Government should support startups with loan guarantees: Romesh Wadhwani

By December 1, 2014 No Comments

Romesh Wadhwani became one of the richest Indians in the US in 2000 when he sold his software firm Aspect Development to i2 Technologies for an all-stock deal of $9.3 billion, the largest merger in the history of the software industry then. He lost a lot of that money when i2’s share price crashed in the internet bust, but subsequently rebuilt his fortunes through investments in a range of software and services firms through his Symphony Technology Group. In 2011, he was No. 212 in Forbes’ list of richest Americans . Wadhwani, who left for the US in 1969 after graduating from IIT-Bombay when he was 22, is now as focused on philanthropy – through the Wadhwani Foundation – as he is on his investments. On a recent visit to Bangalore , he spoke to TOI on both of these passions.

Your most recent grants suggest your interests are moving beyond IT.

I have just funded a centre for cardiac and neural research using stem cells technology in NCBS (National Centre for Biological Sciences, Bangalore). It’s a great institute. Earlier, I gave a large grant to IIT-Bombay to set up a worldclass research centre in bioscience and biotech. I’m thinking of expanding research to other areas.

If you look at the major industries of the future, IT and mobile are way up there. But the innovation there really has to come from those like TCS, Infosys and Wipro. Right now it’s all labour arbitrage, no innovation. Sooner or later I hope they (big Indian IT companies ) will spend more on R&D. It’s not an area I want to get into.

Bioscience and biotech offer many opportunities. The US focuses on the rich man; India has rich man diseases and poor man diseases. So you have a much larger set of opportunities . If you look at the pharma industry in India, it is 99.9 per cent of revenues generated through sale of generics. India has not done a single original molecule. I want to take research to world class levels. The talent is there, but nobody is challenging them. Nobody is giving them the right infrastructure and equipment .

You initiated and funded the National Entrepreneurship Network (NEN). How do you see its impact?

Seven years ago, there were zero colleges in India teaching entrepreneurship. Thanks to NEN, today 600 colleges (out of India’s top 1,000) offer entrepreneurship courses, 500,000 students are graduating from these courses every year. NEN developed a curriculum, developed a programme to create educators in entrepreneurship, trained 1,200 teachers, established a website for networking and support. Colleges love the fact that they can have an entrepreneurship curriculum without any investment.

Out of the half a million who take the courses, about 20 per cent join e-clubs, the next level of learning, where they learn how to run companies, get a sense of P&L, etc. Just last year, about 230 companies were formed by these students. Some students want to work for 2-3 years, make some money and then start a company. Entrepreneurship is the future; it’s the way to accelerate economic development.

Are you doing anything to enable funding for these ventures?

We have a mentoring and angel investing programme. We are also talking to the government to help create a VC industry. In the US, VC companies were triggered with government support.

We are also talking to the government to provide guaranteed loans to startups. In the US, there were two very successful government programmes for supporting startups. One was the Small Business Investment Corporation (SBIC), where the government would give you $3 or $5 for every $1 that you raised. After that you are responsible for making the investment, the government does not interfere. The other was the Small Business Loan Guarantee Programme, where if you go to a bank for your early stage company, and you don’t have demonstrated cash flows, the government would guarantee 90 per cent of the loan. So the bank has the incentive to give the loan. These opened up so much capital, without all the egregious demands that venture capitalists make.

The rate of company formation from our NEN programme is doubling every year. The number of students in these programmes is doubling every year. If we had those government sponsored programmes, these numbers would be many more. The government may not get back some of the money, but on balance it will gain a lot from the companies that become successful. And the economy gains enormously.

Is your Foundation involved in anything else in India?

We are building a large-scale skills development programme. The government has established some 7,000 industrial (vocational) training institutes, but their success rate is very low. Nobody is accountable for relevance of the training, how many have been placed.

We commissioned a team to identify the scope of the problem. This team came up with the remarkable estimate that the number of kids who drop out in grades 10, 11 and 12, and in first year of college, is over 10 million a year. These 10 million mostly become labourers at construction sites, clerks or peons, earning Rs 1000 to Rs 3,000 a month. We came up with the idea of creating a next generation network of community colleges that would deliver market-driven vocational training. We have been asked by the government to come out with policy ideas. The Wadhani Foundation will fund the entire knowledge infrastructure , including defining the vocational courses that would be relevant – auto mechanics or crane operators, as opposed to gardeners or peons. Many airlines today hire 12th graders, so there are a variety of jobs where a 12th grader , with a targeted 1-year training, can become very productive. The job creation would be in the millions.

We are doing some pilot projects. We need to do these things at scale, has to be outcomes driven. I have said the funding is unlimited; it is limited only by our ability to execute.

We’ll eventually take these concepts to Africa and other emerging countries. But I would like every idea to be tested and validated in India. While I would like to support multiple emerging economies, my heart is here.

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