Category Archives: Business

Business incubators in India: A reality check

It’s been long since I wanted to talk about my thoughts on Business incubators in India and the role it plays/should play in nurturing entrepreneurship. Though none would like to agree, there is clearly a disconnect between what ‘wannabe’ entrepreneurs expect out of it and what incubators currently deliver. This is evident from the interactions we have on a daily basis with many of them.

I’ve been in one of the early incubators in the country for more than 2 years. My decision to join a business incubator right after my graduation, was mostly to know about what it really takes to be an entrepreneur and whether am capable enough to deliver. I just didn’t wanted to get stuck in a routine job. So for me this was a mitigated risk and not a blind jump. I am now an entrepreneur and they have played a major role in it.

 But, what really is a Business incubator and what it means to a startup ?

Different business incubators in India operate on different models.

1) Majority of the incubators are attached to a technical university/college and they provide access to the infrastructure zenstneresources and human resources of the institute. Now, the advantage of this setup is that it ‘encourages’ the students of those institute to dirty their hands with technology and its applications. They are given a peep into the world of entrepreneurship too, mostly through lectures, conferences, workshops etc.

Now the disadvantage of this setup is that ‘Professors’ run the show. There is more of technology and less of business. Lots of theory and less of practice. In short, the incubatees over there develop technology, thinks it is great, make a team and jump into the business without knowing what it takes to run a company in this competitive dirty market. Issue: Emphasis only on technology.

(some of these incubators attached to India’s premier institutes are open to only students of the same institute. Frankly, I still don’t get this logic. May be am tooo naive to understand the technical logic of these premier institutes for analysing the success chance of an incubatee)

2) Other set of incubators are associated with Management institutes. Now they bring a different set of skill sets. These incubators too are run by so called experienced professors. Most incubatees are MBA grads who have ‘sacrificed’ their lucrative placements and want to start a business and call themselves an entrepreneur. Coz u know, nw thts a fashion..a trend.

They love ‘charts, tables, presentations, bullet points’. They bring flashy market reports, figures, studies. They can talk well. They dress well. They have good experience in corporate sector too. Most convinces investors too. So they go ahead and start a portal, hire a CTO (u knw, these people are MBA grads and they think anything can be hired, including technology) and within couple of years they vanish like a fart in the air. Reason: Emphasis only on business part. Not on execution, not on technology, not on long terms.

3) Now there are these corporate types. They have HUGE plans. They think BIG. They hire E&Ys and Mckenzies of the world to do a feasibility study, invests crores, setup a huuuge infrastructure with common facility of equipments, cubicle space on lease etc. Now definitely this is a dream incubator for an entrepreneur specific to that field. You get all the necessary facility ready from day one. But there is a catch, they are only for ‘proof-of-concept’ study facility or belovedly known as ‘product development’ space. None gives a damn about ‘commercialization’. For them, incubator is setup for nurturing Idea. Not the idea generator. After developing the idea, let the entrepreneur goto hell. None cares. These work on lease model and also equity model. Well, only issue is that there are hardly any takers. Unfortunately E&Ys of the world couldn’t predict this.  Reason: No pragmatic approach. Plans are in virtual reality.

4) There are few other models too. Working on remote mentoring/ only facility/ no facility, no mentoring, only money models too. I dont include them in the definition of business incubation. (my personal opinion)

So as an entrepreneur what do we expect from a business incubator ?

My take on Business Incubators:

  1. Should be run by a seasoned entrepreneur. This is a must. Scientists, professors should support in their respective areas of expertise.
  2. Mentoring is more important than facility space.
  3. There is no ‘one stop’ incubator. Incubator should have infrastructure required for product development (or should have workable tie-ups with such providers) specific to the area they operate in.
  4. Funding is mandatory. This does not mean mere ‘connecting to VCs or angels’. By funding I mean, putting pure risk money on ‘potential projects’ having prospects of huge returns. There is no dearth of this fund (DST has done an amazing job in this. Prof. Mittal spearheads this.)
  5. Responsibility of incubator should not end with incubatee completing the product development. Actual hand holding is required during 1st year of commercialization. Most misses this critical step.
  6. Business incubation is NOT charity. It should have a feasible business model (however long the gestation period is) and this should be well communicated to all stakeholders. Forming a section 25 company is the first step for this.
  7. For me, grooming program at NL introduced me to the basics of marketing, finance, legal, technology, team-building necessary for running a venture. This program gave confidence to the student in me to take the decision to be an entrepreneur. (this point could be optional)

74951953

To wannabe entrepreneurs reading this post: Sorry to disappoint you. Ideal conditions never exist. So incubator with all above mentioned features doesn’t exist. However, there are few who still are doing mindblowing job. Spot them, evaluate them, meet the people who are running the show and only then take the decision to join. Business incubators helps in a big way during the early stage, dont miss it.

To ecosystem care takers: Lots of hype, lots of noice, lots of campaigns…ideally all  these should have contributed to lots of ‘quality startups’. But bitter truth remains, quality is missing from last statement. The earlier you realize this, the better.

Disclaimer: These thoughts are just my personal opinion and in no way reflect opinions of any organization am associated with now or in past. This is just a teaser. I want to post a series of what worked and what didn’t work in an incubator. Tune in.

If you think I got totally carried away or was factually wrong. Kindly comment and correct me. Am open to a debate on this.

World is of the doers…

It is not the critic who counts;
Not the man who points out how the strong man stumbles,
Or where the doer of deeds could have done them better.
The credit belongs to the man who is actually in the arena,
Whose face is marred by dust and sweat and blood;
Who strives valiantly;
Who errs, who comes short again and again,
Because there is no effort without error and shortcoming;
But who does actually strive to do deeds;
Who knows great enthusiasms, the great devotions;
Who spends himself in a worthy cause;
Who at the best knows in the end the triumph of high achievement,
And who at the worst, if he fails, at least fails while daring greatly,
So that his place shall never be with those cold and timid souls who
neither know
Victory nor Defeat.

by,

Theodore Roosevelt

Few lessons I learnt from my Entrepreneurial Journey..

Last saturday, unexpectedly I got a call to share my experiences with Technology Entrepreneurship with a group of budding ‘technopreneurs’. Though the event got postponed to next week, it triggered me to incite certain thought about what were the most important lessons I have learnt from my 2 years stint with Technology Entrepreneurship, first as a student, then as an incubatee and finally as an entrepreneur.

Points which came immediately to my mind were:

1) Idea ka paisa nahi hai ! (Having just an Idea is worthless)

2) Follow a systematic approach to finding an idea/solution

3) It is all about PEOPLE

4) Equity is Shit

5) Sometimes Mentoring is more important than just funds

Idea ka Paisa nahi hai

This was one of the first lessons I learnt from my initial days at NirmaLabs. This got reiterated when I had to painfully give up my ‘billion dollar idea’ of Microfluidic Diagnostic Chips for Indian rural population.I soon realized that, just having an Idea means NOTHING, unless followed by a implementation. Many people give undue importance to come up with an earth shattering idea, but fails to understand the implementation of the same in real scenario.

Follow a systematic approach to Finding an idea/solutions

This is a point which would take up at-least 3 pages of my blog, so I would restrict myself to giving just an intro into it. Until joining an incubator I always used to think that ‘ideas’ are just for the lucky lot. I was pleasantly surprised when I realized that ANYONE could come up with a real solution/idea for existing problems if you start looking at ‘Pain-Points’ and not a use for the technology you have learnt.

Another major advantage of using this approach is that it would not make you ‘POSSESSIVE’ to your idea even though you are so passionate about it. This would help you to validate your idea at each step and to drop it if it doesnt qualify to be a feasible one.

More often, Entrepreneurs fail to quit at the right time and this is one major lesson to be learnt.

It is all about PEOPLE

If you can’t manage people, you better stay away from being an entrepreneur. Overlooking this one point, has taken many startups to its end so quickly. At all stages, you are bound to manage people. Be it your partner, employees, investor, advisors, suppliers..anyone… It is an Entrepreneur’s never ending duty to manage people. I have seen many startups dying without any success, just because the founders are not comfortable after a while amongst themselves.

So to be a successful entrepreneur, learn soft skills and Network.

When I joined the incubator, I hardly knew a VC. It just took me less than an year to get in touch some of the ‘who’s who’ of the industry, potential investors, like minded entrepreneurs etc.  Networking is the Key.

Equity is Shit

I heard this phrase in one of the talks by some eminent entrepreneur through TED talks. He said: Equity is just like Shit. The more it is distributed the less it stinks.

Entrepreneurs have a tendency to cling onto maximum amount of equity, claiming that they are going to lose the control of their own baby. But just a little deep thought into it would make things clearer.

Which one is better ?. Having 80% share in a 1 crore company or having 30% share in a 10 crore company ? Larger the pie, better would be your share. So if you want to grow your pie bigger, be ready to shell out equity to other stake holders. Many people fails to understand this concept.

Mentoring is more important than just funds

Disclaimer 1: Here Mentor means more than an advisor. Nowadays any tom, dick and harry is a mentor..but am not mentioning about such mentors

Disclaimer 2: This point is more relevant to first gen Entrepreneurs

For me, this has been a golden rule. If I have no clue about an area am working on, I immediately get a ‘mentor’ for me from the same. This has helped me immensely while taking certain decisions on a go. Sometimes, you really need an experienced opinion while taking a decision. Be it a decision on a key technological issue, or deciding terms & conditions of a Term sheet, or going for new recruits or investments… It is always a great help to get some second opinion regarding the decision you have taken. Ultimately though it’s your call, a Good Mentor is as good as a Co-founder.

Steps Involved in registering a pvt. ltd. company in India

Trying to register company in India without the help of a good CA/CS would be time consuming and tiring. Though the process involved are now online, it still involves approval from ‘local authorities’ (ROC) which is being done manually. So to be on the safer side, hire a CA and let him do his job. These are the inevitable steps required to be completed in India to register a private limited company.

1) Register the Director Identification Number (DIN) for all directors involved through www.mca.gov.in (1 week)

2) Apply for Digital Signature (any one of the director). Digital signature is essential to sign any document which has to be submitted to ROC ( 3-5 days)

3) Register a unique name for the company using www.mca.gov.in (2 days)

4) Register the company with the name, promoters, and communication address.

Draft one paragraph about the Objective of the company,

Declare the Paid up and Authorized capital of the company. (Minimum paidup capital required: Rs. 1 Lac)

P.S: Authorized capital corresponds to numbe of  shares. More the authorized capital, more the stamp duty which has to be paid to govt. Eg: If authorized capital is Rs. 5 Lacs, then stamp duty will be around Rs. 17,000

5) Print the Memorandum of Association and Articles of Association, Get the Letter of Incorporation issued from Registrar of companies via snail mail. (1 week)

6) Get the unique metal seal for the company (2 days) and also 3 rubber stamps (1) Company address, 2) Authroized signatory, 3) Round stamp with company name

7) Start a Current Bank account for company transactions and transfer the paid-up capital amount to that account from each director / shareholder’s accounts. (10 days) P.S: To start a current account you will have to submit the company PAN card. In most cases, the copy of PAN card application form / receipt would do.

8) First issue the Share certificates to promoters and then to other subscribers

Approx. expenses to start a company in India

Rs/- 100 : DIN no.

Rs/- 500 : Registering the name of the company

Rs/- 5600 : Fee to govt.

Rs/- 2500 : Memorandum of Association (printing)

Rs/- 2450 : Digital Signature (Personal)

Rs/- 1000 : Metal Seal, Share Certificates

Rs/- 8000 : Professional Fee

Rs/- 17000: Stamp duty for Authorized capital of Rs. 5 Lacs

Rs/- 1,00,000: Minimum Paid-up capital for a pvt. Ltd company in India

Total: ~ Rs/- 1,38,000

Tips for startups:

1) Donot keep both paidup and authorized capital same. In that case, you will have to transfer the shares for issuing to other share subscribers

2) 2 or 3 Board resolutions have to be passed in the initial days. (to start bank account, Authority to issue shares,  Issuing shares etc.). Try to keep all of them in the first board meeting itself (this would be mostly done on paper)

Optional but important steps:

Register a unique domain name in internet (Rs. 600 for .in and Rs. 400 for .com)

If you dont have much activity in initial days, save on stationary. Visiting cards could be printed using MATT card (Rs. 25 for an A3 sheet) which would give you around 100 cards for 50 Rupees

P.S: The charges may vary from state to state. Charges shown here applies to starting business in Ahmedabad, Gujarat. All of this could be done easily with a Company Secretary.

Useful sources:

http://ezinearticles.com/?id=507492
http://kumaran.wordpress.com/2006/09/06/procedure-involved-to-start-a-company-private-limited-in-india/
http://www.ibef.org/download/Final_DBI_2006.pdf
http://india.gov.in/business.php