Academic Ventures: Thought Paper on business incubation in India


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Academic Ventures is a full-service technology commercialization company located in India.

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Academic Ventures: Thought Paper on business incubation in India

  1. 1. TechnologyBusinessIncubationin IndiaThought paper onChallenges andOpportunitiesArpit Agarwal
  2. 2. Basics of business incubation in IndiaWhat is an incubator?Incubators are organizations, with or without physical space, that nurture startup organizations in amanner that they find their feet on ground by providing them all the necessary facilities andmentoring to sail through first few year of their journey.Who are the stakeholders of an incubator in Indian context?The model of an incubator is explained in the diagram below.The various stakeholders are: 1. Funding Agency: Since Indian government does not have a mandate to invest directly in startups, it has chosen to create various schemes that provide the gap funding for setting up as gap-funding the incubator. This is a method of indirect funding. These agencies, currently, don’t concern themselves with the matters of day to day running of the incubator beyond tying th them beyond occasional reviews. 2. Promoters: Indian incubators are usually promoted by a university which acts through, and on push of, a few influential people within its community. In some cases these people are faculty members. In other case it could be alumni or a local entrepreneur. These people are alumni the ones with the maximum interest and passion behind an incubator plan. They are the people who are most engaged with the real motive of promotion of entrepreneurship through this incubator. Even though these people are passionate, they remain individuals these and with time the university finds difficult to replace them after they move on in their careers and life. At that stage the incubator finds it difficult to stand on its feet. In rare cases (IIT Bombay and IIM Ahmadabad), it ushers a new era to bring professional management IM and one with immense success to the incubator. © Academic Ventures - 2010-11
  3. 3. 3. Universities: As written above, almost all incubators in India are promoted by a technical university. While the university has all the right intentions in starting and running an incubator, it usually finds an ambitious incubator management at conflict with its research department or commercialization arms. Being, unable to bring both under a single holistic umbrella management (or strategy), incubators start losing prominence in the overall context of the university’s daily affairs. Although this has no effect on the operations or profitability of the incubator, the university gains less and less over a period of time. In other words, lack of integration with other departments essentially means that from university’s internal perspective, an incubator becomes just another department. 4. Investors/Mentors: Being one of few collections of some solid technology enabled startups; incubators have always been at the focal point of attention from most VCs in the region. Usually, their interest in incubator is purely professional. In some cases, prominent VCs sit on the advisory board of an incubator. Being from a university background, there is almost never an effort by incubator managers to setup a network of mentors with industry/entrepreneurial experience. This is seen as the single most drawback of incubator in India. Over a period of time, startups start seeing incubator as only a cheap physical space with certain benefits of low perceived value (like network and exposure). 5. Service Providers: As with investors, there is purely a business interest for the service providers in the field of Accounting, HR and Law in an incubator. Although some firms have built up a business model to suit a startup’s low cash-paying capacity (by providing a pay- per-use model), they are not available in all locations. Indian incubators have an opportunity to provide these to their clients on a shared basis. 6. Incubatees (clients): The incubatee companies are the overall beneficiaries in the scheme of an incubator. A lot of startups in India now choose to start from within an incubator. However, the value they derive of an incubator varies greatly from an incubator to another.How does an incubatee see the value offered by an incubator?From the perspective of a startup, the value offered by an incubator is as follows: 1. Physical space: Incubators typically offer physical space on a subsidised rate. The gap in the economic model is partially funded through public grants or by making profits on the equity taken in exchange for the subsidy. This includes: a. Office space – Usually a space of 250-500 sq. ft. is enough per client b. Common working area – conference rooms, cafeteria etc c. Common office facilities – Fax, Xerox machine, printer, internet etc d. Maintenance and air-conditioning 2. Pay-per-use facilities: This is different from the physical space in the sense that these services accrue a variable cost (usually pay-per-use) to the incubatee. These include: a. Lease usage of computers and other necessary equipment b. Accounting, legal and HR services © Academic Ventures - 2010-11
  4. 4. 3. Branding: Startups in a university environment heavily uses the brand name of the institute everywhere. This lends credibility to the startup and in some case is the only reason why a startup chose to work from an incubator. 4. Mentoring: Some incubators do a good job of introducing the startup to mentors in the university faculty and alumni. This is an important value added to a startup, however this is done more on a case-to-case and infrequent basis. 5. Exposure to investors and media: Being a part of the system of a large university, startup within an incubator get a fair amount of sunshine in the form of exposure to investors and media alike. Some graduated startups feel this is their single biggest loss after moving out of the university system. 6. Connections with prospective customers: Some incubator managers do a good job of introducing startups to potential customers and handholding them through the entire sales process. 7. Prospective employees: Universities serve as an excellent source of startup employees. These employees are usually related to the startup founders themselves. 8. Ecosystem benefits: With the camaraderie that forms around multiple startup companies working together, startups feel a growing support system that exists for them and can help them tide over bad times. Some incubators are deeply involved in running programs that support entrepreneurs at large including workshops and events. These events have networking and mentoring benefits to the incubatee startups.What are the biggest issues faced by incubators in India? 1. Stronger-than-required technology/product focus: Being from a university background, most of the mentoring that is available to a startup in an incubator is of academic nature. A startup within an incubator run by a technical institution is usually very heavily focused on product and operations. This creates a echo chamber situation in which the startup is made to believe that it has a product that could take the world by storm, however, it struggles to find revenues flowing in. 2. Lack of industry mentors: Most incubator startups in India struggle to find good sales people. Those which have them struggle to find the right connections/sponsors in the industry to open doors. Those which have connections, struggle to strike the right sales and product strategy for growth. It is in latter two issues that having a great mentor would make a big difference. Most incubators have been unable to find the right set of mentors for their startups simply because they don’t think it is necessary. In other cases they fail to create the right institutional model to engage with them keeping into consideration the lack of time available with a mentor and the diverse nature of the needs of a startup. © Academic Ventures - 2010-11
  5. 5. 3. Lack of business basics: Most entrepreneurs in India continue to be from technical background with little or no background in business. Therefore, they struggle badly with basics of a business management like HR and accounting procedures or with drafting a foolproof contract agreement. Having a basic course in entrepreneurship education leads to great results as in the case with erstwhile Nirmalabs.4. Lack of integration with the university system: While having an incubator in a university has its obvious advantages, over time the incubator starts getting alienated due to lack of holistic integration of university policies governing IP and student entrepreneurship. Another reason is the lack of reward mechanisms in a university to favour technology transfer or entrepreneurship among faculty members.5. Lack of seed and pre-seed stage capital: Most Indian incubators do not have a fund for research teams to dabble in the world of business. While a good amount of funding happens through third party venture capital firms, there is little capital available within the incubator to fund expansion and growth of its incubatee. This is one of the largest drawbacks of the Indian incubator system. © Academic Ventures - 2010-11
  6. 6. About Academic VenturesAcademic Ventures is a full-service technology commercialization company. It has deep connectionswith Indian academia and industry and offers the following services to its clients: 1. Technology commercialization services – market evaluation, technology assessment, business development plan making and technology commercialization 2. Capacity building services – helping Indian academic institutes liaise better with industry and create awareness, policy and systems around IP protection and commercialization 3. Incubator management services – helping Indian technology business incubators run in a more profitable manner by grafting best practices from other leading incubators of the +91 85275 81275