Indian entrepreneurs may get a shot in the arm with the Union government’s Department of Science and Technology (DST) trying to join hands with private venture capitalists (VCs).
DST is in initial talks with Indian Angel Network (IAN) to set up an incubation centre to mentor start-up ventures in the country. “We are targeting a close association with IAN...mentoring to start-ups is a gap in our network. A virtual incubation is on the anvil,” said a DST source.
IAN has over 80 individual members and 10 institutional investors and has invested in 16 companies in India. The network looks at bringing together successful entrepreneurs and CEOs from India and around the world who are interested in investing in a start-up or early stage ventures which have the potential of creating value.
Started in April 2006, the network, in addition to money, provides access to high-quality mentoring, vast networks and inputs on strategy as well as execution. IAN invests upto $1 million (around Rs 4.6 crore), with an average of $400,000-600,000 in each venture, and looks to exit after three to five years.
The DST idea is that IAN will work with the help of satellite centres in some metros and provide funding with physical incubation too. “Working through satellite centres will help mentor the start-ups online through video conferencing,” said the source.
DST says it plans to cash in on the network of high net worth individuals associated with IAN who have a rich experience of dealing with cycle of companies and mentoring them. “IAN has a good network not only in India but internationally. Also, they will be able to bridge the gap in terms of mentoring,” the source added.
DST has two programmes supporting such incubation -- Science and Technology Entrepreneurs Park (STEP) and Technology Business Incubators. DST has promoted over 1,400 ventures so far. It provides around 50-60 per cent of financing to any new venture, which ranges between Rs 4-6 crore. Biotechnology ventures require the most amount of funding, against information technology ones, where DST gives only infrastructural benefits.
India's own angel network, or people willing to invest at least Rs 20-50 lakh per start-up, is very small and at a very nascent stage. Some of the recent ones are the IAN, Mumbai Angel and Nasscom-promoted India Innovation Fund. “On an annual basis in India, about $500 million is invested by VCs. If you look at the US, the ratio of angel investors to VC is 1:1. In India, there are just about 100 Angel investors. The biggest challenge in India is to make investors believe that this is a category that can be invested in,” said an Indian Angel investor on condition of anonymity.
Industry players feel the government’s role is important in building a robust local entrepreneurial eco-system, especially in India where private players entered early-stage funding only a few years ago. By comparison, an official study identified 270 incubation environments in 2005 in Britain. A study funded by the European Commission in 2002 identified around 900 incubation environments in Western Europe.
The National Science & Technology Entrepreneurship Development Board under DST has so far catalysed 15 STEPs in different parts of India, which are described as having promoted 788 units, generating an annual turnover of around Rs 130 crore and providing employment to 5,000.
DST says there has been a quality shift across India regarding mindset towards entrepreneurship. “Student-driven start-ups are on the rise. Business plans have become a major competition among students,” said the source.
