Business Impact

Can India Plug Its Brain Drain?

IIT Bombay is using its technology incubator to counter the exodus of its brightest graduates to the West

For years, it was talked about as India’s “Brain Drain.” Smart young students would take one of the most competitive entrance examinations in the world, get a bachelor’s degree in engineering-and promptly go West.

Every year, out of the 250,000 students who appear for the entrance exams conducted by the seven Indian Institutes of Technology (located in Mumbai, Delhi, Kharagpur, Kanpur, Chennai, Guwahati, and Roorke), only 3,000 or so get selected. IIT professors estimate that about 25 to 30 percent graduates leave India right after the graduation. Many others gain some work experience before going abroad for a master’s degree in either business or science, or on an H1B visa that enables them to work in the United States.

The result: IIT graduates are scattered across the high-tech world and can be seen aplenty in Silicon Valley and in organizations such as NASA, Microsoft, and IBM. The roster includes ace venture capitalist Vinod Khosla of Kleiner Perkins; Arun Netravali, former president of Lucent Technologies’ Bell Labs; Rajat Gupta, former managing director of McKinsey; Gururaj Deshpande, founder of Sycamore Networks; Arun Sarin, CEO of Vodafone; Victor Menezes, senior vice chairman of Citigroup; and Raghuram Rajan, chief economist of the International Monetary Fund. Even the comic strip character Asok, from Dilbert, comes from IIT. No wonder Businessweek called IIT graduates one of the “hottest exports India has ever produced.”

That wasn’t the plan, exactly. Established by India’s first Prime Minister, Jawaharlal Nehru, and initially modeled on MIT, the IITs were supposed to lead India into the modern age. Instead, however, there has been an outflow of students to greener pastures (read: dollar salaries).

Three years ago, in an effort to slow this exodus, IIT Bombay (it retains the name Bombay even though the city is now called Mumbai) set up an information technology incubator at the Kanwal Rekhi School of Information Technology, or KReSIT. The incubator is slowly building a culture of entrepreneurship by encouraging IIT’s best and brightest to stay in India. The IIT connection ensures that these startups concentrate on high-value areas such as building intellectual property and products. This stands in contrast to the many Indian companies that focus on software services and business process outsourcing-the activities that are causing a U.S. backlash against India. The startups at the incubator work in a variety of technical fields, including routing technology, information security, robotics, business activity monitoring, electronic design automation, and decision support systems for financial institutions.

D. B. Phatak, the IIT Bombay professor who started KReSIT, says that the incubator was a fundamental part of the vision for KReSIT. “Capable people will move from low-opportunity areas to high-opportunity areas. Therefore we have to create opportunities in India and promote people who are young and ambitious.” As part of KReSIT’s charter of pursuing applied research, the incubator was set up to commercialize technologies and create a challenging environment that would encourage the IITians to stay in India.

The IIT Bombay incubator is the first one to be set up at the IITs and the seeds of entrepreneurship, are slowly taking root. The incubator takes a stake of three percent of the equity of the incubated companies. Of the 13 companies spawned at KReSIT, four have moved out of the incubator. Three of these companies have raised their first round of funding, and one is already self-sustaining.

Several government departments have stepped forward to support the initiative. As a result, the incubator is expanding from its tiny 28-square-meter area into a separate building with 900 square meters of space, and has raised approximately $1 million to fund its activities. Following IIT Bombay’s example, IIT Delhi and IIT Kanpur have set up their own business incubators and IIT Madras (located in Chennai) is in the process of setting one up. Despite the downturn that followed the dotcom bust, interest remains high, and many students vie for each place in the incubator.

While it is too early to draw conclusions, there are initial indications that the incubator has been successful in persuading IITians to take up entrepreneurship as a career option. Take, for example, Vishal Gupta. Once the entrepreneurship bug bit him, Gupta turned down full scholarships from Cornell and the University of Southern California; instead, he turned his thesis on rules-based event engines for fingerprinting into the core technology of a startup he launched at IIT Bombay called Herald Logic. The company develops software that enables companies to monitor key parameters of their business. For example, if a fund manager’s performance falls below that of the market index, Herald Logic’s software can trigger alerts to those responsible for running the organization.

The company was launched with $2,000 from Gupta’s father’s retirement money; it now sustains itself on its own revenues. Gupta says that the IIT Bombay incubator was a huge help in the initial cash-strapped days; the exchange of “war stories” with other incubated companies, he says, accelerated his learning process. Moreover, he adds, the IIT branding opens doors that would otherwise be closed to most startups and is an invaluable help in marketing the company and its products.

Another graduate who refused the blandishments of the corporate world is Reapan Tikoo, co-founder of Powai Labs, a startup that builds simulation accelerators for the electronic design automation industry. Tikoo, who earned a master’s degree in management from IIT, was offered a high-paying job as a production executive in the entertainment industry. He opted instead to convert the business plan he wrote for his degree into a real-life enterprise.

The incubator would not have been possible in the past, Phatak says, due to cultural reasons. He cites “a change in the mind-set” in India toward a more entrepreneurial outlook: “wealth generation is considered good,” Phatak says. “These conditions did not exist in India during the 1980s.”

Kanwal Rekhi, the IIT Bombay benefactor after whom KReSIT is named, adds that the phenomenal growth of Indian information technology services companies such as Infosys and Wipro-which have come within striking distance of the billion-dollar mark by riding the outsourcing wave-has also made an impact on the Indian psyche. Entrepreneurship, especially in the technology industry, is now firmly established as a viable career option in India.

Both Rekhi and Phatak agree that the incubator has a long way to go before it replicates the entrepreneurial record of U.S universities like MIT and Stanford. However, several successful entrepreneurs and professionals who made it big in the west are now helping out by contributing time and money. Anna Lee Saxenian, a professor of city and regional planning at the University of California, Berkeley who studied immigrant Indian and Chinese entrepreneurs in the high-tech industry, calls this phenomenon “brain circulation.”

Rekhi himself is the former CTO of Novell and founder of The Indus Entrepreneurs, an organization that promotes entrepreneurship. Other mentors to the incubator include Nandan Nilekani, CEO of Infosys, one of India’s most successful software companies; Rakesh Mathur, who sold the e-commerce company Junglee to Amazon.com; and Suhas Patil, co-founder of Cirrus Logic. 

The IIT brand name may give its students a head start but obstacles still remain. The venture capital ecosystem in India is still nascent. Indeed, says Phatak, venture capital in India is more of a glorified loan rather than a true risk. “The nature of VC funding in India does not match the ethos of funding in the United States, where VCs are involved in mentoring, giving ideas, and helping hire CEOs and CTOs,” he says. In India, he explains, venture capitalists “make you feel they are more interested in protecting their capital than in taking a true risk.” Gupta of Herald Logic says that building a product company in India is difficult because technology adoption within Indian companies is slow. “You are in the midst of laggards, trying to find early adopters,” he says.

Despite these challenges, R. K. Lagu, the IIT Bombay electrical engineering professor who is in charge of the incubator, says that there is great interest. “The incubator started as an IT incubator but now faculty and students from other disciplines have also become interested,” says Lagu. He adds that initially, most business plans were from final year undergraduate students but in the last two cases it has been a faculty-student combination.

Powai Labs’ Tikoo sums up the attitude of IIT Bombay’s entrepreneurs when he says, “There was a time when India did exports through cheap labor, but that time has gone. You cannot build an Infosys today with any amount of capital. The next ten years will belong to technology R&D based product companies out of India.”

Tikoo adds that 20 years ago, the United States was the place to be for technological entrepreneurs. But now, he says, growth and investments are happening in India. “This is where the action is. It would be foolish to miss this opportunity by being out of India.”

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