Challenges of the University incubated technology startups in India

By Dr. Sunil Sherlekar and Sumeet Swarup

We look upon deep technology startups coming out of Stanford or MIT and wonder why India can’t emulate that.

It is true that India produces some very good and original academic research. In addition, in some of the top technical universities in India, professors and students are allowed to take ownership of their technology or patent and setup a startup after giving a single digit (typically 7% or 8%) equity to the university. In exchange, the university allows the startup to be incubated on its premises, access labs and other resources, help with patent filings, amongst other benefits. It’s a phenomenal administrative step ahead for the otherwise conservative and theory inclined technical institutions of India.

Given the above two factors, one would think that there would be a sudden rush of research oriented startups coming out of universities, but it doesn’t. Here are the problems.

First – Mindset. Almost all original research in universities is done by Professors or PhD students (not undergraduate or Masters students) But both these sets of people tend to be conservative and highly academic in nature. PhD students want to submit a thesis, graduate and get a high paying secure job in industry or a university. If they are entrepreneurial or risk takers, they go abroad and work for someone else. Professors love the academia, the university environment and the secure job, so much so that they just want to keep doing research and get recognition and positive feedback for it. Most professors are conservative. Recently I had a conversation with a senior IIT professor, who is working with ISRO satellite data to develop an interesting application for agriculture. When I asked him as to why he doesn’t commercialize his application, he said he simply doesn’t want to do it, and is happy getting the one off consulting assignment.

Second – Commercial knowledge. Even if the select few Professors or PhD students are inclined towards taking a risk, and setting up a startup, they don’t even know where to start – how do they develop a saleable product, how do they access market, read the competition, hire the right people or build an organization. In a 2017 research published by Bharat Rao of NYU School of Engineering, the inability to convert academic research into a commercially viable product is the single most important reason for the failure of University startups across the world, and ironically is the single most important criteria for success also.

Third – cultural adjustment. In some cases, the professor or student has the foresight to seek the help of a business manager or CEO to commercialize the product and grow the startup. But getting the right talent, with the right knowledge of the technology, with the right salary and equity becomes an issue. A classic power struggle ensues between the business manager and academics – who owns the vision of driving this forward?

Fourth – Funding. Research and technology based startups need patience capital. Most foreign money is constrained by annual returns. It is looking at India for scale, not for technology development. Most domestic money either does not understand the technology, or is not willing to take a long term bet on a risky investment. There are a handful of angel investors in India and abroad, who have the money and understand the technology or trust the team enough to invest and be patient, but typically they will not invest more than 1 crore, more likely to the tune of 50 lakhs. The other source has been grants from the Center or State Governments. But this money is typically given for furthering research, not for paying bills, hiring talent, doing marketing and promoting a sustainable startup.

For India, this is an area of great need and benefit for all stakeholders – Government, Academia, Industry, Investors, Civil Society and Entrepreneurs. It is a challenging task, but one worth considering.

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