Many Indian tech start-ups have received angel funding. But a recurring feeling among entrepreneurs is that there are far too many private equity firms chasing a handful of growth capital investment deals while there are very few VC/angel firms willing to incubate ideas which are aplenty. Now, i2india, the Indian arm of the UK-based Imperial Innovations (the technology commercialisation venture of London’s Imperial College), which also has the backing of Tata Group, is hoping to change all that.
The Bangalore-based entity which is positioned as an early-stage seed-funding, technology commercialisation and incubation firm, not only seeks to invest in early-stage technology companies where it can see a way to scale them up, but also uses its global R&D networks to find unique technologies which can be commercialised. It has recently, launched a technology venture called i2ihealth, aiming to introduce innovative technologies at primary healthcare level at lower costs.
“My main focus is to help create the early-stage ecosystem for IP-driven product companies in India, for India. Right now, there is a dearth of both in the country. Plus, there is a crying need for product innovations in India as most technologies we use come from the west and hence, are misfits in one or more ways,” says Deepam Mishra, CEO of i2india.
Mishra has over 15 years of experience in technology innovation and commercialisation, as well as entrepreneurship. Also, he has been an inventor and serial entrepreneur. As a former SRI (Stanford Research International, USA) executive, he has been instrumental in founding and managing three hi-tech businesses.
He has founded and managed Pyramid Vision Technologies in the video surveillance and security segment. In addition, Mishra is the co-inventor and co-founder of Sensor Biometics, a company specialising in iris identification technology. He holds a B.Tech from IIT Kanpur, an MS degree from Texas A&M University and an MBA from the Wharton School. He also has more than five US patents to his credit.
Incubation In India
According to Mishra, very few of the existing incubators are supported by the ecosystem required for breeding vision start-ups. “There is a dearth of seed-stage financing for tech start-ups as well as mentors, who have done this kind of thing before. As a result, the incubators currently struggle to produce high-growth companies. We wish to plug in these gaps and help create a pipeline of IP-driven start-ups,” he says.
Consequently, i2india has developed a capacity-building platform for incubating and mentoring companies from the scratch. It has also started a not-for-profit incubator Technovate, which provides support for company-building during the equity stage and at no cash cost to entrepreneurs.
Besides angel investors, the Indian start-up scene has also seen interest from private equity companies and venture capital funds which typically did not take part in seed-stage funding. Some of these have also promoted arms or sponsored funds to incubate new companies.
One of these is IndiaCo Ventures, which has floated IncuCapital to provide capital and resources to start-ups to get an idea off the ground. More recently, Frontline Strategy sponsored CCube Angels, which assists early-stage companies with angel funding.
Last year Nexus Venture Partners also established Nexus Seed, a programme through which it will infuse Rs 20 lakh to Rs 2 crore ($50K-$500K) into a maximum of 50 companies. There are also other start-up incubators in the country based on the Y-Combinator model like Seeders and Morpheus Venture Partners.
However, i2india’s funding model is different from the more established VC models. It builds companies instead of mere investing in those. The firm invests from its balance sheet to have the flexibility of exits. It helps that it has the support of institutions such as Imperial Innovations ($500 million public-traded company in the UK), Tata Sons and various other investor groups in India and abroad.
“The companies we create ourselves don’t witness the traditional VC operations where investors put in a fixed amount for a fixed stake. Since we start those companies, we own 100 per cent stake there.
We invest whatever is required to get the company up to its first external financing round (series A funding),” says Mishra.
He explains, “In that particular company, we will invest up to $400K over a period of two years. However, in portfolio companies, the amount may vary between $50K and $500K. Our investments require small amounts of cash but a lot of people, time and effort which happen to be investments-in-kind.”
i2india has raised less than $10 million so far, from its existing investors, said Mishra.
“A lot of our investments are at the concept stage of technology testing and prototyping. But many of those do not reach the stage of company creation due to technology failures. We have invested in several dozen ideas in India and have a pipeline with projects at various stages. In addition to i2iHealth, there are two other companies which are reaching the take-off stage,” he elaborates.
Focus On Healthcare, Cleantech
The new venture i2ihealth focuses on the medical device segment and wants to reach out to the masses. Mishra says globally about 85 per cent of the medical devices produced are used by approximately just 15 per cent of the global population. “In India, the common man has very limited access to state-of-art medical devices due to their cost and complexity. And this is true for both diagnostics and therapeutics,”according to him.
He points out very few labs offer the kind of affordable, first-line diagnostics which are considered routine in the developed world. “This is in spite of India being the global capital of deadly ailments like TB, diabetes and cardiac problems. High-end therapeutic treatment is often out of our reach, especially when it comes to cancer treatment and cardiology disorders. The market need in India for high-quality and affordable medical devices is, therefore, limitless, as we have hardly scratched the surface,” says Mishra.
Some global medical device-making giants such as GE and Philips have been experimenting with reverse innovation to bring out low-cost devices for consumers in emerging markets like India. There have been a few success stories, too. But it’s a long road ahead.
i2ihealth claims that it will introduce technologies which will help track medical conditions at an early stage and also reduce overall healthcare costs. For example, timely detection of breast cancer may not happen in the absence of international standard screening, thus leading to costly treatment and greater risks at a later stage.
“However, i2iH is working on a number of innovative solutions which will be introduced in the Indian market and it will be a big boost to current state of the care system. Our current projects focus on respiratory care, breast cancer, cardiac problems and so on,” adds Mishra.
Currently, i2india focuses on healthcare as a key area but very soon, it will move towards technology companies keen to adopt cleantech.
Scaling Up Plans
As i2ihealth is keen to commercialise innovative devices, the firm sees great scope for simple, ‘primary-care’ medical devices which can be used either at home or at the offices of primary doctors.
Mishra clarifies he is not being too ambitious with the new venture. “These devices are not a substitute for the current high-end hospital systems, but provide low-cost and ubiquitous access and better control at the primary care level. We strongly believe that these will improve compliance and also help reduce the load on the hospitals for basic testing and treatment. The business model is a straight product sales and service, with some innovative financing ideas that we want to explore later.”
Incidentally, i2ihealth is just starting its operations in Bangalore and plans to build out the process locally. It will then recruit managers in different parts of the country to start regional operations. The i2ihealth team will include clinical experts who will support market education and clinical testing efforts as well as technology experts who will continue to look for innovative med-device technologies suitable for Indian markets. Moreover, there will be a multi-tiered, multi-regional sales team to support its distribution infrastructure and market development, besides organising seminars, training, and awareness campaigns for doctor, patients and other stakeholders in the healthcare system. Also, it will have on board an executive management group of entrepreneurial experts, well-versed in bringing innovative companies to life.
“There is likely to be a fair amount of education and market-building effort that we have to invest in. Hence, we want to test the process and get sufficient market feedback before starting rapid expansion,” explains Mishra.
Landscape For Incubation
According to Mishra, a lot of people in India and abroad are keen to pursue similar models. “It is very challenging though, especially in India, as some essential parts of the ecosystem may not be there and everything must be managed simultaneously. I am aware that a lot of other early-stage VC funds have been thinking of similar ideas. But there is a limiting factor – we need experienced and relevant entrepreneurs to lead the charge. We don’t think this is a competitive space and will welcome more people, so that the market can take off. The greater fear we have is to find too few of them and the area staying dormant for several more years,” he says.
Seed-stage funding requires greater management effort which inherently translates into higher costs for investors even as investors usually deploy a small amount per investment. As a result, their total fund returns can be low, unless they have a very large team or a very large number of deals in their kitty.
“Also, early-stage investing is best done by investors who have been entrepreneurs themselves and understand the nitty-gritty. Several investors from banking and finance space don’t feel comfortable in this area. In developed countries, this stage of investing is usually led by business angels and successful entrepreneurs with experience in specific industries. But there are few technology/IP-driven companies in India and fewer who have been successful. Hence angel or seed-stage investing in technology concepts is in its early days,” adds Mishra.