ACADEMIC ANGLE. The business case for incubators

Apart from the policy impetus to incubators, I have been prompted to write this piece by the recent surge in interest in setting up incubators and accelerators.

Many of the newly established engineering colleges seem to be keen to set up incubators to demonstrate their commitment to entrepreneurship. Given the growing competition for students, entrepreneurship development facilities are perhaps seen as must-have features for any new technical or business education institution.

An important lesson Is there a business case for so many incubators? A sizeable volume of academic work in the UK and Continental Europe around the turn of last century brought out one important lesson: The lack of fundable enterprises has been a greater impediment to the growth of entrepreneurship than the lack of capital in that part of the world. Many entrepreneurs simply did not seem to have the capability to develop their ideas into fundable enterprises that would deliver a return on investment.

The situation is unlikely to be different in India although there are not many academic studies formally supporting this claim. Perhaps it was in recognition of this need that in a move that was possibly ahead of its times, the Department of Science and Technology set up incubators in various campuses.

If we can accept that there is a business case for incubators, there can be no doubt that India needs many more of them, probably hundreds more, if we have to support the many thousands of enterprises that need to come up according to the estimate of the Planning Commission’s Task Force on creating a vibrant entrepreneurial ecosystem.

In an earlier part, I had described incubators as a controlled environment that assembles and provides many of the non-fund based resources that are commonly required to start and grow a commercial enterprise. But incubators take a lot of capital to set up.

The typical economist’s question would then be: Isn’t there a more efficient way of assembling and delivering these resources and services than setting up so many incubators? Isn’t that the value that knowledgeable early stage investors like angels and venture capitalists are supposed to provide as part of their post financing engagement?

It is true that many early stage investors assemble these resources for the benefit of their investee enterprises. But then they invariably do so after they have made an investment and only for those enterprises in which they have a stake. Incubators are expected to prepare enterprises to be investment ready.

S&T discoveries The likely increase in scientific and technological discoveries will also be a likely driver for translation facilities. Leading institutions of higher education in science and technology such as Indian Institute of Science and the National Centre for Biological Sciences are already witnessing such a demand for incubators and are responding to it. Seed funding initiatives such as that of the Department of Biotechnology will only fuel this demand further.

Experience in many of the successful centres of production of science and technology such as Cambridge in Massachusetts, Austin in Texas, and North Carolina, in the US, Oxford and Cambridge in the UK inform us that incubators can play a useful role in more effective commercialisation of science and technology.

In a younger, more nascent science and technology entrepreneurial system such as in India the business case for such institutions can be only stronger.

Incubators by themselves cannot ensure the realisation of all policy goals of creating a large number of enterprises.

But they can be an important component in the overall ecosystem that can increase the prospects of realising these goals.

In the concluding piece of this three part series, I will present some thoughts on planning and structuring such centres.

(The writer is Chairperson, NS Raghavan Centre for Entrepreneurial Learning at IIM-Bangalore. Views expressed are his own.)

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