Table Of Contents
“There is no Plan B because there is no Planet B”
– U.N. Secretary-General, Ban Ki-Moon
The big challenges of our times, such as UN SDG goals, climate change, and pandemics, impact billions of people living on this planet today and transform the way of life for the billions yet unborn. Solving these challenges requires the power of science and the vision of an entrepreneur.
These challenges have inspired generations of scientists and researchers to develop new inventions that push the frontiers of science. But many of these inventions get stuck in the world of research and do not make a tangible impact in the real world.
This playbook aims to bridge the gap between the scientific minds and business acumen to transform these inventions into products and services that transform lives and create real-world impact.
It aims to equip the scientists with the necessary know-how to go beyond their technical ideas to understand when, where and on whom their science can have the most tangible impact. It will equip them with the tools to do this while creating value for the various stakeholders involved.
Lesson 1.1
What is Science Based Entrepreneurship ?
“The future belongs to science and those who make friends with science.”
– Jawaharlal Nehru
From the neighbourhood grocer to the sugarcane juice vendor, every business is solving a problem or meeting an unmet need. In addition, the firms have figured out a way to make money out of it. This ability to make money and sustain its growth are the hallmarks of a successful business. One can view the business as having an internal engine of productive assets.
A business uses these assets to convert the various inputs to create and deliver value to its multiple stakeholders. The more productive the internal engine, the more value is created. One of the many ways to increase the productivity of this internal engine is grounded on science and technology. The deeper the science and technology base of this engine, the greater its productivity. This grounding in deep science and technology distinguishes science-based enterprises from other types of businesses.
One of the distinguishing features of science-based enterprises is the large upfront investments in science and technology that need to be made several years ahead of the value delivery and extraction. The assets created from these early investments are often intangible and hard to monetise. The risks associated with these assets are also difficult to characterise fully as the lead times are long. These features make it very difficult for the investors who provide financing in these early years to fully comprehend the true value created in the venture and the risks involved.
Another distinguishing feature of science-based enterprises – especially in the early years – is the need for highly talented and highly specialised people. The mix of these specialisations also change with the evolution of the business.
Science-based ventures may also need expensive equipment and unique infrastructure. Hence, science-based start-ups often have to work with different technical consultants, form partnerships, and share resources to afford access to the required talent and infrastructure. These make for complex relationships with external organisations and very porous boundaries on asset ownership. Science-based start-ups also have non-linear and discontinuous growth profiles. As these businesses are ahead of the market needs, they often use very different planning and marketing tools compared to traditional businesses meeting immediate customer problems.
- More reading links on this topic can be found in the PRIME Library
- A related lecture on this topic can here viewed here on the AIM PRIME Youtube Channel
Lesson 1.2
Ecosystem for Nurturing Science-Based Entrepreneurship
“Technological change is never an isolated phenomenon. This revolution takes place inside a complex ecosystem which comprises business, governmental and societal dimensions.”
– Klaus Schwab
Just as “it takes a village to raise a child”, nurturing science-based enterprises to create real-world impact takes several actors and factors beyond the group of scientists that conceived the inventions. They can be broadly grouped into the following groups:
1. Research Cluster:
To have a strong pipeline of science-based ventures, we need a strong research cluster that includes high calibre academic and research institutions. These research organisations should have a strong mandate and institutional mechanisms to encourage the commercialisation of research.
These include the incorporation of commercialisation as a criterion in peer reviews and funding evaluations for recruitment, promotion, and salary increments. They could also include soft-touch approaches, like celebrating the successes of researchers doing such work. The institutions should also have the flexibility to engage with and recruit high calibre scientists who are supported with the research infrastructure and funding to train high calibre teams and perform top-notch research.
2. Innovation Cluster:
The output from research organisations is generally not ready for the market immediately. The intellectual property underlying the science needs to be protected and evaluated for commercialisation potential. These functions are typically carried out by the technology transfer offices (TTOs) that enable IP protection, identification of commercialisation partners and signing of contracts with them.
The output from research organisations is generally not ready for the market immediately. The intellectual property underlying the science needs to be protected and evaluated for commercialisation potential. These functions are typically carried out by the technology transfer offices (TTOs) that enable IP protection, identification of commercialisation partners and signing of contracts with them.
In addition to the TTOs, the innovation cluster should have physical and virtual platforms to bring together people with science, engineering, legal and business skills to interact and form teams to commercialise the science. The innovation cluster should also consist of innovative industry players and consumers willing to accept a less than perfect but potentially better solution to their problems.
Apart from this, the ecosystem should have the physical facilities and equipment, standardised test-bedding facilities, and demonstration platforms that all innovators with suitable technologies can access to take the science closer to the market. To keep this whole innovation cluster functioning seamlessly, strong mentorship, substantial long term government funding and patient private capital should also be available in the ecosystem.
3. Entrepreneurship Cluster:
Taking any solution to the market and creating impact requires a strong entrepreneurial cluster that supports young start-ups and existing companies developing and commercialising advanced technologies.
The components of this cluster include a pool of experienced entrepreneurs and industrial players and a network of incubators and accelerators that support young start-ups with mentoring, product development and business creation activities. The ecosystem should also have a diverse pool of investors who can fund different stages of the venture growth.
The ecosystem should also have players who can manufacture the product in different volumes and the infrastructure to support their specialised development and production needs. Finally, easy access to the domestic and international markets is another success factor for commercialising any new solution.
4. Enabling Macro Environment:
Pieces of each of the clusters discussed above exist in some shape or form in emerging economies. These clusters need to be connected to create a thriving ecosystem that encourages science-based start-ups.
Strong policies that promote patient capital investment and reduce early-stage risk are required. Celebration of successful entrepreneurs, a consistent and clear legal and financial framework, and proactive definition of regulation around adaption of new technologies that are tailor-made to the unique social and cultural norms of the society are a few examples of ways in which an emerging economy can create a strong ecosystem to nurture science-based ventures.
More reading links on this topic can be found in the PRIME Library
Lesson 1.2.1
Indian Ecosystem
India has the third largest number of active programs for nurturing start-ups in the world and has over 70000 start-ups. The Indian government maintains a start-up portal as a one stop resource for tools and resources for entrepreneurs in India.
The government has also made several provisions to support the start-up ecosystem. For example, start-ups can register for three different kinds of recognition under Start-up India that makes the start-up eligible for certain funding schemes and tax exemptions.
Companies generating revenue can avail of the Udyam registration scheme under the Ministry of MSME, which offers protection against delayed payments. The ministry also provides schemes that offer public procurement benefits and provide credit and financial support.
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DownloadPDFResearch intensive start-ups can apply for recognition of their in-house R&D units under DSIR-IRDPP offered by the Ministry of Science and Technology.
Ministry of Science and Technology also provides GST exemptions to Start-ups incubated at NSTEDB/BIRAC approved incubators. Apart from financial benefits, DSIR issued a notification in 2009 permitting the scientific establishment and full-time researchers to own equity in scientific enterprises and spin-offs to enable the commercialisation of academic research.
The notification also encourages the institutions to set up incubators and facilitate the mobility of researchers between industry and academia. GoI has also set up several support programs and facilitation centres to protect and commercialise intellectual property.
Specialised Scientific Facilities
All government-funded academic institutions and research organisations in India open their facilities and specialised equipment to outsiders. In addition, specific organisations like CIPET, SITRA, C-MET led by line ministries like the Ministry of Textiles are available to the public.
Start-ups can engage with these facilities and organisations in different modes such as technical or consulting services, in-licensing technology, mentoring, access to staff and students.
In addition, different incubators like Venture Center and CCAMP have specialised facilities that are available to start-ups. Service providers like CROs and testing labs are valuable for certifying performance as they are authorised to provide such certifications.
Industry-led facilities like AutoCluster Institute and NAFARI for the food industry are useful for start-ups in those sectors. . Venture Center has a full suite of facilities for MedTech start-ups, from proof-of-concept to cleanrooms for sterilisation and packaging.
More broadly, the Pune ecosystem has a suite of facilities for biotech start-ups.
Funding Sources
Funding for science based start-ups in India is at a very nascent stage and varies significantly based on the domain and stage of the commercialisation journey.
Venture Centre Funding Website provides timely information about available grants and their details for innovators and start-ups in India. While the availability of many of these funding sources is limited to specific technologies and domains, the later stages of the pre-revenue commercialisation journey are especially difficult zones across all sectors in India.
Grant Funding
Grants are typically provided by governments and non-governmental organisations to achieve specific positive outcomes for society. An example of such an outcome is encouraging innovation, entrepreneurship and private investments in strategically important areas to the country. Grants may also be provided to attract companies to a region and create an attractive ecosystem for start-ups and grow local employment opportunities. A start-up that can attract grant funding can reduce the risk for investors and thereby improve their return on investment. In general, grants do not need to be paid back to the funder. However, they include contractual obligations like prototype demonstration, submitting a report, setting up the company in a certain location and hiring local people. Grants might also place encumbrances on the IP generated from the funding. However, most grants available in India offer significant flexibility in the use and commercialisation of the IP resulting from them.
Commercialisation teams can optimise the chances of securing and utilising the grants by having clear non-overlapping scope for each grant application. If the underlying invention has multiple broad applications, the team should ensure that the base invention is fully owned by the start-up and is unencumbered. Application-specific developments can be developed using grants that support the prototyping and validation stages and using narrowly defined collaborations with corporate partners at later stages. Grants available to encourage science-based start-ups from different grant agencies in India are included below.
Seed Stage Funding
Apart from grants, the Government of India (GoI) provides seed-stage funding ranging from less than ₹30 lakhs to more than one crore to start-ups through different government agencies and through approved incubators.
In India, private investment is available in select sectors, with most funding available in e-commerce, consumer tech, mobile apps, services, and ITES. In health care, the top categories attracting investment are health-IT interface, and MedTech followed at a distant third by therapeutics. In recent years, there has been increased activity in FinTech and EduTech. While AgriTech investment is showing signs of growth currently, access to private investment in MedTech is likely to take longer, and investment in ClimateTech is significantly lagging.
Angel investment is the first external private investment into start-ups. Business angels are successful entrepreneurs and high net worth individuals who invest directly through their family offices or as part of angel networks such as Keiretsu Forum or facilitated angel networks such as Lead Angels and Lets Venture.
In India, individual angels invest in more start-ups than angel networks. Angel investors in India also invest alongside venture capital or private equity funds. In recent years, investments in science-based start-ups have increased, with Ahammune, KB Cols, Ather Energy, Pandorum Technologies leading the way.
Venture Capital and Private Equity (PE) Funding
Venture capital investment in India is made by alternative investment funds and venture capital funds. Currently, there are more foreign venture capital investors in India than domestic funds. VCs investing in India have a sector preference for real estate, services, IT, industrial products, telecom, media, pharmaceuticals and biotechnology and invest in later stages of the commercialisation journey. In India, institutional equity funds focus on consumer tech, financial services, industrial goods, and services. There is very little PE funding going into sectors such as HealthTech, FoodTech and AgriTech.
Exit Routes Investors investing in start-ups in India realise their return on investments through strategic sales or in secondary markets. However, the recent listing of Zomato on the stock exchange and similar expected listings of other start-ups has rejuvenated interest in public market sales. Although avenues such as SME platforms of public exchanges in India are available to raise growth capital, the investment raised by start-ups through them is only in the range of INR 10 crore to INR 15 crore. Hence, it may not be a viable option for financing the growth stages of science-based start-ups. Public listing in foreign markets is another viable exit option for Indian start-ups with $100 million or higher valuations.
Based on data from 2017, rough estimates of returns for VCs range from 1-14X, with the sweet spot being 10X.
Similarly, the average value of a company listing in the public markets is $100M. Irrespective of the multiples, the exit route should provide a high internal rate of return (IRR) for investors. For example, an analysis of investments into Flipkart at the time of its sale to Walmart shows that while an early investor like Accel got a multiple of 1260 compared to a late-stage investor like Softbank, the IRR is around 100% for both the investors.
A related lecture on this topic can here viewed here on the AIM PRIMEYoutube Channel
Lesson 1.2.2
Massachusetts Innovation Hub
The Massachusetts Innovation Hub in the US goes back 150 years and is known for many successful science-based start-ups. The universities in Massachusetts have had a long-time involvement in research-driven economic development.
Key to the success of this model is the active consulting engagements that academic researchers have had with the industry from the very early days. This model of engagement with industry without violating conflict-of-interest policies created opportunities for professors to identify impactful problems early on and to think about practical applications of their research. This engagement fuelled a wealth of research that has the potential to catalyse the growth of the economy.
As discussed above, TTOs in academic institutions play an active role in initiating and completing the technology commercialisation process. Having proactive patenting policies and early-stage financing in place as part of the educational institute infrastructure also helped accelerate the commercialisation efforts.
An example of how poor technology transfer capabilities at university can impact the returns to the university is the meagre returns that the University of Illinois in Urbana Champaign made from the invention of the internet and from the founding of Netscape by the inventor.
A similar cautionary tale on how the economic impact can leak away from the inventors and the local ecosystem can be learnt from the commercialisation of the telephone by Alexander Graham Bell. Bell invented the telephone while working at Boston University. However, the inventor, Boston University, and Boston did not get any economic benefits from the invention. Most of the financial returns from the manufacturing of the telephones accrued to Chicago.
While both the telephone and internet examples above demonstrate the powerful impact of academic inventions, they also offer a cautionary tale on how economic benefits can leak away if the right policies are not put in place by the different players in the ecosystem.They also demonstrate that academia can participate in commercialisation without comprising the academic mission.
Realising this, Karl Compton, President of MIT, proposed using academic technologies to create new industries and lead Massachusetts out of the Great Depression. This proposal led to the thriving mini-computer industry based on academic research in Massachusetts.
The presence of these start-ups attracted larger companies and investors to the cluster. Massachusetts is the birthplace of organised venture capital that thrived on the ecosystem and the region’s proximity to Wall Street.
A similar evolution occurred in the biotechnology space. In 1975, there was just one pharmaceutical company in Massachusetts. Since then, the formation of spinouts from Harvard, MIT, BU, Tufts, and other academic institutions and the founding of the Massachusetts Biotechnology Research Park in 1985 changed this completely.
Massachusetts offered a diversified skill base in start-ups that developed into Fully Integrated Pharmaceutical Company (FIPCO). These developments were made possible due to an academic culture increasingly comfortable with commercialisation and the import of first generation of management skills that were unavailable locally. The thriving venture capital community and federal grant funding also enabled the growth of these ventures. Another key component of the Massachusetts ecosystem is the strong network of incubators. These incubators bring people together and encourage cross-pollination of ideas.
They provide start-ups with facilities to do research and work as economically as possible. They also bring a wealth of business experience in the form of employees and mentors. Even with all these ingredients, it took 25 years for Massachusetts to become a world-leading centre for pharma R&D and biopharmaceutical manufacturing.
Other key ingredients that made this high-tech cluster possible are high quality of life, synergy with local industry and strong cooperation between academia, local industry and government.
More reading links on this topic can be found in the PRIME Library
A related lecture on this topic can here viewed here on the AIM PRIME Youtube Channel
Lesson 1.3.1
From Inventions to Innovations
“Invention is the root of innovation. Innovation is the major force for change in the future”
– Philippe Kahn
Design thinking is a method of creating innovative solutions to solve problems that are difficult-to-articulate or difficult-to-define by understanding the implicit needs of the users. It is especially relevant to situations where the target user is well defined, and the market need is immediate. Design thinking also makes an implicit assumption that the technology required to solve the customer’s problem already exists.
This technique is especially useful for synthesising a unique solution to users’ needs based on existing technologies in science-based entrepreneurship. The emphasis of the method is to go beyond the obvious problems articulated by the customers and understand their implicit or poorly defined, unmet needs. It provides a systematic way to balance the user needs with technical feasibility and economic viability.
“A way to solve a specific problem… in a well-characterized population… in order to achieve a measurable outcome”
While there are several frameworks to implement this method, the broad steps involved in design thinking are as follows:
Needs Identification:
The first step of design thinking is to formulate a hypothesis on the broad problem to solve by doing extensive literature search and review of secondary sources of data about the user. This step is followed by a phase of intensive primary user research to validate or modify the hypothesis. This phase includes observations and interviews of the user and immersion in the user environment. Empathy towards the users and their environment without being prejudicial is crucial to gaining deep insights required in this phase.
Needs Screening:
Dispassionate user research can unearth many potential user needs. These needs are prioritised based on criteria that are relevant to building a successful enterprise. These include the urgency of the problem and economic feasibility. The prioritised list can be further refined based on further rounds of needs identification and screening and inputs from all the relevant stakeholders of the venture.
Ideation and Prototyping:
In this phase, the prioritised set of needs is used to arrive at several product and solution concepts. These concepts are validated based on technical feasibility, usability, time to market and manufacturability using prototyping and storyboards to converge on a solution that satisfies the user needs while creating value for the stakeholders.
An example of this method is the Biodesign methodology developed by the Stanford Byers Center for Biodesign.
More reading links on this topic can be found in the PRIME Library
A related lecture on this topic can here viewed here on the AIM PRIME Youtube Channel
Lesson 1.3.2
Inventive Problem Solving – An Analysis-Driven Approach
In this phase, the prioritised set of needs is used to arrive at several product and solution concepts. These concepts are validated based on technical feasibility, usability, time to market and manufacturability using prototyping and storyboards to converge on a solution that satisfies the user needs while creating value for the stakeholders.
An example of this method is the Biodesign methodology developed by the Stanford Byers Center for Biodesign.
Lesson 1.3.3
Inventive Problem Solving – An Analysis-Driven Approach
In this phase, the prioritised set of needs is used to arrive at several product and solution concepts. These concepts are validated based on technical feasibility, usability, time to market and manufacturability using prototyping and storyboards to converge on a solution that satisfies the user needs while creating value for the stakeholders.
An example of this method is the Biodesign methodology developed by the Stanford Byers Center for Biodesign.
Lorem ipsum dolor sit amet, consectetur adipisicing elit. Sapiente quibusdam pariatur molestiae quam vero repellendus consectetur dignissimos magnam, quia, voluptatum sequi eius dolorem sed perspiciatis repellat cupiditate veritatis. Quis, quo.Lorem ipsum dolor sit amet, consectetur adipisicing elit. Sapiente quibusdam pariatur molestiae quam vero repellendus consectetur dignissimos magnam, quia, voluptatum sequi eius dolorem sed perspiciatis repellat cupiditate veritatis. Quis, quo.Research Cluster: To have a strong pipeline of science-based ventures, we need a strong research cluster that includes high calibre academic and research institutions. These research organisations should have a strong mandate and institutional mechanisms to encourage the commercialisation of research. These include the incorporation of commercialisation as a criterion in peer reviews and funding evaluations for recruitment, promotion, and salary increments. They could also include soft-touch approaches, like celebrating the successes of researchers doing such work. The institutions should also have the flexibility to engage with and recruit high calibre scientists who are supported with the research infrastructure and funding to train high calibre teams and perform top-notch research. 2. Innovation Cluster: The output from research organisations is generally not ready for the market immediately. The intellectual property underlying the science needs to be protected and evaluated for commercialisation potential. These functions are typically carried out by the technology transfer offices (TTOs) that enable IP protection, identification of commercialisation partners and signing of contracts with them. In addition to the TTOs, the innovation cluster should have physical and virtual platforms to bring together people with science, engineering, legal and business skills to interact and form teams to commercialise the science. The innovation cluster should also consist of innovative industry players and consumers willing to accept a less than perfect but potentially better solution to their problems. Apart from this, the ecosystem should have the physical facilities and equipment, standardised test-bedding facilities, and demonstration platforms that all innovators with suitable technologies can access to take the science closer to the market. To keep this whole innovation cluster functioning seamlessly, strong mentorship, substantial long term government funding and patient private capital should also be available in the ecosystem. 3. Entrepreneurship Cluster: Taking any solution to the market and creating impact requires a strong entrepreneurial cluster that supports young start-ups and existing companies developing and commercialising advanced technologies. The components of this cluster include a pool of experienced entrepreneurs and industrial players and a network of incubators and accelerators that support young start-ups with mentoring, product development and business creation activities. The ecosystem should also have a diverse pool of investors who can fund different stages of the venture growth. The ecosystem should also have players who can manufacture the product in different volumes and the infrastructure to support their specialised development and production needs. Finally, easy access to the domestic and international markets is another success factor for commercialising any new solution. 4. Enabling Macro Environment: Pieces of each of the clusters discussed above exist in some shape or form in emerging economies. These clusters need to be connected to create a thriving ecosystem that encourages science-based start-ups. Strong policies that promote patient capital investment and reduce early-stage risk are required. Celebration of successful entrepreneurs, a consistent and clear legal and financial framework, and proactive definition of regulation around adaption of new technologies that are tailor-made to the unique social and cultural norms of the society are a few examples of ways in which an emerging economy can create a strong ecosystem to nurture science-based ventures. More reading links on this topic can be found in the PRIME LibraryResearch Cluster: To have a strong pipeline of science-based ventures, we need a strong research cluster that includes high calibre academic and research institutions. These research organisations should have a strong mandate and institutional mechanisms to encourage the commercialisation of research. These include the incorporation of commercialisation as a criterion in peer reviews and funding evaluations for recruitment, promotion, and salary increments. They could also include soft-touch approaches, like celebrating the successes of researchers doing such work. The institutions should also have the flexibility to engage with and recruit high calibre scientists who are supported with the research infrastructure and funding to train high calibre teams and perform top-notch research. 2. Innovation Cluster: The output from research organisations is generally not ready for the market immediately. The intellectual property underlying the science needs to be protected and evaluated for commercialisation potential. These functions are typically carried out by the technology transfer offices (TTOs) that enable IP protection, identification of commercialisation partners and signing of contracts with them. In addition to the TTOs, the innovation cluster should have physical and virtual platforms to bring together people with science, engineering, legal and business skills to interact and form teams to commercialise the science. The innovation cluster should also consist of innovative industry players and consumers willing to accept a less than perfect but potentially better solution to their problems. Apart from this, the ecosystem should have the physical facilities and equipment, standardised test-bedding facilities, and demonstration platforms that all innovators with suitable technologies can access to take the science closer to the market. To keep this whole innovation cluster functioning seamlessly, strong mentorship, substantial long term government funding and patient private capital should also be available in the ecosystem. 3. Entrepreneurship Cluster: Taking any solution to the market and creating impact requires a strong entrepreneurial cluster that supports young start-ups and existing companies developing and commercialising advanced technologies. The components of this cluster include a pool of experienced entrepreneurs and industrial players and a network of incubators and accelerators that support young start-ups with mentoring, product development and business creation activities. The ecosystem should also have a diverse pool of investors who can fund different stages of the venture growth. The ecosystem should also have players who can manufacture the product in different volumes and the infrastructure to support their specialised development and production needs. Finally, easy access to the domestic and international markets is another success factor for commercialising any new solution. 4. Enabling Macro Environment: Pieces of each of the clusters discussed above exist in some shape or form in emerging economies. These clusters need to be connected to create a thriving ecosystem that encourages science-based start-ups. Strong policies that promote patient capital investment and reduce early-stage risk are required. Celebration of successful entrepreneurs, a consistent and clear legal and financial framework, and proactive definition of regulation around adaption of new technologies that are tailor-made to the unique social and cultural norms of the society are a few examples of ways in which an emerging economy can create a strong ecosystem to nurture science-based ventures. More reading links on this topic can be found in the PRIME Library
Lorem ipsum dolor sit amet, consectetur adipisicing elit. Sapiente quibusdam pariatur molestiae quam vero repellendus consectetur dignissimos magnam, quia, voluptatum sequi eius dolorem sed perspiciatis repellat cupiditate veritatis. Quis, quo.Lorem ipsum dolor sit amet, consectetur adipisicing elit. Sapiente quibusdam pariatur molestiae quam vero repellendus consectetur dignissimos magnam, quia, voluptatum sequi eius dolorem sed perspiciatis repellat cupiditate veritatis. Quis, quo. Research Cluster: To have a strong pipeline of science-based ventures, we need a strong research cluster that includes high calibre academic and research institutions. These research organisations should have a strong mandate and institutional mechanisms to encourage the commercialisation of research. These include the incorporation of commercialisation as a criterion in peer reviews and funding evaluations for recruitment, promotion, and salary increments. They could also include soft-touch approaches, like celebrating the successes of researchers doing such work. The institutions should also have the flexibility to engage with and recruit high calibre scientists who are supported with the research infrastructure and funding to train high calibre teams and perform top-notch research. 2. Innovation Cluster: The output from research organisations is generally not ready for the market immediately. The intellectual property underlying the science needs to be protected and evaluated for commercialisation potential. These functions are typically carried out by the technology transfer offices (TTOs) that enable IP protection, identification of commercialisation partners and signing of contracts with them. In addition to the TTOs, the innovation cluster should have physical and virtual platforms to bring together people with science, engineering, legal and business skills to interact and form teams to commercialise the science. The innovation cluster should also consist of innovative industry players and consumers willing to accept a less than perfect but potentially better solution to their problems. Apart from this, the ecosystem should have the physical facilities and equipment, standardised test-bedding facilities, and demonstration platforms that all innovators with suitable technologies can access to take the science closer to the market. To keep this whole innovation cluster functioning seamlessly, strong mentorship, substantial long term government funding and patient private capital should also be available in the ecosystem. 3. Entrepreneurship Cluster: Taking any solution to the market and creating impact requires a strong entrepreneurial cluster that supports young start-ups and existing companies developing and commercialising advanced technologies. The components of this cluster include a pool of experienced entrepreneurs and industrial players and a network of incubators and accelerators that support young start-ups with mentoring, product development and business creation activities. The ecosystem should also have a diverse pool of investors who can fund different stages of the venture growth. The ecosystem should also have players who can manufacture the product in different volumes and the infrastructure to support their specialised development and production needs. Finally, easy access to the domestic and international markets is another success factor for commercialising any new solution. 4. Enabling Macro Environment: Pieces of each of the clusters discussed above exist in some shape or form in emerging economies. These clusters need to be connected to create a thriving ecosystem that encourages science-based start-ups. Strong policies that promote patient capital investment and reduce early-stage risk are required. Celebration of successful entrepreneurs, a consistent and clear legal and financial framework, and proactive definition of regulation around adaption of new technologies that are tailor-made to the unique social and cultural norms of the society are a few examples of ways in which an emerging economy can create a strong ecosystem to nurture science-based ventures. More reading links on this topic can be found in the PRIME LibraryResearch Cluster: To have a strong pipeline of science-based ventures, we need a strong research cluster that includes high calibre academic and research institutions. These research organisations should have a strong mandate and institutional mechanisms to encourage the commercialisation of research. These include the incorporation of commercialisation as a criterion in peer reviews and funding evaluations for recruitment, promotion, and salary increments. They could also include soft-touch approaches, like celebrating the successes of researchers doing such work. The institutions should also have the flexibility to engage with and recruit high calibre scientists who are supported with the research infrastructure and funding to train high calibre teams and perform top-notch research. 2. Innovation Cluster: The output from research organisations is generally not ready for the market immediately. The intellectual property underlying the science needs to be protected and evaluated for commercialisation potential. These functions are typically carried out by the technology transfer offices (TTOs) that enable IP protection, identification of commercialisation partners and signing of contracts with them. In addition to the TTOs, the innovation cluster should have physical and virtual platforms to bring together people with science, engineering, legal and business skills to interact and form teams to commercialise the science. The innovation cluster should also consist of innovative industry players and consumers willing to accept a less than perfect but potentially better solution to their problems. Apart from this, the ecosystem should have the physical facilities and equipment, standardised test-bedding facilities, and demonstration platforms that all innovators with suitable technologies can access to take the science closer to the market. To keep this whole innovation cluster functioning seamlessly, strong mentorship, substantial long term government funding and patient private capital should also be available in the ecosystem. 3. Entrepreneurship Cluster: Taking any solution to the market and creating impact requires a strong entrepreneurial cluster that supports young start-ups and existing companies developing and commercialising advanced technologies. The components of this cluster include a pool of experienced entrepreneurs and industrial players and a network of incubators and accelerators that support young start-ups with mentoring, product development and business creation activities. The ecosystem should also have a diverse pool of investors who can fund different stages of the venture growth. The ecosystem should also have players who can manufacture the product in different volumes and the infrastructure to support their specialised development and production needs. Finally, easy access to the domestic and international markets is another success factor for commercialising any new solution. 4. Enabling Macro Environment: Pieces of each of the clusters discussed above exist in some shape or form in emerging economies. These clusters need to be connected to create a thriving ecosystem that encourages science-based start-ups. Strong policies that promote patient capital investment and reduce early-stage risk are required. Celebration of successful entrepreneurs, a consistent and clear legal and financial framework, and proactive definition of regulation around adaption of new technologies that are tailor-made to the unique social and cultural norms of the society are a few examples of ways in which an emerging economy can create a strong ecosystem to nurture science-based ventures. More reading links on this topic can be found in the PRIME Library
Lesson 3.2
Stakeholder Management
Eric Ries defines a start-up as a human institution designed to bring something new [to the market] under conditions of extreme uncertainty. It is also a team sport that requires active contribution from various stakeholders at different stages of the commercialisation journey. These stakeholders include an internal team comprising founders and employees actively involved in the commercialisation journey and external stakeholders like investors, external board members, consultants, advisors/mentors, suppliers, customers, partners, and government. Each of these stakeholders plays a specific role in building the start-up as described below:
- Promoters – These are the stakeholders who incorporate the business and nominate the first board of directors and auditor for the company. In India, they take on obligations under SEBI regulations.
- Founders – Founders are people who establish the business. Not all founders need to be promoters, and not all promoters need to be founders. As the new venture evolves, the founders should act reasonably and in the company’s best interest individually and as a group. They should also sign a co-founders agreement discussed in Section 3.1
- Employees – These stakeholders and the full-time founders driving the commercialisation effort form the heart of a venture. These stakeholders have an employment contract with the Company. Some of these employees form part of the management team. Members of the management team who are not founders may be recruited by the Board of Directors (BOD) directly. Some members of the management team like the CEO and CFO may have reporting obligations to the board.
- Shareholders – These are stakeholders that invest in the company in exchange for a share of the equity. Some of these shareholders may take on promoter obligations. Early shareholders include full-time and part-time founders, incubators and accelerators, technology owners and early-stage investors. These early shareholders become part of the company when there is significant uncertainty and high risk. Hence, they should have a “trustee orientation” towards the company and be willing to do whatever it takes to make the company successful. These early shareholders should also be flexible and provide freedom to full-time founders to make the right decisions required to build the company rapidly. They can also provide critical inputs such as defining the vision for the business, general strategy and early aggregation of essential components. Credibility, access to business networks, vital services and facilities, intellectual property, funds, guidance and mentoring are the other forms in which an early shareholder may add value.
- Members of the Board of Directors (BOD) – A registered company should have a BOD to set its strategic direction and supervise its activities. A board can include executive directors, nominees of shareholders representing their respective interests and independent members who have no direct stake in the company. The members of the BOD are collectively responsible for taking care of shareholder interests and ensure discipline and good practices in governance and overall operations. They add to the company’s credibility and reputation and can help the management team with referrals, access to business networks and funding sources. The management team of a company has a fiduciary responsibility to report to the BOD and implements the policies created by the board.
- Consultant/Advisor – These are individuals or organizations that provide advice and services on a contractual basis. They may be part of an Advisory board that the company constitutes for seeking non-binding strategic advice.
- Pro-bono Advisors, Mentors – These individuals provide their support and services without seeking any commercial arrangement.
It is not uncommon to have a single person playing the role of different stakeholders in a venture. For example, a founder could be a promoter, shareholder, board member, and employee. Similarly, an employee could be a director of the company.
As discussed above, the full-time founders and the employees form the heart of a start-up team. The full-time founders are entrepreneurs and go through two phases of the entrepreneurial journey iteratively.
In the first phase, they conceptualise the business idea and take a leap of faith to exploit a potential opportunity they have identified. This ideation phase requires creativity, aspiration and ambition. In the second phase, they execute the idea by managing technology development, teams, finances, communication, market entry. In this phase, the entrepreneurs need to have grit, perseverance, and the ability to make decisions in the face of uncertainty and limited resources to move the company forward. Iterating over these phases requires patience, resilience and commitment towards the broader vision and goals of the company. The entrepreneurs should also have a sense of responsibility towards all stakeholders and appreciate the value of a team. As the company grows, they should also learn to trust their team and delegate responsibilities.
The early leadership team of a technology-based start-up comprises the following three primary roles :
- Business lead (or CEO) responsible for the business strategy and opportunity identification. This individual is the final decision-maker inside the company and reports to the board. The individual is also the external face of the company handling relationships with investors and key external stakeholders.
- Technology lead (or CTO) responsible for technology strategy, its execution, intellectual property management and scientific partnerships.
- Operations lead (or COO) – which can be a part-time role to start with – is responsible for all operations, administration, finance, HR and compliance. This individual is responsible for partnership agreements, certifications and regulatory approvals and the physical facilities used by the start-up.
As the team progresses along the commercialisation journey, the composition of the team and the key skills required change significantly.
In the early stages of the idea development, the team comprises almost entirely of researchers working in their labs. Once a POP is demonstrated in the lab and the development process moves towards POC, the team must be multi-disciplinary. Apart from the research team it will include engineers and legal consultants who can do patent drafting and contracts. Beyond the POC stage, a dedicated entrepreneurial team should be added to the engineering and research teams to take the idea forward. At this stage, the teams need to have techno-commercial synthesis skills to understand and integrate a range of technologies and couple technology capability with the market’s needs. This entrepreneurial team will define the target market, identify early target customers, address scaleup issues and estimate financial resource requirements.
Legal expertise to make strategic decisions on IP protection is also required as the team starts collaborations with external partners and customers. As the team moves beyond the POV stage, the role of the researcher comes down, and entrepreneurship and engineering drive the development process. As the team seeks external funding, expertise in financing and related legal contracts becomes more and more critical for the success of the effort. Beyond the Product-Market fit stage, the team looks more and more like a large business venture with business, operations and finance driving the developments.
Apart from the changing nature of the team composition and skills, the leadership team needs to focus on the completeness of the team and assess if the skill sets of the team match the critical success factors of the business at any given time.
While the rapid changes in the team’s skillsets and the way they are organized around the leadership evolves, it is important to ground the venture with a strong culture and a compensation structure that aligns with its goals. Start-up cultures are typically characterised by flat structures which empower people to take on multiple roles and make rapid decisions. It is based on a clear understanding of the vision for the venture and individual contributions towards achieving it. The compensation structure should align with this dynamic, empowering culture. Apart from the intangibles such as opportunities to realize one’s full potential, having a sense of purpose and being part of something bigger than the individual, a start-up can provide tangible benefits such as flexible work arrangements, opportunities to broaden one’s network, mentor others, and acquire new skills. Formal compensation package can include a fixed component, a variable component linked to individual and overall venture performance and opportunity to participate in the company’s growth via instruments like stock appreciation rights and ESOPs. While equity-linked compensation is not appropriate for all employees – especially those who do not influence the company’s direction – it is a great way to motivate the leadership team and employees who are emotionally vested in the venture’s success.
One of the critical challenges for the leadership team as they progress along the commercialisation journey is scaling the organization by adding new people, processes, and structure. As the team grows, roles become less fluid, and access to the leaders becomes restricted. People become more specialised and are organised into a hierarchy. This shift can be very disorienting and disempowering for employees, especially those who went beyond their duty from the early days. Effective communication about the importance of the transition for the company is essential to make this transition successfully. The leadership team should also involve the early employees in shaping the new processes and structures to get their buy-in. The team should also be trained to mentor and coach the next level of leadership. As the team and activities grow, a structured process for managing and prioritising the activities of the venture is also required.
More reading links on this topic can be found in the PRIME Library