Maharashtra Govt recently came out with a draft policy for supporting innovation and startups in the state. Govt invited a few experts to comment on the policy and it was my privilege to be one of them. The recommendations drew upon my experience of being a witness to and a participant in the Indian Innovation ecosystem for the past 15+ years. I spoke very frankly and without any agenda. Therefore, it was a surprise to receive compliments from govt officials. Most of the points that I made apply to govt policy in other states as well and therefore bear repeating.
I made three recommendations to the Maharashtra government.
The first thing I requested the government was to cut down the size of the draft to half. It is trying to do too many things and at too many levels and all at the same time. It is the surest recipe to fail. History has shown that focusing forces on one or two areas has been the hallmark of winning strategies. There are hardly any instances of someone winning fights on multiple fronts. This holds true in military, business and government domains. So, Govt must focus if they want to have any chance of success.
Focus won’t be easy to do. Govt is beset by multiple stakeholders asking to resolve all kinds of their problems. It is also natural as govt has a massive size and power. Also, it has a public duty. But in order to focus, Govt must say “No” to 9 out 10 requests that they receive. A simple gauge of focus is to measure how many No were given and how many parts of the draft policy were cut out.
There is a recipe in focusing too. The focus has to be build further upon strengths. Maharashtra is the leading state in terms of economic muscle. Some industries such as financial services, automotive, agriculture etc are national leaders. Govt should build upon these strengths and promote innovation to take these areas to global levels. For e.g., why shouldn’t we focus on making Pune the hub of electric vehicle innovation globally and leave out every other industry? A thriving global hub through its secondary effects will spawn more business, increase its own competitive advantage and create far more employment than 10 fledgling me-too innovation centers. A large national market and the existing lead of Pune can create a base for such a focus.
Historical evidence also supports this. Silicon Valley is called silicon valley because it was a hub of semiconductor innovation to begin with. Biotech innovation had its home in Boston. Israel started out in security and network technologies.
The biggest impact of Govt Policy is not on areas that it chooses to spend on. A bigger impact is on the area that it chooses to talk about. The biggest impact so far of Prime Minister Modi’s Startup India thrust is not because of the investments it has made. The biggest impact has been that the PM has chosen to talk about startups and talk about it so much. It was sexy to do startups in small pockets until then. After Startup India, doing a startup is the thing to do across the country.
There is a lesson for policy makers in this – you can bring a change in how the entire state thinks about innovation and start ups. And that change will have a bigger impact because many many more people will put in efforts in alignment with their beliefs.
A great place to attack is on how innovation is done. Innovation is done by making things, figuring out what worked and what didn’t and then making another prototype. This is learning by doing. Sadly, we don’t have a culture of it. We are content with a theoretical understanding of concepts. We talk a lot more about innovation than actually doing it. This needs to change dramatically if India is to stand a chance in the global sweepstakes of the innovation game.
My second recommendation is to hold Grand Challenges. Announce a prize money of Rs 5 Cr (could be a bit less or more as well) for the winner of the grand challenge. Preliminary stage could be at district level leading to a state level competition. Only working prototypes should be allowed at any stage. Judging should be on the basis of objective performance parameters. For e.g.; maximize the area irrigated by 1,000 liters of water.
The design of the challenge is very important. For this, please get the globally best innovators and researchers in the focus area you have chosen. Ask them to set the challenge. Get them and practitioners in that area to judge the applicants. It is important that people of such caliber and background do this work. It sets the benchmark for success. A challenge set by politicians and bureaucrats will give us winners who have a higher chance of winning at politics and bureaucracy than at innovation! It would be difficult to get such innovators to put in their time into such an activity as the best people are focused and are always short of time. This is where being Govt increases the odds of success of such an endeavor.
The crux of Grand Challenge is to celebrate the process and the winners. Getting ministers to award prizes at District level and getting the Chief Minister to award the prize at the state level would draw attention. An exhibition of all state level participants will draw in crowds. The state government inviting competitors over FM channels and bringing out front page advertisements to publish pictures of winners would have a massive impact on how innovation is done by everyone.
A big part of the policy is regarding funding of startups. It is important to understand the background of startup funding before we get to the policy.
Startups are of two types. The first one is defined by the statement startup = Growth. These startups operate in large markets and look to grow fast. These startups have funding options in form of angel funds and VC funds. My own startup SwitchMe falls in this category. Govt must not fund such startups as there is no problem for the govt to solve.
One problem that the Govt could look to solve in this area is a problem that VC funds in India face. VC funds operate on a 7 – 8 year cycle within which they promise to get returns for their investors. This cycle is too short in India as there are bottlenecks in our economy that slow down businesses. The cycle time for India is probably around 10 years. Govt can invest in VC funds as a patient investor and become the anchor around which VCs can get other investors to join in for the 10 year cycle. Govt could also cap its own returns and thereby allow other investors to earn a higher return in spite of a longer investment horizon.
The other kind of startup is a startup which has innovative products but is not operating in a large market or in a market structure where fast growth is not possible. This startup struggles to get attention from VCs.
One example of such a startup is one being supported by NSRCEL at IIM Bangalore where I serve as a mentor. This startup is working on a platform for buying supplies for bio/pharma research. By bringing transparency into this small niche, this startup is speeding up the research process. Until now, procurement of supplies would take longer than the actual research. The platform is shortening the procurement cycle. It is too small to get VC attention but must be supported for the impact it is creating for a fairly large industry and for the innovation ecosystem.
Still, Govt has only a limited role to play here. It is limited because of two reasons. First, no amount of funds provided by Govt can quench the entire thirst for funds in this category. Second, if the Govt decides to select only a few, it will distort market forces without understanding how market is operating in the business where the investment is being made. This can have disastrous consequences for that industry.
There is a sub-category of startups in this category that must get Govt support. This is a startup that removes or reduces capacity blockages. Capacity blockages are like traffic chokes points. They slow down everything and waste time. They lead to situations like VC returns taking 10 years instead of 7 years in other parts of the world. Removing them makes our economy grow faster. Some of these are huge ones like Octroi which got removed by GST. Many others are small ones that Govt isn’t even aware of. Innovators and startups see them and look to remove them. Such startups should be supported by Govt in public interest.
My third recommendation is that the govt should fund startups in this category of startup not equal to growth. The funds should be provided via incubators which are better positioned to select who gets funded and who doesn’t. To ensure that the right kind of startups are getting funded, govt should provide grants only if there are matching grants from industry.
To summarize, Govt initiatives to support startups and innovation are welcome and much needed. But, steps must be taken to ensure that money is spent in a focused manner and for the right kind of goals.