SRISTI

Introduction

A technology business incubator (TBI) is an organisational setup that nurtures technology based and knowledge driven companies by helping them survive during the startup period in the company’s history, which lasts around the initial two to three years. Incubators do this by providing an integrated package of work space, shared office services, access to specialized equipment along with value added services like fund raising, legal services, business planning, technical assistance and networking support. The main objective of the technology business incubators is to produce successful business ventures that create jobs and wealth in the region, along with encouraging an attitude of innovation in the country as a whole. The primary aspects that this report shall go into are the stages of a startup, the motivational factors behind establishing incubators by governments & private players, the process followed by them in selecting, nurturing talent as well as providing post incubation support. The report will also look at the role that incubators play in the general economy apart from their function of incubating companies, such as educational or public research roles. A series of case analysis of seven well established incubators from India shall follow which will look into their nurturing processes, success stories as well as lessons that can be learnt from their establishment. The final section shall look into challenges faced by incubators in developing economies and the measures taken by them to overcome these challenges.

Incubators: Launchpads for a Modern Economy

Incubation is a business support process that accelerates the successful development of startup and fledgling companies, also referred to as ‘clients’ [of the incubator], by providing entrepreneurs in the company with an array of targeted resources and services. These services are usually developed or orchestrated by the incubator management and offered both in the business incubator and through its network of contacts, in the form of mentorship and financing. An incubator’s main goal is to produce successful firms that will leave the program financially viable and freestanding. These incubator graduates have the potential to create jobs, revitalize neighbourhoods, commercialize new technologies, and strengthen local and national economies. As a part of their services, incubators usually also provide clients access to appropriate rental space and flexible leases, shared basic business services and equipment, technology support services and assistance in obtaining the financing necessary for company growth along with mentors to guide the company through its initial steps. Incubators also play an active role in the economy of the region by serving as a focal point of interaction between venture capitalists, academicians, university students and government members. This potent collection of stakeholders allows for an intensive exchange of ideas and enables the creation of quick as well as efficient solutions to problems that plague young businesses in a country. The benefits of this extend not only to the stakeholders mentioned above but also to the general economy of the region as well. The earliest incubation programs, in the 1980s, in the United States of America focused on a variety of technology companies or on a combination of light industrial, technology and service firms – today referred to as mixed-use incubators. However, in more recent years, new incubators have emerged globally targeting industries such as food processing, medical technologies, space and ceramics technologies, arts and crafts, and software development. Incubators have also targeted programs to support micro-enterprise creation, the needs of women and minorities, environmental endeavours allowing them to play a dual socially affirmative role in their societies as well.

Technology Business Incubators & their Unique Benefits

Technology Business Incubators (TBIs) are a venture of universities, public research institutes, local government and private players to promote and bolster a new technology intensive enterprise. In this type of incubation the targeted talent consists of innovative, mostly technology-oriented, or knowledge-intensive service sector enterprises. Interactions with the academic sphere and public research are almost always a substantive element of the incubation process in such incubators as well. As TBIs intervene into the spatial processes of the learning-based economy, they also try integrating innovation and enterprise-policy. Their mandate is also implemented with the active participation of the academic sphere, which gives it certain unique characteristics that deserve a mention:
• TBIs foster innovative start-up firms, thus the process of incubation is strongly intertwined with the innovation process that occurs in the supported enterprises, bolstering research.
• TBIs also help develop certain local economic development goals in their region by stressing on a knowledge driven economy where risk taking is encouraged.

Technology Business Incubators in India

Technology Business Incubators in India have existed since 1980s, under the Government of India and since late 1990s under the private industry. They have played a critical role in encouraging risk taking and public research in the information technology industry. Their success led to a massive increase in the number of incubators being setup in the country, with over 300 registered incubators operating in the country as of early 2014. The Government of India under the aegis of Department of Science & Technology provides for institutional mechanism for promoting knowledge-driven and technology-intensive enterprises. This is primarily situated under the National Science & Technology Entrepreneurship Development Board (NSTEDB). The Board, having representations from socio-economic and scientific Ministries/Departments, aims to convert “job-seekers” into “jobgenerators” through Science & Technology (S&T) interventions and programmes.
The objectives of NSTEDB have been defined to be:
• To promote and develop high-end entrepreneurship for S&T manpower as well as self-employment by utilising S&T infrastructure and by using S&T methods.
• To facilitate and conduct various informational services relating to promotion of entrepreneurship. • To connect agencies of the support system, academic institutions and Research & Development (R&D) organisations to foster entrepreneurship and self-employing using S&T with special focus on backward areas.
• To act as a policy advisory body with regard to entrepreneurship.
These objectives have been fulfilled by NSTEDB through two major interventions. Namely, the scheme for Science & Technology Entrepreneurs Parks (STEP), which was started in the early 1980’s, and the Technology Business Incubators (TBI) programme launched in early 2000, both of which have been fairly successful in increasing the number of start-up companies engaging in innovation as well as fostering a conducive environment of risk taking while contributing to the regional and national economy.

The Foundational Basis for Technology Business Incubators

The goals behind technology incubators in developing economies operate with a twofold approach, with economic considerations balancing a desire to increase research output and innovation. This leads to a knowledge driven economy that can function in a globalised world while continuing to support local talent and innovation to create a sustainable model of development in the field of information technology. In the last decade, this has been carried out by establishing Technology Business Incubators (TBIs) at various reputed institutions around the country, in both management institutes as well as scientific universities.
Goals of a TBI programme, as stated by NSTEDB on their website, are as follows:
● Creation of technology based new enterprises,
● Creating value added jobs & services,
● Facilitating transfer of technology,
● Fostering the entrepreneurial spirit,
● Speedy commercialisation of Research & Development output,
● Specialised services to existing Small to Medium Enterprises.

The TBI programme in India has been quite successful and has even given rise to private incubators that operate under a very similar model but focus more on creating private capital (sometimes tied to company platforms such as Microsoft’s Azure cloud) than tangible public research. The other benefits of such incubators, such as innovation, job creation and wealth generation continue to be available while filling an important role in the economic society. This has culminated with the Government in India creating a separate startup fund of close to 2 Billion U.S Dollars in the budget for the year 2014 – 2015 which it will use to both aid incubators as well as co-fund upcoming startups with private entities. This is a recognition of the work done by the incubators in past decade and will be a key part of the Make in India campaign being pushed by the Government of India.

Stages of Incubation at a TBI
Establishing a TBI
Factors involved in setting up a TBI
TBI are usually located near a source of technology and knowledge i.e. around R&D Institutions/Academic Institutions or have strong links with such institutions to ensure optimal use of the already existing expertise and facilities. Such an institution is known as a Host Institution. This helps in keeping the cost of the TBI as low as possible while maximising output. Locating TBIs in such location also reduces time lag between technology development and its commercialization. As the success of a TBI largely depends on its location and management besides quality of tenant enterprises, the following aspects relating to the host institution (HI) are always kept in view while selecting the location/host institution of the TBI7 –
Location/Host Institution Requirements:
• R&D track record and subsequent commercialization of R&D output of the host institution
• Dedicated team of R&D persons for the TBI at the host institution
• Industrial milieu in the region, both locally in the city as well as connectivity to other regions in the state
• Proximity to other R&D/academic institutions that engage in similar field as the TBI
• Infrastructure, facilities and expertise available, usually over and above the requirement within the host institution.
• A dedicated and experienced administrative staff that has both experienced individuals at the helm and younger members near the interactive end to create the right balance between mentorship and collaboration within the incubator for its talent.

Physical Infrastructure Requirements
One of the greatest benefits available to talent in incubators is the low cost resources and physical infrastructure that lets them concentrate their limited resources for product development and innovation. Therefore, certain minimum requirements in terms of physical infrastructure are necessary before a TBI can be set up in a location.
They are:
• Modern work space, normally in an independent and segregated area,
• Communication facilities, such as telephone, internet and fax subscriptions
• Computing facilities, such as desktop and laptop systems, printers, etc.
• Vital equipment needed in specific target area of operation for the project (case by case)
• Library & information centre, usually of the host institution itself.
• Training and conference facilities in order to allow domestic as well as international aid and collaboration for both the staff and talent at the incubator.
Once a TBI has been setup, the selection of companies and talent that will be included into the TBI is probably the most important factor in determining the success of a TBI.

Pre Incubation Process
Selection Process & Criteria for Inclusion of Talent the TBI Programme
The talent that traditionally apply to TBIs come from a diverse background from fresh graduates to companies within a year of formation. Hence, the selection criteria needs to be open, inclusive yet focused in its outlook of creating a sustainable knowledge economy. This applies equally for community driven incubators that perform their service for free or a low charge as well as commercial incubators that normally take a cut in the equity of the talent they incubate as a fee for their services. The broader framework that is normally followed is:
1. Submission of Applications by Talent – The applications by the prospective talent are normally in the format of an information gathering form created by the incubator. All the usual information (such as the name and members of the company), a business plan, registration & financial documents (when applicable), letters of recommendations and any other due diligence information are required of the applying candidates.
2. Pre Screening Application Review – Compliance and backgrounds checks are conducted by the incubator before forwarding them to the Selection Panel that will choose the talent. This includes basic financial, academic and statutory checks along with validating recommendation letters to ensure authenticity of application. Most incubators also use this stage to verify the working minimum viable product (MVP) that some incubators require to be submitted as a part of the application, in order to gauge the feasibility of the product as well as the skill set of the team.
3. Reviews of Applications by Selection Panel – Most TBIs have a Panel of Experts who has the final call in selecting the talent that is taken into the incubator. This Panel normally has experienced members of the industry, academicians and fellow entrepreneurs who have experience in both venture funding as well research capitalisation. The membership is normally split between internal members of the incubator as well as external industry experts. The guidelines given to this panel in making their decisions are normally unique to each TBI but include focus area, research output requirements, available resources at the TBI as well short and long term goals of the TBI, etc. The Selection Panel usually selects a short list of applications, leaving the final selection to the interview stage.
4. Interview with Expert Panel – After short listing candidates on this process, the Panels in most TBIs also conduct interviews with members of the talent groups to gauge potential and compatibility within the programme of the TBI. They long discuss the long term feasibility of the project, terms under which the talent will exist under the incubator as well as the responsibility of the different members of the talent team when under incubation, etc. This is usually the ideal situation for both the parties to arrive at a common ground on compatibility as well as expectations from each other, making it the most crucial stage of the entire selection process.
5. Pre-Approval Intimation – The selected candidates are then informed about their duties, perks and obligations in order to establish a clear relationship between both the parties as well as given them a fair chance to plan their integration. This also lets the candidates compare offers and prepare for negotiations regarding their next stage, including financial commitments, equity distribution as well as incubation goal requirements.
6. Negotiation of Terms of Incubation – Most TBIs create broad frameworks for contracts between their talent and themselves, yet have unique clauses that are the by-product of negotiations between the TBI and the talent. This allows them to cater to interests of all stakeholders on a case to case basis. These terms attempt to keep the best interest of both the parties in mind while allowing for the talent to have an active say on the terms (financial, legal and business oriented) that will govern them. This freedom makes sure the talent plays an active role in the success of the venture and in turn helps the long term reputation of the incubator.
7. Execution of Agreement – This part includes the procedures that help the talent settle into the incubator, meet the faculty and administrative staff, among other initial introductions. This allows the talent to not only get acquainted with the functioning of the incubator but also start the process of accelerated development within the timeline required by their respective contracts.

Incubation Process
Services provided by Incubators
Every incubator provides two distinct kinds of aid to its talent. The first kind are physical, location based resources such as office space, communication facilities, conference rooms, library access, etc. These physical resources let talent concentrate on the process of creating and promoting their product without having to worry about the physical upkeep of their company, leading to increased output. The second but just as important resources are the business oriented aids such as fund raising, venture capitalist scouting, legal services, and marketing support among various other kinds of help. This is an especially unique advantage of industry focused incubators as they know of key aspects in the industry that operate under, allowing their talent direct access to both mentorship and funding that would otherwise be unavailable to them outside of the incubator. Both of these services are invaluable in letting a company get through the first few steps of its existence by not only ensuring maximum concentration on product development by the talent but also ensuring that they have adequate mentorship for any problems that they may face on the way. It also serves as an excellent networking opportunity for any startup, where the people they meet at events organised by their incubator can lead to long lasting relationships that are invaluable to their company.
Location Based Physical Services:
• Modern work space, normally in an independent and segregated area.
• Communication facilities, such as telephone, internet and fax subscriptions.
• Computing facilities, such as desktop and laptop systems, printers, etc.
• Vital equipment needed in specific target area of operation for the project (case by case)
• Library & information centre, usually of the host institution itself.
• Training and conference facilities in order to allow domestic as well as international aid and collaboration for both the staff and talent at the incubator.
Business Oriented Services:
TBIs provide the following important business incubation services on a largely uniform basis in order to be considered successful:
1. Market survey/ marketing assistance,
2. Business planning and training,
3. Organising management/ technical assistance,
4. Assistance in obtaining statutory approvals,
5. Information dissemination on product ideas/technologies,
6. Syndicating finances,
7. Arranging legal and IPR services,
8. Using facilities of the Host Institute at nominal charges,

The Procedure of Incubation
Operating Procedure
The relationship between the incubators and the talent is governed by their terms of association, which also defines the operating procedure between them. The terms of condition are traditionally open ended, with certain minimum working hours, product appraisal deadlines and limitations on conduct being the major chunk of the terms governing the talent of the incubator. These lay down the schedule of incubation (usually 18 to 24 months subject to renewal), limits on resources and time, rights and obligations of both the parties as well other operating criteria unique to each TBI. Most incubators provide resources to their talent and then follow a hands off approach, allowing the talent themselves to approach the incubator for any help it may need. This works quite efficiently as once they are informed of the resources and aid available to them, they can pick and choose from the ones they require, letting them exercise freedom in the process of development of their product without any imposed work schedule or standards.

Education & Learning
However, all incubators also have some process of both education as well as review. For education, they require their talent to attend special classes arranged for them in by calling down industry experts as well as network with various venture capitalists at organised gatherings. Incubators do so to not only mandate a learning curve for all incubator talent, which in turn makes them create a better product/service, but also to bolster the image of the incubator itself in the industry.

Appraisal & Review of Talent
As for the process of review, all incubators mandate at least a semi-annual review of the work carried out by the incubator talent. This review is carried out by a committee of mixed staff, selection committee members as well as industry experts. The committee gauges the progress of the company against its objectives, as decided in the incubation contract. Product reviews, industry testimonials as well as live demos are used to determine this, apart from raw financial data such as product sales, etc. This lets both the talent as well as the incubator keep a track of how the mutual goal of developing the company is progressing and what can be done better to improve it. The expert committee also evaluates the quality and impact of the business assistance provided by the incubator itself and suggests improvements so that the incubator can serve its talent better. Apart from this process of review, there are also frequent industry related components that serve the dual purpose of helping talent acclimatise to the operations within the industry as well as allowing the incubator to get external opinions on the talents via these interactions.

Post Incubation Process
Graduating from an Incubator
The process of finishing incubation is traditionally known as ‘graduating’ and most incubators have differing criteria for gauging when a talent can graduate from an incubator and what that entails from both the incubator as well as the talent. Some of these criteria include self-sustenance in terms of revenue stream, selling the venture to a larger company, expiry of the period specified in the terms of agreement, etc. These conditions are also known to be multifaceted to ensure that the talent is adequately charged (if at all) for the services it avails at the incubator. For example, if a company is acquired straight out of the incubator then it is quite common for the talent to encash certain amount of equity for the incubator. However, if the talent is going mainstream by themselves, terms of deferred encashment of equity or even free services are common to allow the company to survive their initial years as an independent entity.

Post Incubation Obligations
Post Incubation, talent that has graduated from an incubator serves as the best representative of the incubators methods to the industry, making their opinion of the incubator very important. This leads to incubators often organising special programmes around their graduated talent, from talks within the incubators to networking meets around the country on an annual basis. This allows the incubator to be networked and active in the industry, as well as follow up on the performance of its talent, benefiting both parties in the process.
Special Considerations for Nascent Incubators
Incubators that are newly established must necessarily keep certain aspects in mind while being setup and through the first few years of operation. They ensure they become relevant in the market as soon as possible while attracting the right sort of talent for their crucial initial batches of incubation. Some of these factors are:
1. Hiring an Incubation Head: Whether, in the capacity of the Manager or a CEO, the incubator needs to hire a person who is passionate to work with startups and is connected to the sectors on which it will focus in. This person is the Key Member as he or she will execute the operations of the incubator.
2. Choosing the operational sector: It is important for the incubator to decide the specific sectors it wants to address. It will help to stay focussed and aligned to their vision, along with attracting the right sort of talent.
3. Defining incubation model and incubatees: The incubator must be clear about the incubation model it wants to work with depending upon the services it will provide and the strengths it can leverage upon. This will also help the incubator define whom it will call incubatees. While some call incubators call the startups working in co-working space as incubatees, others call startups in which the incubator has invested in as its incubatees.
4. Defining its vision and objectives: The Incubation Head in consultation with his advisors must decide the vision that the Incubator will be embarking on. Setting up the objectives will help to plan the activities and to track progress in terms of the success achieved in the coming years.
5. Deciding legal status: The incubator must have the clarity about the legal status it wants to hold. It will be dependent upon the objective as whether the incubator wants to be a ‘centre’ of the host organisation or register itself as a Sec. 8 Company under the Companies Act of 2013 in India or under the Societies Act in India. Getting an understanding of the advantages and disadvantages of each of the forms of registration will help.
6. Finding programs and funds: If the incubator is solely going to work with co-working space model, then perhaps there is no need of finding programs. A good strategy would suffice. However, if the incubator wants to incubate its startups, then it needs to create programs to attract and scout good startups and hence essentially needs to find funds for it or vice versa.
7. Setting up proper accounting system: It is imperative for the incubator to set up the finance and legal compliance department from the beginning. While it might be just one person at the start who will take care of accounts, finance as well as legal compliances; keeping it sorted from the beginning adds up at the later stage when the incubator grows in size.
8. Creating networks: The incubator cannot work in isolation and hence establishing a network that can help the startups to wade through the challenges. Mapping the local ecosystem and connecting & collaborating with existing corporate, regional and industrial bodies, investors, domain experts, NGOs, academic institutions would be of immense value.
9. Services it wants to provide: Last but not the least; the incubator must have clarity about the services it wants to provide to its incubated startups. While this will depend on the incubation model, this will help the incubator in estimating its cost and setting the right expectation from its startups.

-Soure: The Centre for Internet and Society, India (CIS), online article.
(https://cis-india.org/)