Our fascination is for those start-ups that are based on the premise of quick money by ‘disrupting’ existing business models by using software in a way where they immediately become valued as businesses worth millions of dollars. Photo: iStockphoto Some months ago, I penned a column that described how start-ups based on ideas that come from deep science face a tough ecosystem in India. The start-ups are usually formed through the creative thinking of professors and researchers at some of the most lauded scientific institutions in our country, such as the Indian Institute of Science (IISc) and the Centre for Cellular and Molecular Platforms.
Information technology (IT) services providers are often faulted for not having any “original” product ideas. The common refrain is that IT services firms are not original enough, and seek to profit only on the deep technology advancements made by other firms, usually based in Silicon Valley. However, to be fair, Infosys Ltd and some of the other firms in this category such as Wipro Ltd and Tata Consultancy Services Ltd (TCS) have actually been hard at work to retool their operations to allow for the creation of new technology “products” such that these become an increasingly important part of their eventual go-to-market propositions. They have also taken to flirting with deep science to achieve a part of this vision. A recent news article doing the rounds speaks of a tie up between IISc and Wipro in the area of 3D printing, and another tie-up between IISc, TCS, and Bosch Ltd, which is focused on smart factory sciences.
That said, we seldom think of scientists as doing anything that is going to be of any immediate practical or transactional value in our daily lives. This is also so with deep science-based start-ups. Our fascination is for those start-ups that are based on the premise of quick money by “disrupting” existing business models by using software in a way where they immediately become valued as businesses worth millions of dollars. Money managers and investors that are smart enough to understand that there is a long gestation period for some of these advanced scientific concepts to fructify into commercially viable products are few and far between. There is no patient money at work with these start-ups.
This is not a problem unique to India. Scientists the world over have had difficulty in having their research findings come to life. The MIT Technology Review carries a typical story about how innovators in deep science are finding it difficult to translate their research into viable businesses due to the lack of understanding, patience, and support from the wider financial ecosystem.
Written by Ilan Gur, founding director of Cyclotron Road, a venture capital (VC) firm that invests in hard science, this short article captures the core of the issue in deep science investments. Gur, while describing the scientists’ conundrum, writes: “Their projects are too applied for academic labs, which focus narrowly on new scientific discoveries. Meanwhile, private industry can’t justify investment in expensive research that doesn’t yet have clear commercial potential. Faced with this chasm, even the best innovators struggle. Many are bound to say: ‘why bother?’ Can we blame them?
So how do we keep them in the game? For starters, we need to do a better job catalyzing the creation of science-based start-ups and supporting cutting-edge research within them. Free from the institutional pressures of academic publication or corporate quarterly earnings, start-ups can serve as powerful vehicles to bring hard technologies to market. Such firms often spend years performing research to develop a first product. Yet, despite driving some of the biggest technology disruptions in recent history, such start-ups receive only a small percentage of all funding. If this was a software innovator, he could build a prototype and validate his product in months with little more than a laptop. But to innovate in semiconductor technology, he would need the tools of cutting-edge research—fume hoods, spectrometers, electron microscopes. He would also need time. Turning a semiconductor breakthrough into a market-ready product can take years.”
Columbia University Press recently published a book titled Venture Investing in Science by Douglas Jamison and Stephen Waite. The heart of the book is about the “diversity breakdown” in venture investing. A diversity breakdown ultimately leads to the collapse of systems—for instance, the Dotcom bubble of 2000, which in my mind looks ominously similar to the ever expanding “digital” balloon we are seeing today. The authors’ premise is that with more venture capital being diverted to software investments, there is less money flowing towards investing in deep science, which could ultimately result in a collapse of the VC system. The authors back their claim with extensive economic data points, their key underlying message being “software is eating the world”.
The authors go on to argue in favour of emerging deep science venture opportunities in areas such as quantum computers, hydrogen fuel cells, nanomaterial enabled water filtration, precision health and so on that could provide growth and prosperity if we could find a way back to bring diversity back to venture capital investing. They build a strong case by telling the story of Digital Equipment Corporation, a company originally built on deep science innovation, that eventually returned a 500-fold return to its VC investors.
However, there does appear to be a silver lining to the cloud of “diversity breakdown”. The authors point out that while most Silicon Valley VCs continue to shun deep science ventures in favour of software investments, established companies like Google and Facebook Inc. have stepped up investing in deep science. In addition, they believe that the success of Elon Musk’s ventures may also lure VCs back to deep science investments.
Back home, great amounts of money have been pushed by angel investors and VCs into the start-up ecosystem—most of it going towards software start-ups, making it hard for those who are trying to build businesses in deep science. I hope that the willingness of firms such as Wipro and TCS to pair themselves up with Indian science is the silver lining to the cloud of the diversity breakdown in venture investing in India.
Siddharth Pai is a world-renowned technology consultant who has personally led over $20 billion in complex, first-of-a-kind outsourcing transactions.
First Published: Tue, Nov 14 2017. 12 14 AM IST