It was a breath, rather a gust, of fresh air. In its organisational design, in hiring, and, importantly, in how it funded the industry. As Maharaj K Bhan, the then secretary of DBT, pushed for reforms, he’d field volleys of queries from the finance ministry which, while appreciative of new processes, was cognizant of the Comptroller and Auditor General’s (CAG) scrutiny. Remember, it was the time when CAG reports set in motion legal ordeals for various departments. Bureaucrats were more concerned about “recovery and saving their skin” than the success of startups. Yet, here was an about-to-be-born organisation which wanted complete freedom on hiring and firing, on offering salaries, on deciding the career path of lateral hires and backing risky ideas.
“I told them I’d take approval for the percentage of the total budget spent on human resources but whether I want 100 low paid employees or 30 high paid ones, that’s my call,” recalls Bhan.
How would Birac keep corruption low?
“Predominance of women”, Bhan would counter.
True to that spirit, in the initial years, 90% staff was women. Renu Swarup, who, as a DBT member secretary, was part of the early discussions in 2007-08, became the first managing director when Birac was officially set up as non-profit public sector enterprise in 2012.
In the six years of its formal set up and until FY18, Birac has ensured Rs 1870 crore ($268 million) in funding support to 750 startups and entrepreneurs—Rs 942 crore ($135 million) out of its own budget, Rs 928 crore ($133 million) from the industry. Basis its funding philosophy, the industry gets money only if it matches Birac’s grant with its own commitment, dollar for dollar. Such funding was the lever most in the biotech industry needed to start or rev up their innovation engine. Even for medium-to-large companies which knew they must rely on their independent innovation capabilities which, in turn, rely on higher R&D spending.
At the time, there was no organised market to do new things, solve problems, get buyers and create opportunities. Birac has corrected that phenomenal market failure to a great extent. Now there’s irons in the fire. The grant size now going to be bigger than an average Series A venture capital investment in India. The new Rs 150-crore ($21 million) AcE (Accelerating entrepreneurs) fund, soon to begin the draw-down, will attract additional Rs 150 crore in risk capital from private funds.
It’s time then for Birac to make big calls, go from surface novelty to a revolution. Does it have what it takes to be industry-changing?
“It has done proof of concept of itself. It was nimble for yesterday but is it nimble for tomorrow? I can’t provide you with the answers yet because we haven’t begun that exercise,” says Pankaj Chandra, former director of IIM-B, a member of the Birac board, and the current vice-chancellor of Ahmedabad University. This story is an exercise in that direction.
The BIG dig
The Birac framework that the Union Cabinet approved in 2011 said, it’d “nurture the industry and enable the ecosystem”, with one clear mandate: to translate ideas and research into products. “In 2007-2008, when we were running some pilots, the startup culture in the country was almost non-existent. But in 2-3 years, we got the sense that we needed to help small companies which will grow the sector,” says Swarup, the present DBT secretary. Today, hundreds of startups and entrepreneurs have been supported through Birac grants and soft loans.
“You have to give full marks to Bhan, Renu and Vijay [Raghavan, DBT secretary after Bhan and before Swarup] for what they have created,” says Kiran Mazumdar-Shaw, founder and chairman of biopharma company Biocon. The public sector enterprise has filled gaps in funding for small and mid-size companies, from proof of concept to clinical validation to scale; from general seeding to specific orientation of the ecosystem. “The change it must now make is to start behaving like an angel investor, take equity positions in companies it funds to understand value creation,” says Mazumdar-Shaw.
The operative word here is ‘value creation’. Several people who’ve worked with Birac believe its committee members, who screen proposals, many a time fail to ask the right questions. While Birac says it has a database of at least 700 mentors who help it evaluate all its programmes, this roster is dominated by academics who check the boxes for the sake of checking: intellectual property (IP) for the sake of IP, scale for the sake of scale. A professor who has made some micrograms of a molecule in his lab—often run by PhD students—may not be the right judge of products (or processes) which will have to be made in ton-scale after commercialisation.
“Once a grant seeker says IP, the reaction is, ‘Oh great, it’s innovation.’ I don’t think anyone is asking if there’s any commercial value of that IP or if such a product already exists in the market,” says a venture capitalist in Mumbai who has evaluated a few Birac-funded startups. In the name of IP and in the absence of commercialisation expertise during screening, many argue that generic ideas with great potential for India are not looked at seriously. Could the fault lie at the genesis?
In 2011, Biotech Ignition Grant (BIG), with Rs 50 lakh ($71,780) on offer, was kicked off with the following key aims:
- To support high-risk technology ideas with considerable potential for impact.
- To support projects that aim to establish or validate proof of concept for a promising and innovative technology idea.
- To promote the creation of new start-ups based on innovative technology ideas and/or to support early start-ups to establish and validate their technology ideas up to the POC (proof-of-concept) stage.
The operative word here is POC. Sources say, much weightage is given to POCs. According to Birac’s presentations in several forums (and it does get invited to many even by the Modi government as a model success story), it has received about 3500 applications for the BIG program; about 330 have been awarded and about half of them have incorporated companies. Of which, 6-10% have received external funding, mostly from angel investors, HNIs or corporate social responsibility funds.
Most of the companies pitching to Birac, says venture capital firm IvyCap founder Vikram Gupta, first talk of a specific problem, then talk of a specific solution but he doesn’t think there is detailed commercial due diligence before the funding. As someone who’s also worked with the US healthcare system for long, the managing partner of IvyCap has interacted with many Birac-supported startups but passed up an investment opportunity.
So it isn’t surprising that several applicants who represent existing companies tend to use Birac grant as a non-dilutive means to raise working capital for their existing programmes. This is evident from the lack of products emerging from that space. “Blame it on costs involving scale-up, manufacturing, production, branding, or finding a suitable B2B partner for licensing, all of which require trained personnel for outreach,” says one of the Birac mentors from the industry.
To correct this, Birac should insist that a company is incorporated before funding is requested, says PM Murali, founder chairman of digital health startup Jananom Private Limited and a former director at the Swiss biotech Evolva. “We need the inventors to be serious and not treat this as easy money. There are costs involved in screening, vetting, giving comments etc. and inventors should understand it is also taxpayers’ money,” says Murali.
Review the reviews, reviewers
Asking the right question is half the battle won. People who have served on Birac committees decry that the review process, albeit better than any government agency, isn’t good enough for identifying winners. “The whole set of committees are not putting together what the review was, what the comments were, why was a project rejected…there’s no written document and hence no transparency,” says an industry executive who’s served on the committees. “If I have failed once, I’ll fail the same way. It ensures some people never get grants.”
For a commercial agency, its reviewers must have the chops to ask and assess if the product is B2B or B2C. If the distribution channel in India exists for the new product. If the product or company would garner follow-on funding. Questions that weed out weak ideas.
Bhan agrees. “Indians, in general, are not good reviewers. If we train people for other things, why not train them for reviews?”
The current review process is too verbal for anybody’s good. For comparison, all scientific and technical publications require reviewers to give detailed feedback to the authors on what is missing, on how they could improve the manuscript.
However, many fear that documenting all this will expose Birac to incessant RTI requests. But it’s for Birac to choose transparency and effective reviews over inconsistency, lethargy and a rushed process; to choose high-quality reviewers over putting too much stock in its own abilities.
“Do you know how much we get paid for sitting there from 8 AM to 8 PM? Rs 2000 ($28). How much does, say, Welcome Trust [the European charity funding research and innovation] pay its reviewers? 5000 pounds,” says Bhan.
A new permissiveness is required. Officials say getting good reviewers is a challenge in India; those from the industry are often not very keen. Could it also be for a lack of respect for their time when they are forced to fly Air India with its odd-hour flights? Or for being called at a short notice, which is tailored more to the committee chairs’, mostly academics, schedule? Or for the boredom from meeting the same people and conducting the meetings, as a reviewer says, “according to a set formula”?
“I see a general tendency to shy away from honest assessment and raise questions that don’t make you look good,” says a long-time committee member.
As much as 56% of Birac funding has gone into medical technology. Keeping the chicken-and-egg conundrum in mind, circumstances may have set the grantees up for failure. There’s no domestic regulator; those looking to build world-class products have to seek European or American regulators’ approval. There’s no precision electronics manufacturing environment in India and no big academic teams discovering and banking biomarkers which product developers can use.
Swarup admits the skew. “This is not by design; medtech is where growth and innovation have happened. But now we are getting concerned. We don’t want other sectors to lag and hence [our] special focus is now on agri and industrial biotech,” she says.
But Birac would err if it doesn’t consolidate its head start. India, which imports 70-80% of medtech, will never justify itself as a standalone market for multinationals like GE, Medtronics, or Siemens. Indian startups should use it as a first market and ride on the experience to enter larger markets.
“There’s not one success story that has come out of Indian medtech in the last 15-20 years. Ten years ago we were on par with China in medtech, but now China has outpaced us,” says Sidhant Jena, co-founder and CEO of Jana Care, a point-of-care device maker. “Any trade show I go to, 50% of the companies are Chinese, all founded in the last 10 years. Where did we miss the bus? China backs companies right up to the stage where they become medium scale.”
In 2011, when Jena was starting out, he met Bhan in Boston who convinced the aspiring entrepreneur to set up Jana Care in Bengaluru. Jena won a BIG grant and since then has raised a lot of grant and risk money, but all outside India. Birac has created a lot of professionals in medtech but they need a lot of capital, land, manufacturing or else they’ll not go further, he says.
If Birac sticks to its funding script, it might stumble.
Its architect, Bhan, gives the agency “A+” for not slipping up in these six years, and yet finds it wanting. “It should have had 100 powerful techno-managers who’d give independent inputs on all proposals. Birac does not have strength on its technical officers, it still depends on its committees where the expertise is diffused, given the reality of India and our ability to pay salary,” he rues.
Incubating fresh ideas, in the incubators
When Birac was being formed, the founding technocrats wanted it to empower, not fulfill entitlements. It had to reach out as if its life depended on it, says Bhan. To that effect, the enterprise has fulfilled its objectives. Swarup believes people are finally recognising biotech as a growing sector in the economy, a bio-economy they wish to grow to $100 billion by 2025.
One of the intended catalysts has been a slew of incubators across India because life sciences startups need equipment-heavy labs which don’t come cheap. Some Rs 130 crore ($18.6 million) has been spent on 35 incubators so far. The number will likely go up to 50 given that Birac has taken the Prime Minister’s Startup India Action Plan 2015 rather seriously where the target is to set up 2000 startups.
While the geographic distribution of the incubators must be applauded, more thought must go towards making the whole thing more outcome-driven. Especially because most of these are in institutions which have little or no commercial experience.
“Nobody is thinking that someone [read incubator manager] is going to pass judgment on these incubators in due course and how is one going to measure that success. This is important because the government is putting pressure to increase the number of incubators to 50,” says a professional close to the incubator committee. “A lot of money will be spent on equipment but funds also need to flow into intangible necessities like high-quality human resources, the real experts who can help the startups with product design, marketing, fund raising, etc. The committee doesn’t discuss these, they think it’s a waste of time.”
The cause and the company
After nearly seven years and Rs 1000 crore ($143.5 million), Birac’s spadework shows. In venture capital parlance, it’s called spray and pray.
Birac has stoked the ecosystem, but it could be spreading itself too thin, says Satya Dash, Birac’s former Head of Strategy, Partnerships & Entrepreneurship Development. “If it has a portfolio of 1000 enterprises, it must pick, say, 100, and support them not just in R&D but even in business by cutting across ministries, industry bodies and international partners.”
Stakes are higher; for Birac, and for India. In the new $300 million biopharma mission, the grant size has swelled to Rs 60-70 crore ($8-10 million). Bhan, who chairs this committee, is literally losing sleep over the grant size. Yet, this is exactly the kind of money some of the young businesses need today.
IvyCap’s Gupta says many of these business models require substantial funding before they go to the next level. Maybe at the Birac level itself, follow-on funding should be kept aside for the next round of funds. “Can there be more grants funding given to these companies for they are solving very important problem in the country? Unlike, say, the US, we have one stage missing between institutions like Birac and the VC,” says Gupta.
Can Birac fill that gap? Can it behave more like a VC early on and spot big commercial opportunities which are socially relevant too? Because opportunity costs of not doing this could be high even though few policymakers ever calculate it. And if Birac has to bite the bullet, then it must plan long-term, longer than its annual budget of Rs 200 crore ($28 million).
If biotech needs 10-15 years for the proof-of the-pudding, then my budget shouldn’t be annual but over a 10-year period, says Gupta. “All parameters and targets should be aligned with the overall achievement of the impact. I need to put milestones for funding for 10 years and track those milestones,” he says. This would also allow global agencies, like say Centers for Disease Control and Prevention (CDC) in Atlanta, International Finance Corporation of the World Bank or the German development investor DEG, and other goal-oriented agencies to partner with Birac. (To be fair, Birac already partners with some non-profit foundations who have their own goals.)
Swarup says Birac has given itself 10 years for an assessment, the process for which would begin this year. It must account for the changing metrics all around. For instance, traditional auto companies like General Motors are no longer counting the number of cars sold, but the number of miles driven, thanks to ride-hailing services and autonomous driving tech. Birac mustn’t take refuge in totting up a list—of grants awarded, meetings held, patents filed, prototypes built, startups or incubators set up. Sometimes too much democracy hurts.
For its time, Birac’s organisational structure was fabulously constructed, says Chandra, but that is not enough. “These structures slow down the pace of change, they are limiting and rightly so. It requires a fair bit of public accountability.” For a market-driven entity, Birac will have to raise resources from the outside. And once that happens, says Chandra, it will have to deliver with the kind of agility that requires a different talent pool. “You need freedom and flexibility in the organisation.”
How much and how quickly it gets those will depend upon the Board and its ability to influence the ministries. But it’s time for Birac to bet on the winning horses.
“I think it’s time to produce four technologies that sell for a billion dollar each. Birac must think of blockbusters, like [Bollywood actor-producer] Aamir Khan’s movies [except his latest, of course]; few in number, large in revenues,” says Bhan.