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HK Mittal is a relieved man. Gone are those days, about a decade and half ago, when this entrepreneur evangelist used to take on angry, threatening parents for doing his job. Working with the Department of Science and Technology, Mittal has been propagating entrepreneurialism amongst the student community. He often reminisces about the good old days and talks about how his parents used to chide him for 'misleading' their wards and trying to influence them to do business. But today, probably several parents may be thanking him for showing a different direction to their children. 

Contrary to the few entrepreneur awareness camps, which he used to organize about a decade ago, Mittal has plans to set up over 400 such camps during the current year. Moreover, colleges and other educational institutions are thronging his gate, imploring him and his team to visit their campuses. 

But entrepreneurialism goes much beyond college students and usually all pervasive. Sandeep Srivastva is an entrepreneur at heart. In 2000, he started IYC World. The company looked at the education market and has tasted considerable success. Now he is on his second stint, Touchstone, an e-content company. This time around he has roped in IIT Delhi to incubate his company. 

In a country of over a billion people, you tend to meet and hear about many such Sandeeps. However, chances are that great success stories of people who have made it big would be more of an exception than rule. In the IT world, we all know and look up to the six men who started out small and made their company into a billion dollar one. Think again, how many such companies have you heard about. Are companies like Infosys an exception than rule? While it might sound hackneyed, let us look at the US to find answers and you will find that a majority of IT companies of today, have entrepreneurialism embedded in their stories ranging from chip giant Intel to networking Cisco and of course not to forget Mr. Gates and his Microsoft.
However, barring the Infosys saga, the big-ticket entrepreneur success stories are quite rare in the Indian IT industry. 

And if you are thinking, why in a country of over a billion people, we have not seen many big ticket success stories? You are hitting the nail on the head. It is not that India and Indians lack entrepreneurialism. One can babble of numerous success stories ranging from Dhirubahi Ambani to Prem Sagar, Dosa Plaza in New Mumbai or the high percentage of Indian origin people becoming entrepreneurs in the US, especially in the IT segment. Even in Indian IT industry, the number of first generation led businesses would be on the rise, yet the big-ticket success stories revenues continue to evade. The hype is missing; the pizzazz is just not there. Has anyone heard about the Goggle like success stories out of India? We continue to see entrepreneurs coming up with another novel service driven model and making reasonable success stories, yet.... the entrepreneur flavor and excitement seems lacking. Rare are instance of students from premier education institutes who have gone the entrepreneur way and stuck gold. 

So what's happening? Are social and economic conditions very different in countries like US and Israel that we associate these countries bubbling with entrepreneurialism? Is there an entrepreneur block out in India? What are the key reasons stopping Indian to chew on the entrepreneur pill in the tech segment? Failure, nah! 

Even in the US, the success rate is barely 5%, yet people keep trying. While the stigma of failure would weigh heavily, would it stop people from trying? Not really. It has not stopped them so far. When yours truly traveled with a delegation of US-based VCs and discussed at length the reasons for the same, one of the key factors that came out was the lack of an active incubation/early stage funding environment in the country. On further analysis, it was found that they are quite a few early stage funds in the country and most of the leading IT/engineering institutes have incubator facility, yet...
Most of the first time entrepreneurs adopt the usual strategy - fall, get up, learn; fall, get up, learn. A little help at the initial stage can go a long way, unfortunately that has still not happened. 

Incubators Where?
Way back in eighties, the government realized the importance of setting up incubators to promote entrepreneurialism and innovation. The Department of Science and Technology (DST), under the aegis of the Government of India, took the lead and pioneered the incubators initiatives in India, through promoting Science and Technology Entrepreneurs Parks (STEPs) and the Technology Business Incubators. The DST has so far about 35 incubators with premier educational institutions such as IITs, IIMs, REC/NITs and also good private engineering institutions and research centers. 

Comments RMP Jawahar, "Our STEP, Tiruchirappalli Regional Engineering College, was the first incubator promoted in the country way back in 1986." So the first step had been taken a long time ago, however, high tech business incubators can still be counted on your fingers. In recent times, the IITs have set up tech incubator based on similar successful model like those of Technology Incubator of the University of Texas or Campus Ventures of the University of Manchester, UK. 

Comments Dr. Arya Sengupta, managing director of the tech incubator in IIT-D, "I think that the global model can be successfully developed in India. We have the technical resources, a rich alumni network and now active government support to make incubators a success." 

In terms of private initiatives, not many have happened. The most prominent ones are the Pune-based Indico and the recently announced NirmaLabs. Compare this with the US and China. In North America, the number of business incubators grew from 12 in 1980 to more than 800 in 2001.Inspite of all the talks of higher IP in India, China has been ramping up its high tech business incubators initiative. Since 1987, China has founded more than 130 such incubators. And why the stress on tech incubators? According to Jawahar, "Start ups are looking at facilities, strategy formulation and handholding at initial stages. Funding is not the first as popularly believed." 

However, one is not sure about from the Indian perspective, given that not much action has taken place. If we look at the Indian tech incubators, they have been largely affiliated with the education institutes. While the student community has shown some interest, it's still not in large numbers. Here it's the clichéd chicken and egg story. Given that success stories are so rare, the student community has not taken in to entrepreneurialism in large numbers. If the success stories start pouring in, more students would start taking the plunge, possibly. We have some success stories from education institutes like CorDect technology from IIT Madras and the Simputer from Indian Institute of Science (IISc). The core technology came from the institutes and further licensed to companies like Midas and nLogue for CorDect and PicoPeta and Encore for Simputer. 
Agrees R. K. Lagu, the IIT Bombay electrical engineering professor who is in charge of the incubator in IIT-B, "If there are big successes in high tech start-ups (preferably incubated in IITs/IIMs and funded through bootstrapping), they will become role models for others to follow. Then big time VCs will start looking at this segment in India seriously." 

However, moving beyond the educational led incubators, India is yet to see private or government - state and central - level initiative to build the necessary infrastructure for entrepreneurs. 

In the US, many state governments take the lead in building huge incubation facilities and actively promote people to use these facilities for start-ups. 

And not without reason. Another interesting facet of incubators is that they have the potential to create jobs at a much lower cost. According to the US-based National Business Incubation Association (NBIA), publicly supported incubators create jobs at a cost of about $1,100 per new job, whereas other public job-creation mechanisms can cost more than $10,000 per new job. Independent studies done at Purdue University and Ohio University in the mid-1990s found that incubators contributed to both job creation and the survival of new businesses in the United States. 

The lack of such facilities across the country has had a telling effect on entrepreneurship in the high tech segment. Moreover, such incubation facilities can help companies move into the beta stage and give a helping hand and set the stage for round two in the entrepreneurs life - funding.

Funds, the Other Issue
One of the key reasons why seasoned entrepreneurs like Sandeep went to the IITs was lack of response from so-called early stage funds. According to Sandeep, he sought help from one of the state-owned banks with mandate from SIDBI to disburse funds for entrepreneurs. Given the typical asset/collateral based mindset, Sandeep had a tough time to convince bankers why an IP based company cannot offer any collateral to the banks. Of course, the bankers were not convinced. So even as the numbers of incubators are nothing much to write home about, the other common problem is the lack of VC funding, rather early stage funding. 

Where can entrepreneurs get funds? According to Vishnu Varshney of Gujarat Venture Finance, "Entrepreneurs can get funds from state level funds, Tech Development Board, private VC or SIDBI." 

Banks are ruled out simply because they are yet to understand the IP business. Can we pin the blame on to bankers? It's systemic and the bankers are just being careful. Who wants to get into a whole lot of questions during the CAG audit about why they funded companies without any collateral. 

Agrees HK Mittal, "The asset based funding handover continues. For the traditional bankers to change from this, we need a paradigm shift in the mindset." 

In fact SIDBI has sought an amendment for two of its VC schemes, with a condition that they will not be asked for the losses and the rationale of their investment. The common perspective of other government related sources are that they are too mired in bureaucracy. Moreover, government based venture funds still find it hard to accept the Western idea of only 10 to 20 percent of VC-funded companies succeeding. Add the handholding component, as another important thing bankers are not able to do. Comments Rahul Patwardhan, who runs a private incubator, Indico, "Unlike the US, VCs do not have some level of exposure as entrepreneurs themselves. As a seed capital VC if you do not help your portfolio companies go to the next level, the VC is equally to be blamed for the failure of their portfolio companies." 

Counter UTI Venture Funds Management vice president Sunil Kolangara, "Given the short to medium term expectation of our investors, we usually do not look at early stage funding given the long waiting period." But Varshney asks, "Who has a 7-10 year perspective in current time?" To be fair to the VC and look at the flip side, barring the CorDect and Simputer, India is still an application and services case study and not in terms hot technology and product. From the VCs perspective, services might give him average returns, but it is the products and technologies companies which can give him multi-baggers. And where are these product and technologies companies? On the other hand, the global VC early stage funds have a mandate to invest in product or new technologies based companies and hence not much help either. So while VC funding has been happening, they are more private equity in nature or happening scale-up, pre-IPO or new capital infusion stage. Early stage funding, whatever little, did happen in the dotcom boom period. 

Concurs Rishi Sahai of Infinity Ventures, "Most of the original early stage VC funds have shut shop by now. They rushed in early 2000 and had to close down as most of their portfolio companies went out of business." From the VC perspective, the other problem is the exit route. Given that start-ups take a considerable time for maturity, even the VC is not sure whether he has an exit route. 

Comments R Rewari, CEO of SIDBI Venture Capital, "The exit options for me are either the M&A or the primary market route. So far I have not seen much success in both these exit routes." 

What's Next?
So the chicken and egg situation continues. However, at the incubator level, the problem is being looked at from a fresh perspective. Premier institutes like the IIT are now seeking help from their alumni, spread across the globe, to help their incubation program. Agrees Rewari, "There are a few positives for Indian companies and we will see action in this space. India is shinning, R&D segment is being recognized and the most important thing is that high quality mentoring is coming in to India." Quite a few IITs are inviting their alumni to become mentors for companies in their incubators. This will help the IITs two-fold. First, get the experience of the alumni, many of them start-up experts themselves, to handhold the students and also help connecting to global customers. Comments Kolangara, "The alumni can bridge the knowledge gap between the students and the market." More importantly, they can set framework for the second stage of evolution for these companies in terms of getting VC funding. The unsaid part in this is that the training and exposure of the incubation manager is very crucial. 

While facilities and funding are important facets of startups' evolution, it is imperative that the incubator has the right manager to advise, motivate and correct early stage ventures and this is where the alumni can give in their experience to incubation managers. 

However, beyond this, the government - central and state- needs to re-look and start building the necessary infrastructure. The Indian government can take recourse to the Chinese experience, which has used the existing facilities of sick public sector units to convert them to tech incubators. Also, it is in the government's interest to develop such facilities if it aims to get low cost technology spread across the country. The example of C-Dot is still fresh and shows the high success factor if the government puts its resources behind any project. This will also set the stage for the next round, and global experience validates the same, VC too can use the same incubators to add more companies to their portfolio. Here too, the government can pitch in and tie up with VCs to invest in companies like in US and Israel. Given that, RoI purely drives private initiative, the government can take strategic positions and should be willing to subsidize or write-off losses. 

Until this happens, Indians will continue to show the entrepreneur zest... outside India.

Yograj Varma in New Delhi.

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Major Incubators in India 

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