Startup India: Opportunities & Excitement
Dr Tamaswati Ghosh, CEO, IIT Madras Incubation Cell and Dr Prabhu Rajagopal, Professor, IIT Madras in conversation with Mr Manu Iyer, Founder & Managing Partner, Bluehill Capital.
Dr Prabhu: IIT Madras is in a very exciting phase. We have had growth and development at breakneck pace. I am an IIT alumnus. I graduated in 2003. In these 20 years, the Institute has changed beyond recognition. Even the hostels have been transformed. But fundamentally, a lot of the change has been led by the IIT Madras Research Park. Our work exceeds international standards. If we are succeeding in things like moon missions, a lot of that has to do with places like IIT Madras, IISc, and so on. We nurture, promote and strive to deliver excellence day in and day out.
Dr Tamaswati: My journey with the startup ecosystem started 10 years back. That’s when I returned to India, after a long stay abroad. I left the country with my parents when I was very young. When I returned to India, I came to Chennai in 2013, when the idea of an incubator from IIT Madras was floated. That’s where my journey began. We started very humbly. The idea was to just connect a few stakeholders within the institute and help some of our young startups which were coming out of the institute, to help them go to market and get some funding. In the first year, we had about ten odd startups, mostly from within the IIT Madras students and faculty pool.
Now ten years down the line in 2023, we have an ecosystem, which houses close to about 350 deep-tech startups. The valuation of these companies stands at 42,000 crores, which is about 5 billion US dollars. We are extremely proud of this achievement and this happened because of many factors.
One, even though we started as an incubator of IIT Madras, very quickly, it went beyond the IIT ecosystem. Today, over 60% of our startups are completely of external origin and they have nothing to do with IIT. But of course, they become part of the larger IIT ecosystem as well.
The kind of work that our startups do is amazing. They are floated by first time entrepreneurs. Many of them are technologists and engineers, with no prior experience in the realm of business. We’ve been able to help these entrepreneurs over the years by creating a beautiful ecosystem, where innovations are created at the backyards of their houses or within some lab of the Institute. We have been able to help them create businesses where products or solutions are sold at scale and the companies become commercially successful and are able to raise massive investments.
Manu: When did you both meet and how did you become a power couple?
Dr Prabhu: I’ll give a very philosophical and interesting story. It is said that everything came from the cosmic sound. We both had an introduction through “sound” as well. We were in the same hostel in IIT. She was a year junior to me. I was in charge of sale of old goods. Every year, they sell things that have accumulated. The sale also helps the newcomers.
We both had laid our eyes on the same speaker that was put up for sale. I laid my eyes on it and she had actually swiped it off before I could get it. We got into an argument and I said it was mine. She said she paid for it. That’s how we met for the first time and then we met on a number of social occasions. I am interested in Bengali culture and she is Bengali. Interestingly that year, I had resolved to go to some Durga Puja pandals in London and interestingly, she was there when I thought about the idea. I asked her, “Do you want to join me?” “Yes,” she said. That’s how it began.
Manu: Any comments from you?
Dr Tamaswati: The speaker belonged to me! (laughs)
Manu: Walk us through your journey with successful startups like Planys that is building underwater rovers, Solinas that builds automated scavenging machines and so on.
Dr Prabhu: Planys does inspection of marine structures, river crossings of bridges and most of the rail and road bridges of the country. In Maharashtra, the company has inspected more than 100 dams. Planys is also looking at data management. Historically, we started off with data gathering. But we’re also looking at data management prognosis, using data and dashboards.
The journey began in the humble settings of a laboratory. I came from Imperial College whose lab saw the birth and growth of four startups. So, in my manifesto at IIT Madras, I had written that I would spin out companies. For the first four or five years, there was no support. But when the incubation cell was formed, there was a lot of hope in the end.
I was working on the project together with Tanuj who is now the founder and CEO of Planys, where we developed a robot for inspection of submerged pipelines. This was just a fun project at that time. I was a mentor with Tanuj’s team at CFI (Centre for Innovation). When it was time to do his master’s project, he came to me for guidance in robotics. I said that I had already done a land robotics project and asked if he could try underwater robotics. “Yeah, that sounds nice,” he said. There was already a team in CFI working on underwater.
When I started making this underwater robot, I did not have much funding. I was working mostly on the sensor side. We managed to get some funding through IIT Madras Alumni Association. Here is where our alumni network punches way above its weight. At the end of the period, we had this beautiful robot, thanks to Tanuj. He stayed back for three more months after his project and I made an industrial version of the robot. I was very proudly showcasing it to everybody as Tanuj had gone to Tata Motors. One day, I had visitors from Reliance Industries, Jamnagar, and they said, “If you can make this work for oil tanks, we will fund you.”
That very evening, I called Tanuj and told him, “Look, there is a lot of interest here for the product. Why don’t you just come back? Let’s explore a startup in this domain.” He insisted on a team and I put together a team. That’s how it was formed. It was a lab tool. But the real catalyst was the industry interest that it attracted. Without the incubation cell, I don’t think I would have been confident enough to do it.
Of course, that is the idea of startups that originate elsewhere too. But the fact that there is an incubation cell that provides structured support and the fact that there is some funding from industry alumni make it possible for us to realize the dream of taking technologies from lab to the field to the market.
Manu: That’s awesome. Planys is building cutting edge robotics and underwater use cases. I’m one of their early investors. There were very few investors back then in deep tech ideas and few Angel networks that were interested in them. Can you tell us where things were versus where things are today, just to compare and contrast?
Dr Tamaswati: It’s pretty much like the startup scene in the country right now. When we started in 2013, the startups were concentrated in certain regions of the country, that too, in very specific sectors and primarily IT. Startup in those days echoed the Infosys story. It was a very humble beginning not just for us, but the kind of startups that we onboarded in the 2012-2013 period.
We relied very heavily on the support that we got from the larger IIT ecosystem. Our immediate fallback was the alumni network. These are individuals that were fairly accomplished in their field, not just in India, but across the globe and primarily in the US Silicon Valley which was fairly matured at that time. They wanted to give back to IIT. A lot of well-to-do serial entrepreneurs and alumni settled in the US came to visit IIT and we could leverage that network. Some of the early startups that we had incubated in 2013-14 include names like Ather Energy who makes the electric two wheelers that you see on the roads. MediBuddy is another example.
We did get a little bit of funding from the government. We relied on that and also reached out to alumni for some early grants and donations for our startups. Some of them went on to provide early angel investments as well. Today, a large number of investors are readily available. Early-stage funding
is much easier for startups with a certain degree of innovation and tasting early successes. The HNIs of the of the country have grown and they are less risk averse and more inclined towards startups and it is easier now to raise funds under 10 crores.
But for large, significant investments, not much has changed. The requirements still remain the same. For a startup, to attract serious funding, they need to prove their product and services in the market, show it at scale and show the traction. Thanks to government policies that came about from 2016, investors are more open to supporting the non-SAAS companies now.
Manu: Investors are now willing to buckle up and settle for a longer journey.
Dr Tamaswati: Yes. It is a long haul. The journey from the lab to market and then to scale is a very long journey. That is where this whole idea of patient capital comes in. Investors need to be patient to see the 5X or 10X increase in the valuation. Now individuals, family houses and VC funds are pitching in. That ecosystem maturity is still required, so that we are able to support companies like Agnikul Cosmos, the first such spacetech startup that has come out of our ecosystem.
Manu: Yes. Their journey has been absolutely fantastic.
Dr Tamaswati: At IIT, we’re very fortunate because the investors in the early years started their journey with us as mentors. They involved themselves in the ecosystem first. They were committed and part of the startup journey and they played a huge role in the success of the companies. It was not just capital infusion. That trend is changing quite a bit and particularly in the early-stage funding. That’s when the inputs are so critical for entrepreneurs.
Manu: Prabhu, you are an academic. What is your thought process—when you solve a problem, do you think about the commercialization aspect or solving the problem?
Dr Prabhu: When I solve a problem, I just focus on solving the problem. Big ticket funding comes at the ideation stage. For example, the Department of Science and Technology may not be very excited about me building a robot to inspect a bridge, as opposed to coming up with a smart material that can withstand 2000 meters pressure and which can be used to build future robots. There is a lot of research at the ideation stage.
I think almost 30 or 40% of my work is at the fundamental level, where we can make cutting edge advances. I work on meta materials and quantum sensing. These are topics that may have several years of maturation cycles. Another 30 to 40% of my effort is put in translational research and the remaining is commercialization. But this is something that the broader academic fraternity is also doing.
Manu: What are the few things that IITM incubation cell has got right, to put us where we are today?
Dr Tamaswati: We are now a part of our Incubation Centre Version 2.0, so to say. We’ve been reaching out and partnering with a large number of institutes and incubators across the country and both from the private and the government sector. There are incubators, probably over the last 10 years or 15 years and some of them have hardly made a mark. Not that they don’t have alumni connect or government connect. Some of them have received huge amounts of grants from the government. Fortunately or unfortunately, we were not that lucky in funding. We probably started with a couple of crores and had to build things from ground up.
What makes IITM so special? I think we got the fundamentals right. Before we can preach and help startups to scale, we too had to experience that whole journey. IITM incubation cell and the research park pretty much grew like a startup with very little funding support. We had to identify our customers and the market. We had to work on a very lean model.
But unlike IIT Madras, the Institution, the Incubation Cell was focussed on commercialization right from the word go. A startup to be successful must generate cash. That is what we teach, inculcate and practice. We do that, thanks to the stakeholders and a pool of mentors, who align with our way of thinking. This has led to the success of names like Ather, Agnikul, Solinas, Planys, Neomotion and many others. Our mentor network now goes beyond our alumni. We leverage our industry partnerships. The diversity is very important. It’s not just the technology domains that matter but even people with management background are very vital. We are constantly on the lookout for individuals who want to come and spend time with our startups.
Manu: Today, many aspire to be an IIT Madras Incubation Cell mentor.
Dr Tamaswati: True. We started with a couple of crores of infusion from the government. I’m fortunate to have alumni donations which helped us to provide seed funding to our startups. Today, the incubation cell alone is generating on an average 10 to 12 crores a year. These are not donations or grants from any government body. These are exits that we see from the little shares that we buy at the time of incubation. We take a small equity at the very beginning and that’s all. We don’t charge them for any of the support that we provide through this journey.
Manu: There was news that MediBuddy gave 14 crores to IITM.
Dr Tamaswati: Yes. On the next day, I got a call from the Director’s office asking for the details of the donation that we received. It was not donation but what we got was money for our exit. MediBuddy started with the mobile ECG in a lab guided by Professor Ashok Jhunjhunwala. Even after the exit, MediBuddy stays connected with our ecosystem. We are also learning from our entrepreneurs. Tarun of Ather Energy has invested in younger companies. That’s the sort of feedback loop that has been created and the ecosystem is just growing and growing. I hope this gives us the confidence that we can go beyond the ecosystem that we have created here. We are reaching out to Tier 3 and Tier 4 towns.
Manu: Prabhu, as part of your engagement with CFI and Nirmaan, you work with a lot of students and faculty as well. How has the attitude towards working with and for startups evolved?
Dr Prabhu: Nirmaan is the incubator and CFI is the Centre for Innovation. When I first started 12 years ago as an academic at IIT Madras, it was far more difficult to motivate people to try and consider startups. Now, for the faculty, being a startup founder has become aspirational. A lot of faculty members want to create startups and try to spin off their companies. Sometimes, faculties look for founders and they don’t get them. So, we have a beautiful program called MS in Entrepreneurship, which addresses that gap. The faculties can go and list their ideas and students can join a startup. Generally, there is a culture shift and people are more open and positive to startups.
Manu: You spoke a lot about the success of the ecosystem. Could you talk a little bit about the failures and areas for improvement?
Dr Tamaswati: Lately, we are encouraged by our board members to highlight failures as well. What is very unique about our ecosystem in the country or even in the world, is the success rate our incubator cell. 82% of our companies have survived and many are quite successful. Usually, the failure rates are extremely high. There are many reasons why a company may close down. Founder issue is one of them.
When they start off something without the fundamentals being there, that leads to all kinds of downstream problems. Founder problem is a downstream issue. People come together with a certain vision in mind. It is not about creating a great technology. Just because I have created something great in my lab, I can’t expect it should sell and then investors should line up.
The 20% of startups who decide to close shop is because they give up too quickly or they couldn’t go through the hardship. They were not prepared mentally. You need perseverance and hard work. In the early years, literally the founders go without any salary as they have to pay their employees. We demystify the whole idea about what startup creation is all about. A lot of the failures we’ve seen is a result of the misfit that has happened.
How can the private sector collaborate with academia to improve the ecosystem?
Dr Prabhu: There is a lot of mistrust between industry and academia. The academic work culture tends to be a lot more relaxed, while the industry is driven by targets and outcomes. There should be mutual respect and support. The academia needs to understand and learn from industry, on delivering on targets and focusing on the immediate here and now. Whereas the industry needs to appreciate that the real knock out benefit comes from these kinds of innovations that take many years to crystallise. The policy has to be framed in such a way that these two different pillars of the knowledge economy work in sync and in complementarity to each other.
How have startups impacted job creation?
Dr Prbahu: Startups shouldn’t be looked at primarily from the job creation perspective. Yes, startups do create a lot of jobs. But they are not going to be job engines as much as a TCS or Infosys with large projects on hand. On the other hand, startups may become the engine to feed such a growth eventually. For example, if Ather is creating an excellent, optimised electric battery tomorrow, that tech could be at the heart of a futuristic electric vehicle that can be exploited by the industry.
Dr Tamaswati: I agree. It is not the responsibility of startups to generate employment for the country. That should be the role of large industries and their downstream. Startups are the trendsetters. They can literally transform an industry at a pace that established industry cannot. That can have a ripple effect and you can create verticals, new industries and new streams, where a large number of youth can get absorbed. Startup is a platform for the youth to create new things.
What is IIT Madras’s contribution to AI and chip design?
Dr Prabhu: Long before anybody talked about AI and data sciences, IITM was into it. It created the Robert Bosch Centre for Data Science and Artificial Intelligence almost six years ago. I have been associated with the Centre since its founding. It has made both fundamental as well as translational contributions in AI. We sensitised the industry and community to the new developing field, far ahead of others. IIT Madras boasts of at least five centres focused on data sciences and AI. When nobody even thought about making semiconductors and chips in the country, the electrical engineering department at IIT Madras had some of the best state-of-the-art centres for this. We are trying to catalyse a new cluster on semiconductors. Our department has reorganized itself and I lead a new vertical. We now have seven verticals. One of these verticals is called smart manufacturing and advanced materials. Our core theme is semiconductors.
Is it relatively easier to get incubated today?
Dr Tamaswati: I think it’s easier to get incubated and funded. But funding was never the evaluation criteria for us to incubate a startup. We don’t promise any kind of funding support when a startup gets incubated. You have to show it through merit and pass through a committee to get funded.
What role does foreign investment play in startups? Is that something that you’re thinking about?
Dr Prabhu: For early-stage funding, there is enough wealth in the country. Mid to large scale funding is still foreign in its origin. Foreign capital plays a role is VC and PE stages. Even ticket sizes between 10 and 50 crores tend to be dominated by funds that are offshore based. As a country, we must make sure that more capital is available in that segment locally, so that we can try out original ideas that benefit us, rather than ideas that are working elsewhere, which is what these foreign funds tend to typically support.
Dr Tamaswati: Foreign funds come with its downside as well, because many times startups are influenced to leave or relocate and set up somewhere else. That’s not good for the country. More local funding groups are required within the country. Taxation policy is the other major reason why many times startups shift their base.