Vinit Nijhawan: Serial Entrepreneur, Venture Capitalist

Investing in University Spin-Offs

This was published in Silicon India April 2011.

    US public and private research universities are by far the best in the world at educating young people and conducting basic and applied research. Harvard College was founded in 1636 and was followed by many other universities up and down the east coast. However the first university to emphasize research along with education was Johns Hopkins, founded in 1876 with a $7 million gift from railroad baron Johns Hopkins. Johns Hopkins’ model was partially adapted from German research universities. Following Johns Hopkins many US industrialists became benefactors of private and public research universities: Rockefeller to the University of Chicago in 1892; Carnegie Institute in 1902, etc. 

            The Federal government established the National Academy of Sciences in 1863 and the Morrill Act was signed in 1862 provided federal land to states to establish public universities. The first “land-grant” college was Kansas State University which started in 1863 (where my father went for his engineering degree in the late 1940s). Michigan State University, Pennsylvania State University, Rutgers, University of Wisconsin followed closely behind. The Federal government also passed the G.I. bill after WWII that allowed hundreds of thousands military personnel to get university education. Federal institutions like the National Science Foundation (NSF) and National Institute of Health (NIH) were also created right after WWII, launching the 60-year technology led economic boom the US has enjoyed. Between 1940 and 1950, the contribution of the federal government to university incomes increased from $39 million to $524 million. The direction of university research shifted away from research intended for local industry application to more basic scientific research, with applications to national goals in defense and health care.

            The economic impact of US research universities in commercializing their research has been immense: 

• Since 1939, Stanford faculty and students have founded more than 2,454 companies, such as Hewlett-Packard, Cisco, Sun Microsystems, Google, Yahoo, contributing to the economic dynamism of Silicon Valley.
• In 2009 MIT published Entrepreneurial Impact: The Role of MIT.  In 2009 there were 25,800 active companies founded by MIT alumni that employ about 3.3 million people and generate annual world revenues of $2 trillion, producing the equivalent of the 11th-largest economy in the world.

• According to AUTM (Association of University Technology Managers) just in 2009: 658 new commercial products introduced; 5,328 total license and options executed; 596 new companies formed; 3,423 spinoff companies still operating as of the end of 2009
• Gulbranson and Audretsch (2008) studied two programs centered in engineering schools, the MIT Deshpande Center for Technological Innovation and the UCSD von Liebig Center. After granting less than $10 million to projects, these centers helped advance 26 spin-offs that have raised a total of $160 million in outside investments.
• Between 1980 and 1999, university spin-offs in the United States created $33.5 billion in economic value (Cohen 2000), at an average of $10 million per startup

     In 1980, Congress passed the Bayh-Dole Act that enabled universities to own and manage the intellectual property (IP) arising from federally sponsored research. Universities were obligated to commercializing this IP by transferring it to existing and spin-off companies. The resulting licensing revenue was split between the university and the faculty inventor. Shortly after 1980, spin-offs and products based on university IP rose steeply as universities and faculty were incentivized to commercialize their inventions (see charts below).

         Boston University (BU) was established in 1869 as a divinity school. It became a major commuter university in the Boston metropolitan area with about 300,000 living alumni. More recently it has become a renowned research university with over $400 million annually in research funding going to over 2,000 laboratories.  BU has 19 colleges and schools with 3,300 faculty, 16,000 undergraduate and 13,000 graduate students. The Office of Technology Development was established in 1975 to commercialize BU’s research. 

    BU established a venture capital fund called the Community Technology Fund in 1975. By 2007 it had invested $14M with one significant exit: A123 Battery, an MIT spin-off that was incubated at BU’s Photonics Center incubator. In 2007 the new President of BU, Bob Brown (formerly MIT’s Provost), decided that BU should not have a VC fund and the Community Technology Fund was shut down. The un-invested portion of the fund was placed in the university endowment and the Office of Technology Development receives an annual draw to support BU spin-off activities. These are invested in two programs: Ignition Grants that advance laboratory research towards commercialization and Launch Awards that provide bridge equity funding for BU spin-offs that will raise venture capital funds.

    The university spin-off process requires tremendous support from university tech transfer offices. Faculty are generally naïve about spin-offs and have to be educated about the process. Entrepreneurs find it difficult to identify viable spin-off research projects and have to be matched to the appropriate project. The scale of the opportunity is immense, for example at BU at any given time we are managing about 600 commercialization projects. Each one has a unique path to commercialization. These can be broadly broken up into two distinct paths: license to an existing company or license to a spin-off company. Licensing to an existing company is ideal but it is hard to match existing companies’ R&D plans with university research. One has a lot more control of the commercialization process with spin-offs though not with follow-on funding from VCs.

    At BU we have developed a New Ventures group and process that has the following components: (1) the Kindle Mentoring program that has about 100 start-up CEOs and executives that are matched to spin-off companies; (2) Gap funding with Ignition and Launch awards; (3) student analysts who help with go-to-market strategies and (4) a New Ventures director who orchestrates these assets. They key to obtaining follow-on funding from VCs or other non-equity sources of funding is to match the right entrepreneur/CEO with the appropriate project at the right time. 

    I joined BU in January 2010 to  transform the Office of Technology Development. Having no background in university technology transfer turned out to be an asset as I brought new thinking into the process. We are one year into a three-year plan to transform the way university technology commercialization is done. A key component of the plan is to create 10 spin-offs a year from BU intellectual property and know how. At the end of 2010 we had a dozen spin-off in the market raising equity financing. Several have raised small amounts of seed financing from angels and recently we received our first tier 1 VC term sheet. Stay tuned.

 

Liberal Lion and Healthcare

I have been thinking about Ted Kennedy from this morning when my son commented about our meetings with him. These were brief "photo op" meetings but left an impact on all my sons. What made him memorable was that he was authentically personable and he spoke eloquently but with an economy of words. In some ways he epitomized the "great generation" that made America the envy of the world. I lament his passing to our generation that seems to have lost the qualities of (1) holding steadfast to beliefs yet be able to debate them and not call others who don't accept your beliefs pejoratives like "LOSER", (2) humility so we acknowledge flaws in ourselves (unlike Mitt Romney's planned book: No Apologies), (3) humanity to recognize that profit is not the only measure of happiness.

As the healthcare debate, if you can call the name-calling slugfest playing out at town hall meetings and airwaves a debate, gathers steam, the passing of Ted Kennedy is a serious setback for Obama. The primary reason for healthcare reform is not to cover the uninsured but to reduce the cost of healthcare to those who are insured. No one in this country is denied access to healthcare if they are uninsured--hospital emergency rooms are filled with uninsured patients every day. The cost of providing healthcare to the uninsured is paid by taxpayers and consumers since hospitals pass on their costs to Medicare and insurance companies. The spending spree on US healthcare infrastructure mirrors Japan's absurd spending on highways and trains, at some point the merry-go-round has to stop. The passing of General Motors and soon the Liberal Democratic Party in Japan is more than symbolic of these excesses.

So how did the most capitalist of nations end up spending twice per capita on healthcare than most developed nations with worse per capita health (as measured by obesity, longevity, etc). The market is not supposed to allow this and will certainly correct itself, right? On the contrary, we have set up the market so consumers believe that unrationed healthcare is a right and like all markets, producers (doctors and hospitals) are incentivized to sell consumers whatever they want. The key part of this equation is that the consumers not only believe that unrationed healthcare is a right, they also have no idea how much it costs. It is left to the insurers, including Medicare, to "negotiate" these costs with the producers. They don't need to negotiate hard as they can pass on these costs to consumers via insurance premiums and taxes.

The solution is simple, consumers have to directly feel the pain of the costs of healthcare that they are getting so they will self-ration care. The problem is that the only market mechanism to directly feel the pain is to pay for services rendered. Of course one could buy insurance just like one buys life or disability insurance. The problem is that many people, young and poor, will not buy insurance and will not be denied access to ERs. Therefore let us mandate "basic" insurance for all that includes disincentives for unhealthy lifestyle choices: obesity, driving too fast, riding a bike without a helmet (not completely tongue-in-cheek). The question is what does basic insurance deny you that premium insurance doesn't, eg would basic insurance allow "elective" surgery such as a kidney transplant? What if you were paying for basic insurance for years and then switched to premium just before an elective surgery, would that be allowed (a bit like signing up for AAA when your car is broken down so you get a free tow).

Anyways I am probably covering ground that many healthcare policy analysts have. The point is that that healthcare reform is complex and will need thoughtful debate on how it is implemented. The thought leader in this debate was Ted Kennedy and with his passing I dread the outcome. I especially worry that the purveyors of America is the Best are going to ignore Canada and Switzerland and even India in getting ideas of what works and what doesn't. America is best when it attracts the best brains and ideas from around the world and provides products/services to it venturesome consumers.

Academia Beckons

I joined Boston University (BU) as a Lecturer and Executive-in-Residence in January 2008 and have been teaching courses on Entrepreneurship to MBA students. My academic career has expanded recently with two projects:

• I am collaborating with a friend and colleague Vivek Wadhwa at Duke University (I now am an Adjunct Research Scientist at Duke Pratt School of Engineering) to expand on his study about the impact of entrepreneurs on technology startups in the U.S. We are researching the impact of skilled immigrants on other sectors such as academia, retail, hospitality, healthcare, etc.
• I am launching the BU Kindle mentoring program to educate faculty, students, and alumni to facilitate early stage business formation. BU Kindle provides a unique opportunity for seasoned entrepreneurs and business executives to have direct and meaningful interaction with the BU community.

Boston University Kindle Mentoring Program

MIT has several mentoring programs that have been instrumental in MIT's success at commercialization and company formation. The MIT Enterprise Forum, the MIT Venture Mentoring Service (VMS), the catalyst program at the Deshpande Center and the MIT-HST Biomatrix are providing mentoring services to different constituencies.

BU has 3,900 faculty, 2000 laboratories, 13,000 graduate students and received $336M in external research funding in FY2008 (July 2007-June 2008). According to the Association of University Technology Managers 2006 licensing survey of US and Canadian institutions receiving >$250M in research funding, BU was at the bottom of the 3rd quartile for research dollars spent per license granted.

BU Kindle is a step towards accelerating commercialization of BU intellectual property and to encourage BU faculty and students to launch commercial ventures. BU Kindle will connect BU faculty and students to seasoned entrepreneurs and business executives in Massachusetts by creating a custom mentoring model from the ones at MIT, including the MIT VMS.

BU Kindle joins several other programs at BU that support and encourage commercialization:

Program	Mission	History	Budget
Launch	Upto $250K investment in spin-off research.	Renamed five years ago, predecessor created in 1998.	$3M
Ignition	Ignition awards are $50K for research with commercialization promise.	Renamed five years ago, predecessor created in 1998.	$350K annually
Coulter	Commercialize biomedical research.	Coulter Foundation funding 6 centers across the US for commercializing biomedical research. Began 2-3 years ago.	$1M annually
Fraunhofer Alliance	Automation and manufacturing engineering projects pre-commercialization.	One of fifty Fraunhofer Institutes. Is on BU campus. Established in 2005. 50-50 shared royalties.	$1M annually for five years. 50% funded by BU.
BRIDGE	Boston University Clinical and Translational Science (BU-BRIDGE) Institute.	2008 NIH grant.	$23M over 5 years
Business Incubator	Incubate BU technology-related companies, primarily for government-funded research.	Founded 2000.	Commercial lease
BDIC	Incubator within Biosquare for life sciences research.	Founded 1994.	Commercial lease

Additionally, BU created ITEC in 2007 with the mandate to integrate entrepreneurial activities across the university.  ITEC has developed several innovative programs, including eSPRIT (Entrepreneurial Students Participating in Research and Innovative Technologies), and a $50K business plan competition for students. Furthermore, BU students run several entrepreneurial focused clubs where students gather to learn about opportunities and form teams to pursue opportunities.

Why a company needs to be based in Massachusetts

This article was published in Mass High Tech magazine on May 8, 2009: www.masshightech.com.

Massachusetts is a great place to start a business. Massachusetts is similarly a necessary place for a multinational to setup a branch office. What both startups and established business need to continue to grow are: people, capital and access to markets.

People: A+

            Massachusetts has the largest concentration of world class secondary and post secondary educational institutions in the world. We have approximately 460,000 post secondary students enrolled in 117 colleges and universities across the state. Many of these students stay in Massachusetts after graduating. We are number one nationally for residents with the highest college attainment. We are number one nationally in the concentration of science and engineering graduates. In most states across the U.S., about two thirds of Bachelor degree graduates come from public universities, in Massachusetts two thirds come from private universities. Not only does Massachusetts have fabulous intellectual capital in its workers but they are also very entrepreneurial. There were 5,000 new companies started in Massachusetts over the past six months, though this is down 13% from the same period a year ago.

Capital: B-

            Access to venture and debt capital is crucial for company startups. Massachusetts is number one nationally in the number of high-tech companies per capita and level of venture capital. The venture capital industry was established in Massachusettsafter World War II, with the formation of American Research & Development (ARD) by Harvard Business School and MIT professors. Massachusetts ranks fifth in the number of millionaires per capita with $335 billion in assets. Angel investors based in Massachusettsare active but do not invest as much California angels. Additionally there is significant personal wealth in Connecticut and New York Citythat could be attracted to invest in Massachusetts startups. Massachusetts ranks number one in Federal Small Business Innovation Research contracts, a form of government funded seed capital.

 

Access to markets: B+

            Massachusetts6.5 million residents are mainly crowded inside the Route 495 ring. Enjoying the nation’s third highest per capita median income, this population is an early adopter of new technology and services. For a European or Asian company, Massachusetts is ideally situated to access markets in northeastern U.S., comprised of nine states that accounts for 25% of the GDP of the U.S. Furthermore Massachusetts is number one in receipt of Federal R&D expenditures for academic and non-profit institutions.

Key industries in Massachusetts are Life Sciences (ranked #1 in the US), Information, Communications & Technology (ICT) (have fallen behind California), Cleantech (neck-in-neck with California), Defence & Aerospace (have fallen behind DC, Texas and California), Financial Services and Leisure (great arts, sports and general cultural scene). Other old industries that are experiencing technology-led reemergence and where Massachusetts excels are industrial robotics, advanced transportation, and renewable energy.

How we can improve:

1.      Get better at commercializing research conducted at universities. MIT is at the top of the game but Harvard and Boston University (BU) are laggards. For example BU has about 4,000 faculty, 2000 laboratories, 13,000 graduate students and received $336M in external research funding in FY2008. According to AUTM’s (Association of University Technology Mangers) 2006 licensing survey, of the US and Canadian institutions receiving >$250M in research funding, BU was at the bottom of the 3^rd quartile for research dollars spent per license granted.

2.      Encourage millions of Massachusetts’ alumni to communicate through and occasionally gather in Massachusetts. Let’s create an annual alumni gathering in Boston, coordinated by all colleges. We can have sub-fairs at this gathering with themes such innovation, arts, sustainability, healthcare, etc. Economic activity will naturally arise from making Boston the ‘knowledge hub’ of the flat world.

3.      Increase the amount of seed capital for startups by: (a) reenergizing MTDC (Massachusetts Technology Development Corporation); (b) encourage non-Massachusetts angels to invest in Massachusetts’ startups.

4.      Actively retain immigrants who complete advanced degrees at Massachusetts’ universities by helping them get permanent visas from the federal government. In return they agree to stay in Massachusetts for defined period.

Predictions for 2009

Here are my predictions for 2009:

1. Buzz--The buzz topic of 2009 will be the shrinking of venture capital and private equity. The business model for this financial asset class is in need of change and until it does Limited Partners will lower their exposure to VC/PE.
2. Exits--We will see a dramatic drop in M&A activity as a result of tight credit markets. We will see some recovery in the IPO market.
3. National--We will experience a severe recession.
4. International--India will recover from it's slowdown by Q2'09. China will not recover until 2010. 
5. Mobile--The emergence of client-server software on smartphones and the growth of BtoC enterprise mobile apps (what I call CRM 3.0).

Here is how I fared with my 2008 predictions:

1. Buzz--The buzz topic of 2008 will continue to be energy and cleantech. We will see a huge growth in VC investments in such companies. I was right on. CleanTech investments by venture capital firms reached $4.1 billion up 52% with 277 deals in 2008. Source www.pwcmoneytree.com. 
2. Exits--We will see a dramatic increase in cross-border M&A with many Indian and Chinese companies acquiring US and European companies. I was dead wrong. China cross-border M&A dropped by 30% and India by 51% in 2008. 
3. National--We will experience a recession. Unfortunately I was right on. 
4. International--The Flat World concept (Friedman) will be replaced with the lumpy world (Ghemawat). Companies will have to deal with a global skills shortage in very local ways. I was right on. In spite of a global recession some countries have fared much better, eg India as compared to the US and China.
5. Mobile--Apple's greatest innovation in the iPhone is its browsing capability as a result the mobile internet will finally take off. I was right on. Browsing has taken off with the iPhone browing holding a commanding lead with a 3X increase in it's share of total (landline and mobile) browsing. 

Here are my predictions for 2009:

1. Buzz--The buzz topic of 2009 will be the shrinking of venture capital and private equity. The business model for this financial asset class is in need of change and until it does Limited Partners will lower their exposure to VC/PE.
2. Exits--We will see a dramatic drop in M&A activity as a result of tight credit markets. We will see some recovery in the IPO market.
3. National--We will experience a severe recession.
4. International--India will recover from it's slowdown by Q2'09. China will not recover until 2010. 
5. Mobile--The emergence of client-server software on smartphones and the growth of BtoC enterprise mobile apps (what I call CRM 3.0).

Passage to India Part 2

Chandigarh December 7, 2008

I drove straight north from Delhi to Chandigarh about 300 km, on a much improve four-lane highway. Chandigarh is a planned city that was designed by the French architect Le Corbusier in the late 1950s. It remains a delightfully livable city which the rest of India has failed to emulate. I am attending the wedding of my cousin’s daughter, a recent dentist graduate, to a young engineer who works with the Tata’s. The local TiE chapter has also invited me to speak to their members tomorrow.

 

I have met several entrepreneurs who have returned from the U.S.to take care of aging parents and then set up businesses here. Chandigarhis considered to be a tier 2 city (tier 1 being Delhi, Mumbai, Bangalore, Kolkata and Chennai), in the same league as Pune and Ahmedabad. In reality those cities are far more industrial, including technology-related industry, than Chandigarh. There is a nascent life sciences industry forming, especially around agricultural products: Chandigarh is the capital of Punjab, India's bread basket. However most of the entrepreneurs I met had small outsourced information technology businesses with customers primarily from the U.S. 

There is an excellent engineering college in Chandigarhand I had the chance to meet with the Director of the college Manoj Datta. He is busy setting up new degreed programs to respond to industry needs. For example he was evaluating a graduate program in biomedical instrumentation in conjunction with a local biological institute. We had a vigorous debate about the viability of that degree, along with the head of Phillips Labs from Delhi. Phillips Labs are creating new products for emerging markets by launching them first in India, they support all of Phillips divisions including the medical division in Andover, MA. For example they recently launch a UV water purifier that is more effective than charcoal filters. Tainted water is a big problem in India as many tourists have found. The public water supply is invariably contaminated and almost everybody has a water purifier at home. Boston Universityhas a world renowned public health department that has projects in India, I need to connect them to Phillips Labs and Punjab Engineering College.

I had an interesting conversation with the CEO of the Usha Group, who have been making ceiling fans and air conditioners for many years. He showed me a cellphone that they have launched in tier 3 and 4 cities in India. The cellphone is manufactured by an ODM (Original Design Manufacturer) in China to their specifications and distributed via thousands of cellphone retail distributors. They have been struggling to differentiate themselves other than price. He told the story of an upstart competitor that had inferior products but stumbled on to a need in the rural marketplace for phones that had long battery life. Electricity is not readily available in most Indian villages and is unreliable when it is. I asked him if he considered differentiating on the cellphone user interface, perhaps by using the Google Android operating system and then customizing the UI for rural India consumers.

Obama and the end of the colonial era

Like most Americans I have been awestruck by Barack Obama's capture of the White House. I have also been pondering the significance of this historic event. Of course the first African-American as President is historic, especially in light of America's history of slavery. The outpouring of congratulations and celebration from around the world has been equally astonishing. Why are so many people inspired by Americans' choice of President-elect Obama? This is the question that perplexes me.

My grandfather came to the US in 1947, accompanied by my father who was 17. Invited by the US government, my grandfather, a soil physicist, came to the midwest to Kansas State University. My father began to study engineering at UC Berkley but soon ran out of money and continued his studies at Kansas State while sharing accomodations with my grandfather. He recounted an incident where my grandfather and he were told to sit at the back of the bus in the colored section. India had just got its independence from British rule and 300 million Indians were now free of colonial rule. To now suffer discrimination on the basis of skin color (my grandfather was a professor and the bus driver was likely at best high school educated) was unacceptable to him and he eventually got off the bus rather than comply.

During the 450 year colonial period western European countries, namely Britain, Spain, Netherlands and France in order of scope, colonized and greatly enriched themselves, mostly at the expense of native people. They ruled with a sense of Darwinian superiority of the white races and its dominant religion: Christianity. The ascendancy of European countries was driven by technological innovation, including the understanding and codifying of free market economics. Whether it was Adam Smith or Karl Marx, these ideas came from the West.

Though the second world war accelerated the demise of colonialism, my contention is the colonial era has truly come to its conclusion with the election of Obama. It has taken America, a post colonial power, to bring about its end, with the free election of the first non-white leader of the West. This is what is resonating around the world, especially in many emerging countries who were colonised: India, Brazil, and African countries.

Global warming and US entrepreneurs

I was at a "Go Green" dance in my hometown here is the Boston-area, sponsored by a local Global Warming Action group. It struck me as ironic and a bit absurd that we were revelling in order to raise money to save mankind's future on Earth. Yes a bit dramatic but, as the experts say, global climate change will have the most impact on emerging countries and not on the developed ones. So why should developed countries bear an unfair burden on reversing global warming? One could argue that the 150-year industrilization of developed countries made them wealthy and was a major contributor to our current climate woes. To now tell Brazil (rainforests), China (coal power plants) and India (coal power plants) to leapfrog to the latest costly enviromental standards is hypocritical at the least. On the other "invisible" hand, entrepreneurial first movers are favored, they amass huge wealth and use their incumbency to thwart insurgents. Technology or innovative business models are usually the weapons of choice. Ethnic Europeans have been the clear winners in this economic arms race in the recent past and deservedly so. What is the solution?

Some background on the the global warming debate (excerpted from various sources):

• From 1100 to 1500 AD significant deforestation took place in Western Europe as a result of the expanding human population. The large-scale building of wooden sailing ships by European (coastal) naval owners since the 15th century for exploration, colonization, slave – and other trade on the high seas and (often related) naval warfare (the failed invasion of England by the Spanish Armada in 1559 and the battle of Lepanto 1577 are early cases of huge waste of prime timber; each of Nelson's Royal navy war ships at Trafalgar had required 6000 mature oaks). Source--Wikipedia.

• In Michael Williams excellent book, Deforesting the Earth: From Prehistory to Global Crisis, temperate forests in Europe and North America were virtually eliminated by 1920. Tropical forests such as the Amazon began to be depleted relatively recently in the 20th century.

• The United Nations Intergovernmental Panel on Climate Change (IPCC) November 2007 report says: "There is also the moral/equity issue concerning the extent of the polluters obligation to compensate for past emissions (i.e., a form of environmental debt)..... "In particular, developing countries emit much less per capita and have contributed less to past emissions".

• From the Economist "How Green is their Growth": At the moment, perhaps 2 billion people have no formal access to modern energy—they make do with cow dung, agricultural residue and other solid fuels which are far from healthy. Unless foresight and intelligence are applied to the satisfaction of these people's needs, they may embrace the filthiest and most carbon-emitting forms of fossil-fuel energy as soon as they get the chance.

The grassroots climate change movement in the US is slowly creating change in the face of the failure of our government to regulate change. Innovation in business models (eg carbon offsets) and new technology (eg cellulose ethanol, clean diesel) is rapidly catching hold in the US. Many of us technology entrepreneurs are reinventing ourselves to participate in these new Cleantech opportunities. I am involved in the spin-off from www.degreeC.com of their AdaptivCool data center thermal management solution that can reduce energy consumption by 20-30% in a data center. Data centers consume 1.6% of the nation's electricity, and that consumption is doubling every five years.

Inspired US entrepreneurs have the opportunity to create the technologies that will make people's lives better in emerging countries, while reducing green house gases. This is a great way of paying our environmental debt to the world.

The Coming Global Skills Shortage

There are a number of recent studies that connect entrepreneurship to the role of immigrants in the U.S.:

National Venture Capital Association: http://www.nvca.org/pdf/AmericanMade_study.pdf

Duke University: http://memp.pratt.duke.edu/downloads/americas_new_immigrant_entrepreneurs.pdf

Kaufmann Foundation for Entrepreneurship: http://www.kauffman.org/pdf/Entrepreneurial_Roadmap_web.pdf

They all essentially say the same thing: skilled immigrants coming to America have been a significant driver of new business creation. America has attracted many of the best brains in the world because of our wealthy post-secondary educational institutions, our enlightened immigration policy and, in my opinion, the quality of our "soft infrastructure" (the attitude and actions of Americans and institutions in favor of entrepreneurs and wealth creation). We were fortunate that many countries were unable to retain these brains for political and economic reasons and they migrated here.

The opportunity for skilled labor has changed dramatically. Two decades of sustained global expansion, ubiquitous digital communications allowing services to be perfomed remotely and the end of the cold war now means that many brains can stay home and be economically active. As a result I predict a global skills shortage where companies will troll the world looking for people. The two most populous countries in the world: China and India are already facing skills shortages in tier 1 cities and the quality of the hordes of "engineers" they are graduating is suspect. America, the third most populous country, is facing the retirement of tens of millions of baby boomers over the next 20 years.

The fear is that global growth will slow down as a result of this skills shortage. Alternatively, productivity could increase thus decreasing the demand for skilled workers. The issue is that it is hard to automate skilled work. Even relatively simple tasks such as computer programming are still labor-intensive and the productivity of programmers has not improved significantly in 30 years. Plus the universe of skills is increasing exponentially--subjects such as bioinformatics, nanotechnology did not exist two decades ago but now attract tens of thousands skilled workers.

So what is the solution? The studies above have a number of recommendations for U.S. policy makers. However they don't address the global skill shortage problem. I think the only viable, large-scale solution is for companies to take the lead to educate new employees for skills that the companies need, either through in-house educational institutions or by paying for employees to go to school. This will be harder for smaller companies, but they might be able to work through their industry organizations to educate employees. Each skilled educator can generate hundreds of skilled workers annually.

Public schooling was promised to provide equal educational opportunity to every citizen. In most countries public education is unable to keep up with the pace of change of educational needs for youth, primarily because of teachers' unions and shortage of funds. I believe that private companies are where the skilled labor is needed and private companies will have to get into the education business.

Sunita Williams and Bangalore

As Sunita Williams circles overhead our mutual hometown of greater Boston on the International Space Station, I am struck by the ascension of us Indians around the globe. We can be proud that a quarter of all technology startups in the United States in the past ten years with an immigrant CEO or CTO founder was an Indian-American. Proud that Bangalore and Gurgaon are as well known as Boston and Silicon Valley in technology circles. In contrast, having just returned from a whirlwind tour of four Indian cities, poverty, urban decay and a general lack of world class infrastructure, belie this new view of India and Indians.

Bangalore’s rise as one of the technology capitals of the world was not accidental. Government decisions made fifty years ago to locate defense research establishments, the Indian Space Research Organisation (ISRO) and the Indian Institute of Science in Bangalore were key to what Bangalore is today. In particular ISRO headquarters established by Vikram Sarabhai in 1969 was an astonishing organization. I had the good fortune of meeting two of ISRO’s leaders: Prof. Satish Dhawan and Prof. U.R. Rao in the mid-80s. They exemplified today’s leaders in Bangalore: self-assured, humble and with a quite determination to have India join the league of leading scientific and engineering nations.

As a young overseas Indian visiting ISRO in the mid-80s, the place was an eye-opener for me. I discovered an India that was fresh, egalitarian and self-confident. This self-confidence in particular was refreshing—ISRO was building satellites, rockets and related technology completely indigenously with no outside help. This was in part because of the U.S. embargo on technology transfer but it was also a result of Homi Bhabha’s legacy. He set India on an independent path of nuclear and space ascendancy that has created the technical self-confidence evident in Bangalore, greater Delhi, Chennai, and Hyderabad. I recall hours of discussion with Kiran Karnik at ISRO SAC in Ahmedabad, when he was a young turk representing Doordarshan at ISRO. The country was planning on putting a satellite receiver in every village in India, beaming information from indigenous INSAT satellites. We speculated that there would be great social upheaval once villagers had access to the world and woke up to their potential. We were both right and wrong. There has been much change in India these past 20 years, but it has mainly affected urban India, villages essentially have remained the same.

Clearly there were visionaries in the government that set India on the right path fifty years ago with these great research institutions, and great post-secondary institutions such as IITs and IIMs. It allowed generations of leaders and managers to emerge that form the foundation of the industrial growth the country is experiencing and will do so over the next decade. What was lost was the will and vision to educate and make healthy every Indian child. In some ways these were the competing visions of economic development of India at Independence. Nehru felt that a top-down Soviet planning model was the fastest way to industrialize and bring people out of poverty. Gandhi’s instinct was to distribute economic development to the villages, using the spinning wheel as a metaphor. Clearly both economic growth models are needed.

We know that vision from government is necessary but best in the form of incentives to the private sector. India has a unique opportunity to learn from best governance practices in other large, diverse countries. These practices have to be applied to the unique situations in India. Let’s take transportation as an example. China has built thousands of kilometers of roads and dozens of airports but in the process hundreds of thousands of people have been displaced. India’s democracy will not allow the same displacement of people. Clearly a different vision has to emerge for giving people and goods in rural India access to transportation. Will it be low cost jet aircraft flying from new regional airports or perhaps coastal ferries, or maybe light-rail? Most likely an innovative combination of all these will be needed.

There appears to be a political consensus forming in India that the country cannot skip the development of its agricultural and manufacturing economies. The service economy, though booming and world class, cannot provide employment to 80 million youth over the next two decades. In order for agriculture and manufacturing to thrive, India needs to invest billions in physical infrastructure: transportation, logistics, power, and telecommunications. India also needs to spend billions in soft infrastructure: education, and health.

Sunita Williams, a product of pluralistic India, is an inspiration for all, not just Indians. Even more so is the story of a non-profit organization Akshay Patra. Akshay Patra delivers half a million lunches daily to Indian elementary school children for Rs. 5 per lunch. Patra was founded by Indian entrepreneurs who have applied modern day logistics and distribution thinking to achieve enormous scale. With the right incentives Indian entrepreneurs can reach the moon!