE (Indian Fund for Sustainable Energy) that functions like a venture capitalist. There is an incentive for good investments and it is on the basis of sharing-profit margins.
“We follow this model because this sector is a risky sector in the ecosystem and not many investors want to support such areas. By offering this, it is not difficult to get access to good ideas," says Kunal Upadhyay, CEO, CIIE.
This raises an important question about the success of academic incubators.
It is no doubt that there are a handful of success stories out of these incubators, but is this as many as there could have been?
With close to 10 active academic incubators in the country and more than 1,000 start-ups incubated, the fact that only about 50 have been successful so far is not a good sign, experts say.
“Nurturing companies that focus on rural development is a tough field and to make this commercial, it takes a lot of time a money. We have just formally set up this year, but we will not change anything. We still believe we can’t be too selective," says Jhunjhunwala, who is co-chairman of RTBI.
“There have been success stories like Midas and DesiCrew that came out of academic incubators. Midas is now approximately a ₹ 500-crore company, so money is not the issue. The point is these incubators look at problems that solve India’s problems, and they cannot be addressed overnight in an accelerator," says Vijay Anand, founding partner, The Start-up Center, a Chennai-based accelerator.
“Instead of building flying cars, most entrepreneurs focus on Instagram and Twitter related applications. We need an ecosystem where people focus on big problems with long gestation periods, this is what academic incubators are really for," he adds.
Midas is a company involved in building solar panels, while DesiCrew is a rural-centric focused on providing employment to rural youth, both of which were incubated at the IIT Madras incubator as a part of RTBI.
“We can’t be compared to MS Accelerator, Morpheus or Kyron because we don’t have the kind of templated approach that they have. But I also know that we might not even sustain," says Sabarinathan.
“Academic incubators are like gardeners, we let the flowers blossom. Some may bloom and some may not, it’s not our fault," says Jhunjhunwala.