Virtual Incubator Model: An Opportunity And A Startup Agenda For UP Elections 2022

A company I founded was shortlisted by a prestigious London based incubator in 2019. But we could not commit to ‘at least one of the founders being based out of London for three months’. The same program, and many like it, are now virtual.

They have lost none of their sheens and have benefited from a wider set of startups applying and being selected. I know of entities based out of India being scouted by programs based out of Tokyo, Toronto and Tel Aviv.

Contrast this with the Uttar Pradesh government's proposed investment in ‘country’s largest incubator’ in Lucknow. The current UP government has done well in investment promotion, but this announcement was set in old ways.

It came more than six months into the Covid-19 outbreak after we had learnt a few lessons in how distributed enterprises work, making it much more surprising. So, I thought it would be appropriate to explore a virtual incubator architecture with UP as a case study.

Human resource and capital are the two most critical components of what we would call a startup ecosystem. Then there are less tangible parts of this ecosystem – things that separate Silicon Valley from Boston. Boston has some of the top universities of the world, and many of the biggest successes of the tech startup model come from these universities and their alumni.

But still, it couldn’t become the ‘silicon valley of the east coast’ which means that there is always the unknown which academics can explain in retrospect, but we don’t really know.

So, let us focus on the tangibles and look at UP.

IIT Kanpur, IIT BHU, IIIT Allahabad, MNIT Allahabad and IIM Lucknow are five institutions of national importance, within a radius of less than 200 km. Given this critical advantage, the virtual incubator model is an opportunity for UP. Yes, these are central institutions, but this is where double-engine sarkar can play a role. Since, Lucknow will not suddenly become an alternative to the whole ecosystem created in places like Bangalore, it is also a compulsion.

The proposed building in Amausi in Lucknow can be like a government set-up co-working space for meet-ups and meetings (the sarkari WeWork!), with small satellites centres in the institutions mentioned above. Since all these institutions already have their own centres, all that we need is a framework connecting these centres with the Lucknow hub. Backed by alumni of these institutions, especially those who come from UP, this can be the basis of adding the other facets of a successful incubator.

Next is capital and it is toughest for government to influence. Not because capital isn’t available in abundance, but because capital-startup match has a limited government role.

Here, I like some of the practices in Singapore, where one of my startups is based. Simple but the most innovative is the APIX funding for Proof of Concepts (PoCs). The principle is that an enterprise that could benefit from a startup’s solution can choose to do a PoC with financial support from the government. The model works because of two things:

—Government is not choosing the startup or the project, something that governments are not good at, but is encouraging incubation by funding the PoC.

—For corporates, it lowers the threshold for a PoC decision because it does not have to fund it and hence, it is more open to trying out new things with very early-stage startups. This is also of interest to companies with less mature innovation programs.

For a startup that has a minimum viable product (MVP) or a working prototype, two of its biggest concerns – client for a PoC and funds for a PoC – are addressed in this manner.

As a tweak to the PoC funding model from Singapore, we can make it government-enabled, privately funded rather than government-funded. With high-net-worth individuals (HNIs) who have made their money in the old economy, wanting a slice of the startup ecosystem, there are enough prospective Limited Partners (LPs, investors in a venture fund) to be tapped into by a seed stage investment fund.

A dipstick during my recent visit to Varanasi and Lucknow suggests that there would be many transporters and builders who are potential LPs, looking for both, yield as well as prestige. The younger generation in many of these families is even more keen. So the government incubation fund can tap into these investors.

Thus, we can address key challenges to developing new centres of incubation – human resource, capital and early development (proof of concept). This would be far more effective than singular focus and big spending on a construction site!

Maybe something for party manifestoes for UP elections to chew upon, which very likely will have something on startup promotion.