Public Funds, Private Agonies: How Should Start-ups Be Supported?

Dr Anil Gupta, senior faculty of elite IIM-Ahmedabad is also the Vice Chair of National Innovation Foundation while appreciating the steps initiated by the new government in Centre towards the start-ups, also believe certain steps are to be taken simultaneously to make the idea a success.

It is ironic that on one issue on which NDA government should have made a clean departure from UPA policy, it has stuck to the same policy. We fought in vain in the National Innovation Council (NInC) against the idea of using public funds to invest in private VCs to support start-ups. All of our mails are on record. Our arguments were: there was no evidence that VCs in India then had financed early stage start-ups, majority of which may not even have been incorporated as companies. It was particularly so when it came to fund hard or manufacturable technology based start-up. We even asked the Chair to circulate a list of such start-up based on engineering technologies by angel fund associations or other VCs.  It was never done.

We have the new policy, in many other respects, very progressive and helpful, but in regard to the thousand crores fund committing the same mistake that NInC proposal had. What are the ways in which it can still be corrected?

Let us first state the problems young start-ups face: most of the hard tech based start-ups need access to labs, fabrication and testing facilities, working capital for material and design research, mentoring and of course user based trials. Majority of such ventures are very risky, though many are socially very important (see gyti.techpedia.in for illustration of high quality students’ projects). Given very high risks, lack of financial support (except in biotech space, thanks to BIRAC’s intervention), it is not surprising that there is a very large scale mortality of ventures. Given the middle class background of many young tech students or pass outs, pressure to join regular jobs after the ventures don’t get funding and other support is very high. It is this mortality that public funds must address and avoid. It is here that private VCs and even angel funds are almost completely absent or are very weak.

Why did then government choose to ignore this gap and not develop a hybrid of grant giving institutional arrangement (like TePP, technoprenuerial promotion programme supported by DSIR and DST, which used to give grants to promising technologies  up to 15 lacs) with grant and equity investment arm  like Biotechnology Industry Research Assistance Council –BIRAC). Today, TePP is dead, but BIRAC has made significant contribution to the robust biotech based start-up eco-systems. As we have written several times, BIRAC is perhaps the only window of opportunity in the entire government which invests even in just ideas, even without any proof of concept being available. Which private VC has done that?

When research and development is needed to take an innovation to enterprise level, combination of grant, debt and equity is needed to make such journey more meaningful and smooth. I may mention as a mark of disclosure that I had a small role to play in conceptualising and designing BIRAC way back in 2007.

The intentions of government are clear, it wants to unleash the power of young enterprising minds to generate jobs rather than seek jobs. It wants to do so by making the red tape as minimal as possible through a) registration of company on one day, b) making compliance of several legal and statutory requirements possible after incorporation, and in some cases through self-attested affidavits, c) making patent filing low cost, fast track;  and d) tax rebates for three years etc.
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All of these and many other policies are highly welcome and in the right direction. But there is always a scope for improvement and it is in this spirit that I make further suggestions:

1)      Move over from incubator to online-sanctuary model for in-situ incubation: incubator model evolved in USA when accessing fax, email and other facilities was costly and difficult for individual start-ups, knowledge was concentrated in a few centres of excellence and transaction costs of providing mentoring was high. Today, office is in our hands, knowledge is highly distributed and mentoring both one to one is possible across space and time constraints. Further, for many young people, cost of maintaining two establishments, one at home and another at or near an incubator are very high. Further, we don’t want young people to move to metros and leave older parents and grandparents uncared in the villages or small town. Our incubation model must reflect our social and cultural values, the vision of future India that takes care of elderly, women and children and others. Sanctuary model of in situ incubation implies a no-or low hassles based mentoring and funding support to start-ups. Not too many forms to be filled up, openness on who they learn from, culture of shared resources, skills and information etc. In the incubators, chaos is outside and order is inside, in sanctuary, the chaos is inside and order is outside. Let us learn to live with chaotic way of young people pursuing their ideas. May be that’s how many innovations emerge. Of course eventually, systems will have to be developed for consistent performance but that stage will come later when ‘what’ of a product or service has been frozen. ‘How’ of it can be developed more easily then.  

2)      We need to reinvent and redefine and reinvigorate the District Innovation Fund. We had been involved in the creation of this fund through the kind dispensation of 13^th Finance commission allocating one crore to each district. May be we need to allocate five crores for crowdsourcing answers to local need gaps, announce local challenge award (open to all), provide grants and loans to start ups through a local committee of empowered entrepreneurs and mentors of high integrity (with no cases of misconduct pending against them). All decisions of this committee will be put up on web, and a week will be given for anyone to oppose a decision with empirical arguments. This will serve the purpose of public notice. After that if some investments fail to generate results, lessons will be learned, displayed on the site and matter closed.

3)      At the national level, a hybrid of TePP and BIRAC needs to be created under Atal Innovation Mission to meet every month, process all proposals received or sought from colleges/local bodies or anybody else with a viable idea and decisions taken and shared on the web just as National Innovation Foundation does for informal grassroots level and for children. All sanctions are displayed on its web site so that complete transparency is followed in the matter.

4)      A very positive, foresightful decision of the government to recast INSPIRE program particularly for children must be taken to the next level. We have seen that children are far less patient with inertia than our generation has been. In every shodhyatra organised by SRISTI in collaboration with Honey Bee Network institutions and volunteers, we come across rural children studying in government schools (and sometimes out of school) who present remarkably creative solutions to the local problems. The idea of two innovations per school can be made flexible. If there are more ideas deserving support from a school, we should not make number two as an outer limit. Two should be minimum number and not maximum number. This decision has helped in doing away with a countrywide tragic farce that was going on for years. A whole industry had sprung up selling projects to children who then claimed these as their contribution and got support for such acts. Teaching children an unethical behaviour does lifelong damage to the moral compass. I wholeheartedly support this long overdue correction in the way ideas of children are to be supported by DST. Dr A P J Abdul Kalam Ignite awards given by NIF act as a good template for similar scaling up of creative ideas of young inventors and ideators. This intervention of Prime Minister and Science and technology ministry will go a long way in building innovative integrity and character needed for the purpose.

5)      The TDB (Technology Development Board) also needs thorough restructuring to make it more agile and responsive to the need for scaling up technology based enterprises.

6)      A countrywide network of community workshops needs to be created in ITIs, polytechnics and other community colleges/slums/villages for local ideators supported by local or national innovation initiative to fabricate their products/design their services.

I am sure that ten thousand crore innovation fund will be restructured along the line suggested here to make the life of innovators more tolerable and incubation pain more bearable. Indian start-ups deserve a lot of other support in public procurements, design of standards, concessional fees for testing and certification, access to wet and dry labs etc. Lot of traditional knowledge is also waiting to be valorised through rural start-ups.

Let us unleash the power of youth, no matter where through a trust based, transparent and agile support system. VC funds will be needed at a later stage of scaling up. But at early stage, we need public interventions.