The current startup incubation ecosystem is biased toward IT products and services while academic startups in other fields, rearing to go, could use some help getting off the ground.
Inside IIT Madras, Chennai. Credit: IIT Madras
On May 9, InnoNano Research (INR), a nanotechnology-based water-purification firm founded by T. Pradeep, a professor in the Department of Chemistry at IIT Madras, announced that they had succeeded in raising $18 million (Rs.120 crore) in venture capital funding and that with the help of the American VC firm, NanoHoldings LLC, they hope to expand the company’s operations to Africa, Southeast Asia and Latin America. This is one of the highest investments that tech startups in India have seen of late, especially in a non-IT field.
INR is a materials technology company that produces water filters made of nanomaterials that can capture ions like arsenic, iron and fluorides, and effectively kill microorganisms. The nanomaterials, supported on a matrix of biopolymer called chitosan, are engineered to show selective physical and chemical affinity toward the contaminants. The work on this technology was started around 2004, when the lab had just licensed a nanoparticle-based pesticide removal system to Eureka Forbes. A company was created in 2008; the commercial breakthrough came about by 2013, nearly a decade after the lab’s researchers had set out. The #startuplife was hard for everyone.
In a post-funding function organised by Pradeep to reflect on the company’s journey and its plans, this was a prominent theme of discussion. “It’s ten times more difficult to commercialise a technology than to just develop it in the lab, especially in our country, where there is no partnering,” said Ashok Jhunjhunwala, a professor of electrical engineering who co-led the creation of IIT-M’s business incubation centre and research park. “Scientists have to do it all themselves – everything from technology development, pilot studies to cost structuring and pushing for conducive policy environment.”
“Despite this, the benefit that it creates for people keeps us going.”
Barriers to scaling
Pradeep voiced a similar sentiment later saying, “We have no efficient mechanisms for partnering, scaling and incubating – those are the lacunae in our system.” At the same time, he also acknowledged the help he had received from several quarters, especially the institution’s administration and his colleagues, the Department of Science and Technology (DST), and the IAS officers who encouraged the first pilot studies in the arsenic-plagued districts of Murshidabad and Nadiya, West Bengal.
Speaking to The Wire, Anshup Srivastava, Udhaya Sankar and Amrita Chaudhary, former students of Pradeep’s and co-founders of INR, delved into detail over the challenges they faced in the product development phase. While the IIT gave them space, utilities and access to labs, and the DST provided research grants, it was difficult to achieve scale without more seed-capital for product development. “The capital cost of each of our water filtration plants is about 25-30 lakhs. If you account for payment of salaries, maintenance of the plant etc, the money required is anywhere upto 50 lakhs.This kind of money was unavailable to us to scale up the operations. More funding for product development stage would have certainly helped,” said Anshup. He went on to note that, “Five years was a really long time. The process could have been shrunk by an year or two if there were people on board with experience in scaling up projects.”
INR’s product, Arsenic and Metal Removal through Indian Technology (AMRIT). Credit: IIT Madras
Scaling up is a common bottleneck everywhere. NanoSniff, a company cofounded by V. Ramagopal Rao at IIT Bombay in 2011, is developing nanosensors to detect explosives like TNT and RDX as well as to pick up on biomarkers that could signal the impending onset of cardiac arrest and cancer. The company has focused on product development beginning in 2014 and has since partnered with the Indian Institute of Science and IIT Bombay to use their fabrication facilities and increase production to at least a thousand devices, as scale can make or break profitability. According to Kapil Bardeja, CEO of NanoSniff: “If we were to scale our production to a million sensors, we would likely do it outside India, in manufacturing hubs like Taiwan or Germany.”
“Actually, government-run defence and space facilities like SITAR [Society for Integrated Circuit Technology and Research] and the SemiConductor Laboratory have large scale fab facilities, but access to these spaces is restricted. We could easily achieve scale within India itself if those places are made accessible against a fee,” Bardeja added.
A problematic taxation regime
While Nanosniff uses the labs in IIT-B, facilitated by the presence of IIT professors on the team and the access provided by the incubator, basic wet-lab facilities within the incubator itself would’ve been a useful addition for promoting science/tech startups, as Bardeja pointed out. This is something that many incubators have not actively focused on given the IT profile of most startups.
Krishnan Balasubramanian, the dean of industrial consultancy and sponsored research at IIT-M, whose office works closely with the institute’s incubation cell, acknowledges these issues. But as a founder of several companies himself, he is particularly concerned about the ease of doing business. “As far as disruptive core engineering startups are concerned, the biggest challenge is in dealing with the real world beyond the labs and the incubators – especially, the taxation and the compliance regime.” He points out the surprising origin of excise tax: It is “usually levied on production of harmful substances [like alcohol and tobacco]. Why then is it imposed on manufacturing goods in India? It’s just an archaic British law that’s not being changed. With a 12% excise tax, a 14% sales tax and additional VAT imposed by states, how do we compete with imported Chinese goods that have only 3% customs tax [levied] on them?”
Additionally, he thinks the Goods and Services Tax bill might improve the situation only slightly. “There are a lot of compliances in the core sector, unlike in the IT sector. This leads to a lot of harassment and corruption. As a matter of fact, it has come down to being more harassment and less compliance.”
(From left to right) Krishnan Balasubramnian, Bhaskar Ramamurthi (director, IIT-M), Ashok Jhunjhunwala and T. Pradeep. Credit: IIT Madras/Facebook
The government intends to bridge this gap with a spate of recent initiatives like Startup India and Imprint India. While Startup India aims to revamp the general startup ecosystem, Imprint India, a Ministry of Human Resources Development initiative, aims specifically to provide financial support for the product development phase for startups, academia and industry alike. The first proposal in Startup India’s Action Policy discusses simplification of the compliance regime by allowing startups to certify themselves online for a period of three years. The plan also talks about a year-on-year Rs.2,500-crore fund corpus, and tax and IPR benefits for startups.
A way to measure progress
While Startup India falls under the Ministry of Commerce and Industry, it also envisages a significant involvement of the Ministry of Science and Technology. Rajiv Sharma, an official from the Department of Science and Technology (DST), told The Wire that the DST has been actively looking to provide grants and soft loans to commercialise ideas from academia – especially in specifically identified mission areas like water, nanotechnology, solar power and supercomputing. The Department of Biotechnology under the same ministry has its own programs and bio-incubators.
The startup trend is definitely picking up in academic institutions, where researchers are looking beyond just publishing or licensing technologies to the industry. But technology start-ups need an ecosystem that eases financing, partnering and scaling up. And around the world, it is the governments that have created these ecosystems. It might be early days of our government’s push for a “startup revolution”; the results are yet to show.
We also need rational benchmarks to measure the success of these initiatives. A recent inter-ministerial board, set up to grant recognition to startups under the Startup India scheme, approved only one startup for IPR benefits and rejected or deferred the recognition to the remaining 29. On a similar note, Balasubramanian, from his experience with the IIT-M incubation cell, concedes that a 20% success rate would be a very good metric for incubators. “Incubation is a risky venture. Only 10-20% of the incubatees make it really big, where as 30-40% survive, and the rest just fail.” He suggests that this risk should be made a matter of policy. “If our incubators try to succeed with 99.99% of the incubatees, they will end up killing the good ideas also. It has happened time and again.”
That might be a valuable philosophy to incorporate in an ecosystem that supports startups.