Playing Godfather to Young Techpreneurs

New Age Godfathers. That’s business incubators, in essence, for young starry-eyed entrepreneurs with “get-rich-quick” dreams hoping to convert creative ideas into viable business entities.

A relatively post-modern concept, business incubation is a dynamic process of business enterprise development, which involves a process of nurturing young firms, helping them survive and grow during the startup period when they are most vulnerable.

The idea is said to have originated in the United States in the early 80s, thanks to state efforts towards supporting and promoting small industries. This was apparently kicked off and promoted by an agency called Small Business Administration, or SBA.

The earliest concept of incubation involved providing support in terms of space, infrastructure, and business center -- All for a small subsidized or no fee for the facilities offered. Entrepreneurs could walk in with ideas, get support and grow into companies.

Over the years, after IT entered the scene, new and sophisticated incubation models have begun emerging.

Incubators have begun to provide not just access to financing and well-organised exposure to critical business or technical support services, but also hands-on management assistance. They offer shared office services, access to equipment, flexible leases and expandable space all under one roof. The concept of payment has also shifted to equity route.

In Hyderabad, fondly termed as “Knowledge Hub” by Andhra Pradesh Chief Minister Mr. Nara Chandrababu Naidu, incubators are proving more than just Godfathers to the bright ideators sprouting in university campuses and companies’ research wings in great numbers.

There are four major incubation centers here, including Idea2solutions (i2s), floated by Dr. Reddy’s Labs group, K-Labs, being set up by the Model Fin Corporation, Idea2dotcom of Mr. Ashutosh Yadav, and , ……… etc.

Besides, some companies, including Satyam, have their internal incubation programs.

In some other cases, some companies are tying up with universities. Sun Microsystems, for example, has chosen Indian School of Business among six prestigious universities worldwide to launch the Sun Campus E-Business Incubator programme.

An incubation center will be set up in ISB, housing state-of-the-art E-Commerce hardware and software suites where budding dotcommers can take their plans further to the proof-of-concept stage.

Sun will select five business plans from the university, based on recommendations from faculty and the venture capital firms participating in the programme. Selected students’ business plans will receive free access to the Sun incubation facility hosted in the university.

Incubators say that Hyderabad is attracting incubation activity because of tremendous vibrancy in the technology area.

Also, like the young director and CEO of i2s, Mr. Jignesh Jaswant Bhate, says, Hyderabad is proving attractive thanks to its good academic institutions, low startup costs, good telecom and other infrastructure, and a proactive state government.

“We are at the nascent stage of such growth and would have more such activity in future,” Mr. Bhate adds.

Incubators are proving a boon because, as Mr. Venkat Adusumilli of K-Labs says, they come some steps below venture capitalist.

“VCs only fund and advice startups, but incubators actually provide infrastructural support that is so much required for budding ideas,” Mr. Adusumilli says.

An incubation programme's main goal is to produce successful graduates, businesses that are financially viable and freestanding when they leave the incubator usually anytime between six months to 2-3 years.

Thirty percent of incubator clients are said to typically graduate each year. According to reports quoting the Impact of Incubator Investments Study, 1997, 87 percent of incubator graduates are still in business.

Like venture capitalists, incubators impose selection criteria upon prospective clients. Some accept a mix of industries, but others concentrate on industry niches.

According to a research, incubator clients may be classified as follows: 43 percent Mixed Use, 25 percent Technology, 10 percent Manufacturing, 6 percent Service, 5 percent Empowerment, 2 percent Other and 9 percent Targeted.

Targeted incubators focus on start-ups from a specific industry, such as biomedical, arts, food production, fashion, etc.

Presently, the businesses/ideas in incubation worldwide are helping develop new and innovative technologies and creating products and services that improve the quality of lives.

1. Idea2Solutions (i2s)

Satish Reddy, managing director of Dr Reddy's Laboratories, has floated Idea2Solutions, an angel investment firm that will act as an incubator to technology companies in the pharmaceuticals space.

Reddy, along with G V Prasad, who heads Cheminor Drugs (recently merged into DRL), and Jignesh Bhate, former head of research for the Asia Pacific region at foreign brokerage IndoSuez W I Carr have come together to float I2S in the their personal capacity. The company has not been floated through Dr Reddy's.

The new company has not, however, set aside a specific corpus of funds, but are choosing instead to invest on a case by case

basis. Bhate has been appointed chief executive officer of the company and has moved to Hyderabad from Hong Kong. When contacted, he

confirmed the development.

i2s intends to identify, invest in, inspire and integrate best-of-breed startups in the healthcare and information technology areas. It intends to provide its portfolio companies the domain expertise, financial strength, networking abilities and other resources to enable a start-up to quick-start the business.

Original originators of the idea would be significant owners of the enterprise and would have complete responsibility to run the business. i2s would provide breadth of services to the start-ups viz. help in preparing its business plan, team building, physical infrastructure, financial resources, global network, mentoring, strategy planning etc. In addition, i2s is building a strong panel of experts to help incubatee companies to provide wide strategic bandwidth.

i2s intends to be a lean structure of high caliber professionals. i2s's core management team have a strong domain expertise in a functional area viz healthcare, information technology, strategic planning, financial structuring and capital markets etc. This collective expertise would be leveraged to provide portfolio companies much more than pure capital right from day one.

i2s would ensure that proper resources in terms of managerial time and resources is given to each incubatee and to that extent limit its number of new investments in a year.

Human Capital

i2s has a team of extremely committed professionals with proven track record to partner with innovative ideas and transform them into successful businesses, including Dr K Anji Reddy, Chairman - Dr. Reddy, chairman of Dr Reddy Labs (DRL), G V Prasad, Director, K Satish Reddy, Director, Jignesh Bhate, Director and CEO, S R Vaikuntanath, Vice-President – Investments.

Jignesh:

What are the procedures/criteria needed to be part of incubation center of your company? How do you select the ideas that your company incubates and supports?

The criteria are :-

1) A strong leader and a good management/execution team.( either already present or potentially made available on funding)

2) Scalable and global business model

3) Operational profitability in less than 18 months.

4) The ability for us to add significant value.

The above 4 factors play an important role in our decision making process for selection of a project. We do not take a project, however

good it looks - if we think we cannot add value to it other than providing funds.

What kind of financial/funds, networking and management support do you provide for entrepreneurs?

i2s is born out of very experienced team of people from the venture capital, technology and biotechnology areas which would assist the

startups in the Venture. Plus i2s has struck alliances with reputed companies in the technology, company law, finance & accounts and HR -

which provides all the support that the start-up needs to jumpstart its operations. More over we have a strong panel of experts containing the

who's who of Indian business world who would mentor the startups that we incubate.

After the incubation period (what is the maximum period for one idea?) do you provide venture capital to the idea once its ready to hit the market?

We think typically, the incubation cycle should be 9-12 months. We may continue to provide VC for the start-ups that we breed. This depends on a case to case basis.How many ideas/entrepreneurs is your company presently incubating?We have already incubated one idea Meditimes, which is a healthcare services company intending to become a bridge between the pharma companies and the doctor community. Meditimes also possess a web property www.meditimes.com which is already the largest doctor vortal in the country.

i2s has tied up with MphasiS , the latter provides technology solutions to healthcare startups incubated by i2s.

2. K-Labs

K - LABS! An idea is born. will be kicked off in 1st quarter of next fiscal-- April-June. K-LABS! (Knowledge Laboratories) is an idea development company, which helps facilitate transforming workable ideas into business entities. The principal promoters of this unique Company are the Hyderabad based Model Group.

Model Financial Corporation Limited is a well-known Non-Banking Financial Company, which has a long pedigree of successes in the financial arena. It is a part of the highly respected Model Group and is known in the marketplace for its strong emphasis on values and beliefs. The Chairman of the Company is Mr. Adusumilli Krishna Murty. It also has on its board distinguished personalities like, Mr V Mahadevan, Former CMD, SBI, Mr. V Subba Rao, Former Dy.MD, SBI; Mr C W Mirchandani, Former Jt. Secretary, Dept. of Banking, GOI and Mr V S N Murthy, Former CGM of APIDC.

The Managing Director of the Company is Mr V S R P Adusumilli, who now focuses on Model's Technology Initiatives (MOTIVe). A separate company is proposed to be started for this venture.

Model Group is associating with Global Internet Ventures, a leading international venture capital company for this venture. Global Internet Ventures is a Company principally promoted by Mr Bill Melton, an internationally known serial entrepreneur and seed investor who has over 20 years of experience in the IT and Internet industries. He was the former Founder Chairman and CEO of Verifone as well as Cybercash. The Indian operations are headed by Mr. Naresh Malhotra, former MD of KPMG, India.

The main objective of K-LABS! is to encourage and nurture entrepreneurship and help build enterprises by leveraging available knowledge to the fullest. The resultant outcome would be the creation of additional human and financial capital in India, in addition to bringing about a healthy ROI to the investors.

The K-LABS! Business Incubator project is slated to come up at Kompally village, 12 kms from Secunderabad on NH 7. It will be housed in a 7,500 sq.ft of airconditioned space with all the necessary amenities that are required to bring the best out of people.

The enterprise is being consciously set up in the environs of Hyderabad as the city offers the best available facilities and has the necessary talent. In the recent past Hyderabad has been emerging, as the Knowledge capital of India and it is appropriate that the country's first Knowledge Labs comes up in Hyderabad.

An expert panel of professionals drawn from various disciplines will reviewuate the ideas that will be generated by the students who are passing out of reputed educational institutions like University of Hyderabad, Institute of Public Enterprise, Indian Institute of Information Technology and Osmania University.

Once the idea is found to be feasible then the selected ideator(s) will be invited to K-LABS! which will then encourage, support and fund the project till the fruition stage, at which point of time it will source additional funding from VCs and/or other financial options. In effect K-LABS! will see that the idea is fully realised.

The ideator will be offered substantial sweat equity in the project which one has conceived, who will be completely in-charge of executing the project. K-LABS! will be the facilitator for this entire exercise. If at an appropriate time a professional/experienced CEO or other top management member/s are required, K-LABS! will also play an active role in the same.

The educational institutions can help K-LABS! by creating a platform for their graduating students to present their fresh, viable and inventive ideas to a highly respected team of professionals. K-LABS! looks at these institutions as partners in progress.

Venkat Adusumilli: We have a lot of youngsters coming to us and asking for support. For them, dont have to pay money except sharing a part of their future revenues. Risk factor very high.

U.S.-based venture capital company Global Internet Ventures (GIV), is discussing the proposal with the Indian Institute of Information Technology (IIIT), Osmania University (OU), University of Hyderabad (UH) and Institute of Public Enterprises (IPE), and Model Financial Corporation, GIV India managing director Mr. Naresh Malhotra told the Economic Times.

The $150 million-GIV (founded by Bill Melton, founder of Verifone and Cybercash, Jeong Kim, founder of Yurie Systems (acquired by Lucent), and Jeff Tonkel, president of Capital Investors) will fund all the cash requirements of about 15 to 16 start ups to be housed in the center, for six months, which may range from 20,000 to 25,000 dollars per entity, he said.

The start up ideas, which will be sent by the Universities and Institutes, will be evaluated by GIV for selection on the basis of five criteria: creative and effective team, superior technology, scalability, ability to generate global revenues and a connection with Indian and Chinese markets since they form the biggest markets in the world.

GIV, whose additional investors include Ashok Narsimhan, former Wipro CEO and founder of Prio (sold to Infospace), Pehong Chen,

chairman of Broadvision, and Dan Lynch, co-founder of Cybercash, is currently already working on an incubation center in

Bangalore, in association with Indian Institute of Management, Bangalore.