It’s the idea, not the money

Talk to the government in India, and the answer you’ll get is obvious: we don’t have those kind of funds. Frankly, that’s missing the wood for the trees. The issue is not of the fewhundred million dollars that the Israel government spends each year in providing assistance to these units.

The issue is of the manner in which this is done, and the people chosen to do this job. Way back in 1984, for example, the Israel government enacted a law called The Encouragement of Industrial Research & Development to help hi-tech companies. Frankly, I can’t even conceive of any government in India actually thinking that R&D needs to be encouraged so proactively.

Even if it does, it will find some bureaucrat to select the companies that need to be encouraged, and for disbursing the necessary funds. Contrast this with the Office of the Chief Scientist, which does this job in Israel. The current incumbent, Orna Berry, is a PhD in computer science, has worked for IBM and Unisys, and co-founded a company which developed innovative LAN-switching systems which she finally sold to Siemens. Yes, most people who occupy this post tend to have similar hi-tech entrepreneurial backgrounds. How else can theypick ventures that need to be encouraged, and help them in a meaningful manner? The fact that 35 per cent of the budget of the Chief Scientist’s office comes from royalty payments from ventures which are now doing well, speaks volumes for the success of the programme.

Take the Israel-US Binational Industrial Research and Development Fund (BIRD), for instance, which is one of the ways designed to help entrepreneurs. BIRD funds 50 per cent of project costs and receives royalties upto a maximum of 1.5 times the size of the original grant. At the beginning of the decade, 26 of the 34 Israeli companies listed on Nasdaq in the US were those who had originally got assistance from BIRD. The $30 million incubator programme run by the Chief Scientist also shows a similar successful track record. There are 26 incubators across Israel which are essentially centres which try and provide support systems for technical people, either through funding, helping identify suitable partners, and even providing guidance ofindustry leaders.

One of incubators I visited in Israel recently, had several start-ups doing work in the field of medical electronics. Guess what? They had pharmaceutical giants like Teva on their board to guide such companies — Teva, in fact, has a vice-president on the board of one of the start-ups that’s doing work in the field of dialysis machines and has bought equity in another one of this incubator’s firms which makes simulation systems for training dentists. This incubator, in fact, has its own revolving loan fund, a $30 m venture capital fund and even a hi-tech investors’ group to which, every three or four months, it recommends a few start-ups for investment.

That, in fact, is the crux of the difference between the Israeli way of encouraging entrepreneurs and, say, the Indian way. The Israelis will invest money and time in them, but in a very focussed manner. Grants upto 50 per cent of the total R&D budget, for example, are typically given for a year or so, but only to projects where a newproduct is being manufactured, or there is a significant improvement to an existing industrial process. Similarly, when it was found that the salaries of Israeli engineers were going up dramatically and reducing the cost advantage vis-a-vis the US, the Chief Scientist’s office decided to start paying 30 per cent of this, but only for those employees engaged in R&D for new products. The idea, after all, is to develop core competence for the future.

And when the government decided that it needed to attract foreign venture capitalists to take up stakes in fledgling enterprises, it decided to smoothen their path somewhat. It came up with a fund of $150 m and said that it would invest money also basically, share some of their risk. It’s a different matter that they thought this money would last three years, and that the rush of foreign venture capitalists ensured that the money ran out in just eight months.

It’s not as if this doesn’t happen in India — we have scores of such programmes for small-scaleindustries. The reason, however, why one doesn’t hear of such a large number of success stories, or why there isn’t an Israeli sort of momentum, stems from the lack of focus to these programmes. The absence of the big idea, or the ability to fuse entrepreneurship with ideas, is what is missing. But then, what else can you expect in a country which, largely, thought Sam Pitroda and his work at C-DoT was a farce?