Does India Need A Telecom Ministry?

Telecom Minister A. Raja finally resigned yesterday after what seemed like doggedly denying wrongdoing and corruption in 2G spectrum allocation. The media has been jubilant about having an impact on the Government, claiming credit for exposé after exposé that has forced ministers to quit.

But something has been lost in translation – is it good for Indian citizens if the government maximized revenue at all costs when allocating spectrum to telecommunication companies? What is the purpose and role of government, and how should the government allocate public property such as spectrum, land or mines when rights to it are not properly defined?

We need to look at the history of the mobile telephony boom in India to answer these questions. In 1998, India had a tele-density of 1.8%, or less than 2 out of 100 people had telephones. In old movies, it’s common to see people shouting into the phone to be audible to the person on the other end. “Trunk calls” had to be booked well in advance, and were unaffordable for most Indians. International calling was prohibitively expensive.

Today, India’s tele-density number stands at over 60%, and calling rates are among the lowest in the world. The sheer magnitude of growth is mind-numbing – India has added twice as many telephones as the total population of the United States in only 10 years. How was this possible?

Contrary to what Rahul Gandhi would have us believe, the New Telecom Policy of 1999 opened the floodgates for explosive growth. The Government at that time did not choose revenue maximization via licence issue, but went for revenue-sharing to nurture a market where investment was considered highly risky. India in 1999 was not the magnet for capital it is today. In fact, the outgoing Telecoms Minister has also praised the 1999 New Telecom Policy. The Government back then also cut taxes on the import of mobile phones and made it easier for companies to procure communications equipment.

Which brings us to the next question – if one puts aside for a moment charges of personal corruption against the Minister, was Raja’s policy of not maximizing revenue a flawed one? We should remember that the purpose of the government is not to maximize revenues at any cost, just because it can – government should be a facilitator of private enterprise and a regulator of markets. We should be concerned when the Finance Minister says that he has an infinite appetite for taxes.

It seems like Raja issued licences at a heavy discount and engaged in under-the-table dealings to enrich himself. Aside from personal profiteering by Raja, the policy of carrying on the 1999 New Telecom Policy was more sensible relative to maximizing the government’s revenue. A case can be made that since many of the risks in the telecoms sector have now been mitigated, Raja should have pursued a revenue-neutral policy, offsetting capital raised via auction with tax breaks given to telecommunication companies, if one agrees that the purpose of the policy is to increase telephone accessibility to obtain full tele-density as soon as possible.

Commentary that the 3G and broadband auctions raised vast sums of money for “the people of India” and the “national exchequer” is hogwash, because that money has been taken from the people of India in the first place. In fact, lower-income groups and the aam aadmi now likely have been priced out as consumers of 3G data services, because the Government made it very expensive to start up. Even entrepreneur Sunil Bharti Mittal has said that the 3G auction design was faulty.

The consumers of cellular and broadband services and shareholders of telecom companies have paid the money to the Government of India. Please don’t believe anybody who says Raja caused a loss to the “national exchequer”,  because that money would probably have come from YOUR pocket! The contention that government knows better than citizens what they should be doing with their money is paternalistic and false.

It’s important to understand this because just the way India did not have enough telephones 10 years ago, there are many other products and services which the economy requires and consumers will demand. There are also fundamental needs such as access to health care and finance. The government simply cannot provide for all these products, services and needs given the speed and efficiency with which they have to be delivered besides the himalayan scale. Younger people cannot recall the days when it took years to get a telephone connection. Sectors such as retail, banking, rail transportation and mining could use a healthy dose of liberalization, and that’ll pave the way for entrepreneurs to step in.

Raja deserved to go because of what is likely serious personal impropriety. Before panning Raja for not taking enough money from the people of India, we should think about why it is not great for the government to maximize revenue at all times and all costs, and what the alternative policy should be. This issue is bound to come up again in a different sphere, and the media, the Opposition in Parliament as well as individual citizen-voters should think it through rather than shooting from the hip. Finally, Telecom Ministry should be disbanded and the sector’s regulation mandated fully to TRAI. Do we really need a separate Ministry for it? It’s time to put the “A” back in TRAI, which stands for Telecom Regulatory Authority of India.

Originally Published:

Watering The Seeds Of Growth

Both Indian industry and the government agree that the economy needs a spurt of innovation. While industry has produced innovations such as the Tata Nano, the government has proposed to create dedicated venture funds for start-ups in certain areas. A coal cess was introduced in this year’s Union Budget with its proceeds earmarked for a clean energy fund. In July, the government said it is considering setting up a Rs3,000 crore venture fund to encourage innovation-driven pharmaceutical start-ups.

While these are welcome steps, some key issues need to be kept in perspective for such initiatives to be successful. First, the government has to facilitate creation of the right ecosystem. Second, it has to adopt effective mechanisms for injecting public funds into the ecosystem.

Under the highly successful US model for technology commercialization, it’s the universities that have been the fountainheads for innovation. Stanford, Harvard and the Massachusetts Institute of Technology have all successfully moved technologies from the laboratory to the market, producing companies such as Bose Corp., Akamai, Genentech, Genzyme and Google, which have created tens of billions of dollars in value. It’s important to note that the enterprise capacity of universities and research institutions is a function of the broader economic system in which they exist, and the culture and policies this system cultivates.

While India is gradually moving towards a similar knowledge-based market economy, the culture of encouraging scientists to commercialize inventions is yet absent; in many cases, they are even debarred from starting ventures. Rules and guidelines governing the entrepreneurial involvement of scientists with new ventures are loosely framed or absent. With a few exceptions, processes for managing intellectual property and the know-how to structure intellectual property deal terms that facilitate long-term monetization are lacking even in some of the top-ranked institutions. These gaps need to be bridged urgently to develop a vibrant start-up ecosystem.

A frequent complaint among technology-driven, product-oriented start-up founders is the dearth of seed financing for such ventures. Along with a supportive ecosystem, early-stage financing and venture capital are critical for nurturing innovation. For instance, the Deshpande Center at MIT has provided $10 million as catalyst grants to over 80 start-ups in the US over the last eight years. Twelve of them have built a total market value of over $180 million and created more than 200 jobs. A key element of the grant programme is the mentoring provided by seasoned entrepreneurs.

Effective venture capitalists not only provide finance, they also contribute proactively to the development of a start-up. They work as partners with start-up founders in building a business, providing visibility to new ventures and access to the right contacts through their business networks. This can be decisive when hiring senior management or raising growth capital. In a nutshell, venture capitalists create within the start-up ecosystem what economists term social capital.

All this means that the government’s proposed funding scheme has to be able to meet such standards. Otherwise, it will be unable to fulfil its mandate of nurturing innovative start-ups.

Yet, seductive as it may sound, government bureaucrats directing the precise allocation of seed capital may not work out as well in practice. Besides the opportunity for nepotism and rent seeking, there’s little evidence to suggest that governments can manage money well. That’s why one idea worth considering here is that professional, independent fund managers should be engaged to manage the proposed government funds.

An alternative mechanism is for the government to invest in existing venture funds—public pension funds or financial institutions could do the actual investing—which share a similar vision for nurturing start-up innovation. In venture capital parlance, the government could play the role of a limited partner, or LP, in venture capital funds that would have the mandate—and a proven track record—of investing in high-risk innovation in specified domains.

In fact, this could even stoke the local venture capital industry. So far, it’s primarily foreign investors who have backed Indian venture funds. India’s private and government financial institutions, major corporations and high networth families haven’t nearly invested in venture funds on the scale that they should. The symbiotic inclusion of Indian investors will be transformational for India’s start-up ecosystem. Industry stalwarts could inform the investment decision-making process at funds and allow start-ups to tap networks and best practices suited to the Indian context, improving investment decisions, start-up operating performance and capital allocation across the economy.

The stakes are very high. If the government’s initiative is not able to show success, the essential mission of nurturing innovative start-ups would also be tainted. This would be undesirable for both Indian industry and the aam aadmi. Research published by the Kauffman Foundation in July has shown that start-ups are not just major contributors to an economy, but the only contributors to net job creation and job growth.

If India is to become a knowledge economy and translate its scientific prowess into equitable, sustainable economic growth, it is imperative that policymakers make the right choices to nurture India’s nascent start-up ecosystem, and structure any proposed funding initiative optimally.

(Co-authored with Dr Shiladitya Sengupta.)

Originally Published:

Transforming India Into A Destination For The Best Scientific Talent

I spent the weekend attending the Young Investigator Meeting in Boston (YIM). Held at the Harvard-MIT Broad Institute and organized by a group of energetic and enthusiastic scientists, YIM Boston brought together scientists, policy makers and the heads of some of India’s top science and technology institutions. Among those in attendance were leaders from institutions like the newly-established Translational Health Science & Technology Institute, IISERs, Bangalore’s NCBS, Tata Memorial Centre-affiliated ACTREC and senior representatives from the Government’s Department of Biotechnology. There were attendees from all over the US and India, and even a few who had flown down from Europe just for the 3-day conference.

Dr. Raghunath Mashelkar, former director-general of the Council for Scientific and Industrial Research, set the tone by delivering a rousing and inspirational address about India’s rise as a scientific powerhouse. Young scientists interested in moving to India presented their research to some of the best researchers in the world, and got an opportunity to meet with potential future colleagues and peers to help them make decisions about making the move – and they were not just Indians.

Peter Zwart from the Lawrence Berkeley National Laboratory in California said it was exasperating to be asked the question why he wanted to go to India, saying that it was becoming a destination to do cutting-edge work and there were compelling professional reasons to shift base. Yamuna Krishnan from NCBS, a young scientist who moved back to India 5 years ago, narrated her experience of setting up a research laboratory from scratch. She spoke with infectious enthusiasm and passion for doing top-notch science, and her talk found resonance with the audience. Dr TS Rao from the Department of Biotechnology took a number of questions on funding availability and described the government’s plan to fund scientific research.

The event ended with a session on commercializing science and moving inventions from the laboratory to the market. MIT’s Jeff Karp spoke about what it takes to build startups, outlining breakthrough science, a seminal published paper and a blocking patent as the key ingredients that can make for a successful venture. Shiladitya Sengupta of Harvard Medical School, who has co-founded three companies, talked about wealth creation via technology commercialization as a way to attract the best brains into scientific research and the importance of developing a cogent business plan before approaching venture capitalists.

There were several researchers who expressed an interest in starting companies, and this is very exciting news. The quality of talent considering moving to India is simply mind-blowing. For the first time in the history of our nation, we have the combination of well-funded research institutions, top-notch human capital and the availability of financial capital to back innovation-driven ventures. This makes for a very potent mix. The stars are aligning, and if our government continues on the path of higher-education reforms and economic liberalization, the sky is the limit for what Indian science and technology can achieve both in terms of fundamental research and technology commercialization.

Originally Published:

Reinventing The Wheel For India

AFP/Getty Images
India currently has just one automotive company, Tata Motors, in the global top 20, while China has three in the top 20.

The transportation sector in India is witnessing rapid growth as India urbanizes and the economy continues to expand. Car sales for July recorded a jump of 38% from a year earlier, rising to an all-time high. Delhi, Bangalore, Mumbai and Kolkata are all building up mass-transit systems. The national capital has just opened a swanky new airport terminal and the civil aviation industry has never been more competitive.

Consumers today have lots of choices in how they choose to get around. This is a far cry from the earlier times when government carriers dominated the skies and entry into the automotive industry was heavily regulated and just a handful of players allowed to manufacture cars. With the exception of railways, which continue to be a government monopoly, every sector of transportation is witnessing a vibrancy never seen before in India.

The upward shift in the standard and quality of transportation in India is one of the most visible and tangible benefits bestowed by economic growth. The problem – and investment opportunity – is that we have only scratched the surface.

India currently has just one automotive company, Tata Motors, in the global top 20, while China has three in the top 20 and ten in the top 30. Interestingly, many of China’s large automotive firms are home-grown, while international auto companies like Suzuki, Honda and Hyundai dominate the Indian market.

Vast regions of the country are yet to be connected by roads and airports. Conventional approaches and legacy technology cannot meet all the new demand. The 300 millionth car to be sold in India may not even run on petrol or diesel. There is a need for innovation to ensure that transportation capacity scales in step with mushrooming demand in every sector, be it aviation, passenger cars, commercial vehicles or mass transit.

Relying only on technologies and ideas from the West is not feasible, since there has never been a transportation need of this scale in the developed economies. Indian policy-makers and entrepreneurs must think for themselves.

Investing in auto startups and building companies in the transportation sector is certainly not for the fainthearted. Building an auto company from scratch is extremely difficult. Most investors would balk at the idea of funding a car company, given the capital investment required to manufacture cars. But it is all but impossible for an entrepreneur to start up without financing.

Tesla Motors, the electric car company funded by leading Silicon Valley VC firms and built by PayPal co-founder Elon Musk went public recently in the first IPO by a US-based automotive company since Ford Motor Co. in 1956. Mr. Musk staked his considerable personal wealth behind the venture, using his own money when institutional funding was difficult to obtain. Without Musk’s calculated gamble, Tesla wouldn’t have survived.

There are other ways of entering the industry. I met Dilip Chhabria, the founder of automotive design firm DC Design, at an event organized by IIM Calcutta last week and he said the time was right for investors to form a consortium to acquire the rights to rebuild and redesign the Ambassador, an iconic car produced by Hindustan Motors, the one-time market leader that is now struggling financially.

One should remember that while the precedents which are the basis of the negativity about automotive startups are from abroad, the Indian context and market represent a new dynamic – and that can make all the difference. The structural factors driving the growth of India’s automotive market are not going away anytime soon. Rather than facing a headwind, there will be a tailwind assisting those venturing into the Indian automotive industry.

While this doesn’t imply that any automotive startup will do well, high capital requirements should not be a deterrent to investing in the opportunity presented by the Indian auto sector at this stage of India’s growth cycle.

Originally Published:

Billionaires Should Fund Startup Countries

Every Independence Day, one’s thoughts inevitably veer around to the abject poverty and destitution that consumes most of India. After more than 60 years of Independence, why do we continue to have widespread poverty? Watching “Peepli Live” — a fantastic satire on the state of politics, the mainstream media and the urban-rural divide in India — crystallized those thoughts even more, giving a vivid visual representation to what most urban citizens of India only see in passing on news channels.

As the film shows, much of the poverty is caused by the poor incentives and choices enforced by India’s socialist economic system. Year after year, decade after decade, the government creates more and more schemes, and they all fail to uplift the poor. In fact, the schemes keep poor people poor.

Clearly, there is need for a new approach. We all know what that approach is, but the execution is lacking because there is no political will to follow up on it — India has seen no substantial reforms since 2004. There has never been a more pressing need for economic liberalization.

Recently, Bill Gates and Warren Buffett have been personally reaching out to the world’s wealthiest individuals, requesting and cajoling them to join the Giving Pledge. The Giving Pledge, initiated by the two, has been attracting a lot of media attention thanks to its high-profile backers. The Pledge requires billionaires to publicly commit to “give away” half of their wealth during their lifetimes.

Both billionaires plan to visit Asian nations over the next year to convince billionaires in the region to take the Pledge. Gates and Buffett are redefining the standard for philanthropy by their example, and they have been compared to Andrew Carnegie and John D Rockefeller for the sheer scale of their charity.

But there is a small difference — Carnegie and Rockefeller built institutions of lasting significance, like the University of Chicago, Carnegie Mellon University, Rockefeller University, the Council on Foreign Relations and the Carnegie Endowment for International Peace. Andrew Carnegie is still remembered for building countless libraries. Rockefeller built institutions that continue to push the boundaries of research in medicine, natural sciences and social sciences, and define the public discourse in matters of government policy. The impact of their philanthropy has been outsize, transformational and incalculable.

In India, the Tatas have played a seminal role in giving to the nation institutions such as the Indian Institute of Science, Tata Institute of Social Sciences, Bhabha Atomic Research Centre, Tata Memorial Hospital, Tata Institute of Fundamental Research and National Centre for Performing Arts. For over 100 years, Tata scholarships have helped meritorious students fulfil their academic potential. Without the Tatas, India wouldn’t be the India we know.

The best way to support charity in India is to always buy Tata products, for the primary holding company of the group has been majority-owned for several decades by the philanthropic Tata trusts.

While Gates and Buffett have noble intentions, their strategy can be made more effective. In many cases, the Gates Foundation and other foundations will be allocating billions of dollars to solve political problems with charity. Charity cannot fix what are essentially failures of governance. Billions of dollars of aid cannot get rid of AIDS, malaria and other infectious diseases in African countries, just as government support for farmers has failed to uplift them in our country.

What is the solution — how can a rich person be charitable, support market economics and yet help the poorest of the poor?

Stanford economist Paul Romer has been the most vocal proponent of an idea known as charter cities, also called startup countries by some. In a nutshell, a charter city is governed by its own rules, laws, regulations and institutions — its own “charter”, rather than those of the parent nation. A charter city would be much like a new business development unit within a large company. Leased by China to the United Kingdom for 99 years, Hong Kong may be taken as an example of the first-ever startup country. While China suffered under Chairman Mao, Hong Kong prospered because of the different rules adopted by its government.

We have made massive strides in wealth creation, and now we are at a stage where individuals are wealthy enough to lease land from nations and build them with new rules and institutions as a strategy for economic development. Creating charter cities and startup nations maybe be among the most effective ways to improve the standard of living of vast swaths of humanity who are trapped in nations governed by inept and corrupt leaders.

The model allows for a way to circumvent politics and regime change via war while promising economic development — and it may be the 21st Century equivalent of the kind of philanthropy that Carnegie, Rockefeller and Tata have pursued.

Originally Published:

Build Your Dreams

That’s not the cheesy title of this blog’s first post — it’s a leading electric car company in China that is blazing a trail in the automotive industry.

Founded in 1995, BYD Company started as a manufacturer of batteries, competing against established Japanese firms to become the world’s leading manufacturer of rechargeable batteries by 2000.

It entered the automobile industry via an acquisition in 2002, with zero experience in the car business. In 2008, Warren Buffett invested $230 million for a 10% stake in the company and BYD launched the world’s first plug-in hybrid electric vehicle, successfully integrating forward from just manufacturing batteries to producing battery-powered cars.

 BYD has been consistently rated among the most innovative companies in the world, beating entrenched automobile industry heavyweights such as Ford and Volkswagen.

 BYD’s story doesn’t just represent the rise of a new innovator — it is symbolic of a surge in technology-driven, product companies from Asia. BYD has broken the stereotype of the Chinese mass manufacturer, one capable only of churning out commoditized products at low cost.

From focusing on only outsourcing and mass manufacturing of commodity products, nations like India and China will now produce more innovation-driven companies driven by the three-way confluence of the availability of high-quality technical talent, a large domestic market and broader shift in the economic center of gravity from West to East. This is a strong, secular and structural trend whose momentum will be a key driver of the next wave of economic growth.

There has never been a better time to be an entrepreneur — and as BYD has shown, build one’s dream.

Originally Published:

Riding The Indian Education Boom

India’s education sector is seeing hectic entrepreneurial activity and private equity investors are deploying significant capital in this sunrise sector. Funds focusing exclusively on education have emerged. Recently, education company Kaplan announced the formation of Kaplan Ventures, which will invest in the education sector in India and other countries.

There are a few structural drivers to the boom in India’s education sector.

First and unusually, the Indian government has made a commitment to restructuring the policy framework, including the setting up of foreign universities in India. Human Resource Development Minister Kapil Sibal has taken a few steps forward, and some backward, but for now even the mere promise of reform and more openness in the sector is sufficient to generate hope and excitement that spurs investment and business plans.

But some caution would be apt. There is a strong case for regulating the sector and putting in place standards and guidelines for what it takes for an educational institution to be recognized as a university or school. Without sound regulatory norms in the early stages, the education boom may fizzle out to the detriment of investors, entrepreneurs and India’s economy. Regulation, however, should be left to individual school examination boards and professional accreditation bodies as far as possible, distributing rather than concentrating authority.

For instance, there has been a profusion of institutions offering the International Baccalaureate program for high school students. The IB is governed by the IB Organization based in Switzerland, which sets its own standards for what it takes to be an IB school. The government should empower Indian boards to set standards in the same way, for this would allow for competition between boards. Schools, private and government-aided, should be free to choose the board they want to offer, to design the admissions mechanism and to charge the fees they wish.

Second, India is entering a phase of demographic change that has far-reaching consequences for society and the economy. According to research from Deutsche Bank, India will be adding almost a million people to its labor force every single month for the next 20 years till 2030. That’s a staggering number of people, equivalent to the current populations of U.K., Germany, Spain and France combined. The only comparable demographic shift from recent history is the post-World War II baby boom in the United States. Skill development, training and education will be among the first areas where all those consumers will want to put their money.

These trends will only accelerate, making the education sector very attractive for both entrepreneurs and investors. Moreover, without private capital and the participation of entrepreneurs, India simply cannot train and educate a workforce of this size.

While projects such as building full-fledged schools and universities would be beyond the reach of most first-time entrepreneurs and are typically not “fundable” from a venture capital perspective, ancillaries like infrastructure, technology and services are attracting investments.

In 2009, TutorVista, Career Point and FIITJEE were some of the companies offering training for competitive university admission examinations that saw substantial investor interest. The most successful companies in the sector so far have been those that are providing information technology and software solutions to brick-and-mortar institutions. Companies like Educomp Solutions and EdServe Softsystems have combined the high margins of the software business with the scale and opportunity in the education space.

Education is a very large canvas. The challenge is to identify the areas within it that will be the most profitable. As the sector evolves and grows, opportunities which cannot be anticipated today will soon emerge.

Originally Published: WSJ

The Jugaad Myth

In 2001, Fevicol ran an advertising campaign showing a truck overloaded with people making its way across a rough and barren landscape. Even though the terrain is rocky and the truck overflowing, none of the passengers fall off, bonded together, viewers are to think, with the same strength and reliability as India’s leading adhesive brand.

The campaign was a hit, winning the prestigious Cannes Lion for the advertising firm which conceptualised it. It deserves full marks for creativity and for capturing poignantly how Indians get by and get on with life despite seemingly insurmountable hardships, a classic example of art imitating life.

This phenomenon, where people in India seem to always find a way to muddle along somehow or the other, has slowly entered management-speak as jugaad, a curiously Indian way of getting things done. Venture capitalists and management gurus have praised this approach of doing more with less, but jugaad is more an outcome of limited access to capital, resources and infrastructure, than it is innovation.

Peter Drucker, doyen of management studies, defined innovation as “the specific instrument of entrepreneurship that endows resources with a new capacity to create wealth.” Take the case of the humble earthen pot, which has been used since time immemorial to keep drinking water cool in some of the hottest regions of the Indian hinterland. Is the earthen pot an innovation in the modern sense, or does it reflect the brazen poverty and under-developed economies of its end-users?

The pot is certainly an innovation insofar as it allows water to be cooled even in very high temperatures, but it is also used by those who cannot afford or access modern technology such as refrigerators. Higher-income homes do not rely on earthen pots.

Innovating for bottom of the pyramid should not degenerate into a paternalistic condescension of creating low-quality products that have poor usability. Many innovations which claim to be for the bottom of the pyramid would want their purveyors to be stuck at the bottom, for if they managed to increase their income levels, they’d choose more technologically-advanced solutions which actually boost productivity and create wealth.

An inexpensive refrigerator that delivers effective cooling at a low operating cost would be more of an innovation, allowing more people to use refrigeration the way the Nano automobile from Tata Motors has made cars accessible to a broader section of society. Tata Motors’ Nano plant at Sanand, Gujarat uses automated manufacturing, cutting-edge supply-chain management and robotics to produce the world’s cheapest four-wheeler.

Tata has re-invented several aspects of automobile engineering when designing the Nano, and the company has broken the stereotype of India being only a competent outsourcer. Even though the Nano is a product targeted at the aspirational bottom of the pyramid, it is built to meet global standards of safety and performance at a world-class factory.

A nation’s innovation ability is tied closely to its research capacity in science and engineering, which is a function of the higher-education system. The government has a role to play in investing in fundamental science research areas where it would take very long for private capital to get a return on investment.

According to India’s Department of Science and Technology, total investment in research and development has languished between 0.85-0.90 percent of GDP since 2000. In contrast, the US invests around 2.6 percent of GDP and China, 1.4 percent, about twice as much as it did in 1995.

Moreover, Indian private sector investment in R&D has grown substantially since 1998 to contribute over 25 percent of the pie, while government investment has declined. This means that while tax receipts have increased in the period alongside the boom in the economy, the government’s research funding has declined in relative terms and the gap has been bridged by the private sector.

The substantial growth of the economy has not seen a commensurate increase in the establishment of more science and engineering universities and government R&D investment. Instead, we have seen a rationing of existing supply, with increased reservation of seats at the IITs and other centrally-funded universities—policies that can compromise quality. India should be focusing on increasing capacity to such an extent that everyone has opportunity and nobody is left behind.

However, increasing capacity does not mean building a campus and naming it Indian Institute of Technology. Institutions are not just mere buildings and infrastructure, they are nurtured by people, and it takes decades of relentless focus on excellence for an institution to achieve a reputation. Political opportunism and promises of an IIT for every state are destroying a brand built over five decades. Dr C N R Rao, chairman of the Prime Minister’s Science Advisory Council, has severely criticised the government’s policy. In a nation the size of India, should there be just one world-class university brand?

Earthen pots and other types of jugaad may make good documentary film subjects, but we should remember that these are typically low productivity solutions with a below-par user experience. They should not be romanticised. India cannot become a world-beating economic force by under-investing in fundamental scientific research and celebrating the stop-gap survival mechanisms as path-breaking innovation. Such celebration and characterisation should be left to advertising agencies and other creative types looking for a story to tell. The state should commit itself to turning India into a magnet for top scientific talent from around the world, increasing investment in fundamental science and engineering and creating infrastructure which will give Indian scientists the choice of working in their home country instead of moving to more hospitable climes abroad.

When such an environment is created, storytellers will find inspiration from life to imagine and create more on the lines of the recent Hollywood blockbuster series on high-technology superhero Iron Man, showcasing cutting-edge technology that can inspire real innovators.

Originally Published:

Venture Investors In India Must Rethink Bets

According to Venture Capital deal data released late April, investment in India doubled to $259 million compared to the first quarter of 2009. While more than $210 million was invested in business services and financial servicescompanies, very few companies from cleantech or health care made the cut.

In contrast, U.S. cleantech venture investment for the first quarter more than doubled compared to last year, proving to be more resilient that other investment sectors, with 72 deals attracting over $730 million in capital.

The other revealing aspect of the India data was the median deal size, which more than tripled to $10.4 million. This is rather curious, that Indian services companies are absorbing as much capital as U.S. cleantech companies even though dollar for dollar, salaries, overheads and other startup costs in India are much lower.

The data also suggests that the surge in venture funding was for growth-stage investments (investments targeted at companies that already have products and substantial revenue) in services companies, while there is ample room for allocating capital to early-stage companies building products.

There are three reasons why investing in early-stage startups would be optimal for maximizing long-term returns.

First, in many cases, promising companies are not able to reach the stage where they can justifiably raise the minimum level of a few million dollars that most VC firms in India like to deploy in each investment. More early-stage funding will increase that deal pipeline for growth equity investors, expanding opportunities for the entire ecosystem.

Second, as Sanjay has pointed out, VCs have been playing it a little safe, shying away from home-run bets and settling for lower but more predictable returns. And as Internet entrepreneur Rajesh Jain wrote in a blog post recently, VCs in India act like private equity investors, and private equity investors act like banks – and as fellow panelist Sanjiv Bikhchandani has noted, India’s nationalized banks are not known to lend easily to new ventures and to small and medium enterprises. Venture capitalists must not abdicate their role of providing risk capital to ideas and sectors which more conventional investors would not touch.

And finally, funding directed at technology-driven, product companies offers the prospect of outsized returns for investors, though this demands patience. A casual survey of the best exits for venture investors suggests that some of the biggest hits have been product companies with a strong technology differentiation – Google and Genentech come to mind. In a developing country like India where tens of thousands of people enter the workforce month after month, new ventures and small businesses have an important role to play in creating jobs.

While the increased venture investments in India is encouraging, it also highlights an investment deficiency in sectors like cleantech and life sciences. Venture investors should introspect on where they are placing their bets. Adjusting strategies towards early-stage funding for product companies is in everyone’s interest and would grow the entrepreneurial ecosystem manifold.


Originally Published: WSJ

Page 10 of 12« First...89101112