India is the world's third largest start-up ecosystem. The good news is that it is not limited to large metros. About 20% of existing start-ups have been born in Tier II and III cities. Most start-up founders are technologically aware, socially conscious, and entrepreneurially confident. Even more inspiring is that they are not just about getting rich quickly. A number of start-up teams are driven by a mission to create impact in complex areas like health, agriculture, water, education, energy or even rural livelihoods. Behind this growing surge are aspiring individuals. Not surprisingly, 18 states today have start-up policies.
This is a transformation bred over the last 150 years, in which both government and private philanthropy have played critical roles. In the late nineteenth century, Jamsetji Tata defied the government of the day to conceptualize and persevere with the idea of an institute of advanced scientific education and research. This resulted in the Indian Institute of Science in 1909. He also set up the J.N. Tata Endowment to facilitate higher education of Indian students overseas. The Tata Trusts subsequently went on to establish the Tata Institute of Social Sciences (1936) and the Tata Institute of Fundamental Research (1945).
This foundation was built upon by successive governments, post-Independence. Higher education spread across the country, supported by philanthropy. It is this base, combined with innate Indian entrepreneurialism, that has resulted in the energy that we witness today. As India is transforming, so is Tata Trusts to support emerging national causes. Along with partners, it has begun to directly implement programmes which leave behind a lasting difference. One such cause is to support fledgling social innovator-entrepreneurs.
This is because science and technology-based social innovation and entrepreneurship multiplies the impact of philanthropy. They bring about disruptive change through high quality and yet affordable solutions in large need areas, such as healthcare, education, sanitation, energy, water, nutrition, agriculture, disability etc. The problem is that they do not easily attract early stage investments and incubation support. The venture risk is perceived to be extremely high and, since the solutions address issues of poverty and under-development, returns are unlikely to be commensurate with the risk. This is where most such potential winners perish. Some of the areas like microfinance become mainstream business due to their better risk-return payoff profile, growth potential and scale, but most investors continue to stay away from product start-ups.
At Tata Trusts, we are creating a nationwide ecosystem and infrastructure to facilitate and handhold innovators who are willing to try entrepreneurial approaches to solve India's development sector problems. Thanks to our strong partnerships with various governments, the private sector, academia and foundations, we have been able to conceive a three-tier ecosystem.
The first tier focuses on identifying innovator-entrepreneurs worthy of support. We do it through technology scouting, university partnerships and several innovation competitions. Tata Trusts allocates more than Rs100 crore every year to promote innovation. The second tier is parenting them by translating working prototypes into impactful and marketable solutions. At this stage, some start-ups are also able to pitch for seed capital, for which we ourselves have set up a fund. The final tier focuses on integrating them with the larger investor community that can now see the value proposition of these ideas as they graduate out of incubation and accelerator programmes. The three-tier ecosystem is called Social Alpha, and at the core of the ecosystem is the Trusts' Foundation for Innovation and Social Entrepreneurship.
In order to provide domain depth and sectoral expertise, Tata Trusts is also creating dedicated innovation labs to help with product development iterations and testing, starting with an energy incubation centre, a healthcare impact lab and a design for manufacturing platform. Similar labs are being rolled to focus on agriculture, water and sanitation.
Social Alpha is also setting up a number of endowment and investment funds to ensure that enough catalytic risk capital is available in the high impact social innovation space. It is not uncommon to hear innovators and entrepreneurs complain about the lack of risk capital. They are right. At the same time, mainstream impact investors have reservations about the quality entering the funnel. They too are right. The need is to establish an aggregating bridge, through which worthy social inno-entrepreneurs, fostering institutions and risk capital can reach out to each other. Social Alpha is trying to be that bridge. Investors, philanthropic foundations, CSR programmes and individuals are already partnering with Social Alpha to deploy their funds in the most impactful and curated ideas, taking advantage of its expertise as well as ability to layer appropriate capital through the journey of an enterprise. Social Alpha is emerging as the curator of high impact innovations and the aggregator of catalytic high-risk capital. Confluence of the two will lead to a deep and disruptive impact.
But the cause is larger than any one entity. Philanthropy sparked India's modern industrial journey. It is time again.
Manoj Kumar leads innovation and entrepreneurship at Tata Trusts and is the founding CEO of Social Alpha.