Thursday, November 13, 2008
The incubation concept is relatively new in India, though incubators have been around for quite some time, with the US leading the way. The concept has not found a great deal of success in the US, although the number of incubators, according to the National Business Incubation Association (NBIA), rose from a mere 12 in 1980 to more than 850 to-date.
In India, if one goes by the current trend, incubation companies have cropped up like the dot-coms of a few months ago. The advent of the Internet has fired up the entrepreneurial spirit in India, giving new life to incubation, with a number of players increasingly desperate for good technology ideas and successful business plans.
Hyderabad boasts a number of IT venture incubators, including Vanenburg Business IT Solutions, an infotech incubation company based in The Netherlands. Its Managing Director S. Ramanathan assures that his company has ambitious plans in India. The company has already invested $16.66 million toward Vanenburg IT Park built near Hyderabad, and has announced a further investment of a similar amount for the expansion of infrastructure over the next three years at the location. According to Ramnathan, Vanenburg “provides the impetus for transforming the idea into a product -- investing in the early stages and providing active support with the primary concern being to bring the product out into the market.” The basic model finds many similarities with that of Idealab!, and many other ill-fated ventures, the question is whether it will work for India.
From dot-com boom to bust, incubators have traveled a path of challenges and poor decisions. Now Indian incubators have become skeptical and want to invest in companies that have some chance of developing an international presence. They have changed their business strategy considerably and have sought to roll out creative ideas for themselves just to stay afloat.
Srini Raju, CEO of I-Labs, a startup incubator based in Hyderabad, explains, “VCs are not just looking at various options and innovative ideas, but at the core technical knowledge of the management.” Raju implies that incubation makes a company and its founders more solidly prepared to raise venture capital. But Incubators, like I-Labs have yet to show that the added support during the early stages really helps produce successful companies.
Ramanathan of Vanenburg insists that, “Incubation takes some time.” Vanenburg picks up equity of between 20 and 60 percent in the incubated company and provides capital along with other services. He explains, “Our prime challenge is to select companies with core competency in leapfrog technologies, either proactively or reactively.”
Ashutosh Yadav, CEO of I2DC Ventures Ltd., an incubation company based in Hyderabad, explains, “We have seen last years B2C sector taking a back seat, but still there are successful ideas translated to products in the B2B and B2C segments.” He adds, “We hope to bring our partner companies to a point where they can stand on their own. We can then ease out to partner with more entrepreneurs.”
Each firm has lofty dreams, but the burning question is whether this flurry of Indian incubators will actually manage to end up with “golden eggs” in their portfolios, or if they will suffer the fate of their US counterparts. In any event, the money will continue to flow. During 2001, Vanenburg will invest $22 million, ICICI $33 million and I-Labs $222 million.
