Institutes must invest in start-ups on campus

livemint.com | Premchand Palety

There are different revenue options for institutes of higher education. Fees collected from students, the easiest option, is the main source of revenue for most of our higher educational institutes in the private sector. For many, the growth strategy is to milk the country’s vast education market by opening branches in different parts of the country and even abroad, though they don’t have adequate faculty or infrastructure. Some have opened education “shops” in every nook and corner of big cities like fast food outlets, selling degrees, even charging differential fees, depending on the segment they target. A major flow of revenue can come through industry interface by way of management development programmes, sponsored research, consultancy, etc.

This revenue model is more challenging and also has a positive correlation to the quality of education delivered in the institute. But only a small percentage of our institutes have this kind of revenue stream.

Yet another revenue model, largely unexplored in the Indian context, is through incubating start-ups on campus. This revenue model, which has not yet sunk in as far as our “edupreneurs” are concerned, is the most challenging and perhaps most relevant in the present economic scenario where job creators are needed much more than job seekers.

Some universities abroad, such as Stanford, have generated huge revenue by investing in start-ups. Stanford University funded the research project by two of its PhD students—Larry Page and Sergey Brin—that resulted in the creation of the popular search engine Google in 1998. The university’s initial investment translated into an equity stake of 1.8 million shares when Google Inc. went public in 2004. The university made $336 million (Rs1,730 crore today) by selling part of the stock in 2004-05. It also gets steady revenue from the patented technology of the search engine. To date, Stanford holds an equity stake in at least 80 companies, out of about 1,200 that got their start on campus.

Besides Google, Hewlett-Packard Co., Sun Microsystems Inc., Cisco Systems Inc., Yahoo Inc., EBay Inc., Logitech International SA and Dolby Laboratories Inc. also got their start with Stanford funds. These companies, besides being to an extent responsible for the unprecedented momentum of change in human history in the past few decades, have also been a major source of revenue for the university.

The revenue from stock sale is treated as a kind of endowment by Stanford University—and it has endowments of at least $17 billion.

It’s not the only US university to generate revenue by investing in start-ups on campus. In fact, it stands fifth among US universities—after Columbia University, the University of California system, New York University and Florida State University—in technology licensing and equity revenue.

There is a lesson here for our institutes of higher education. In the present downturn where even the Indian Institutes of Management and Indian Institutes of Technology are finding it difficult to place their students, they can think of incubating start-ups by their students in a big way.

Management institutes can have, for every graduating batch, a best business plan competition and fund some of the innovative projects. Money should not be a problem for our private institutes as many of them are sitting on a huge corpus of several crores of rupees. This will also orient students’ thinking from Day 1 to start an enterprise.

Their goals will shift from getting more marks in exams to practical application of learning.

To abet an entrepreneurial environment on campus, institutes need to revamp their curriculum, pedagogy and evaluation methodology, besides making funds available for the start-ups. The curriculum must include cutting-edge research in emerging areas of growth.

Experiential learning should be the cornerstone of pedagogy. Open-book exams, where students are not tested for how much they remember but how much they understand and can synthesize information from different sources to creatively apply it, would be important aspect of the evaluation process.

There are now several private universities in the country that have thousands of students staying on campus. Whenever I visit such a campus, my suggestion to the management is to finance a renewable energy-based small power plant by some of their own students. This could meet the energy requirements of the campus, with the surplus power being sold to the state grid. Maybe some institute in the near future will motivate and facilitate students to take up this challenge.

Every management institute should aim for at least 10% of its graduating batch to start a venture. The number of successful start-ups should become an important performance indicator, besides a major source of revenue for them.

Premchand Palety is director of Centre for Forecasting & Research (C-fore) in New Delhi, from where he keeps a close eye on India’s business schools.