In a feat to achieve self-reliance and to fuel the burgeoning growth of startups, Finance Minister Nirmala Sitharaman has announced to expand the scope of CSR (Corporate Social Responsibility) for the corporates to increase funds for the incubators not just limiting to technology incubators located within academic institutions approved by the central government.
The new provision of Schedule VII of the Companies Act entails CSR of 2 percent fund to be spent on incubators that are funded by the central or state government or any agency or public sector undertaking of state or central government and to those incubators making contributions to IITs, national laboratories, public-funded universities and several autonomous bodies such as ICAR, CSIR, ICMR, DST and DRDO, DBT and Ministry of Electronics and Information Technology engaged in conducting research in science, engineering, technology and medicine aimed at promoting sustainable development goals.
How will this expansion of CSR funds be beneficial to the incubators?
The incubators receive funds from government corpus and sometimes through philanthropic donations that are not sufficient for working capital. The incubators are constantly hunting for donations or investment. The situation is even grimmer for incubators housed within academic institutions, as the Institute directors are concerned with the bureaucracy that is blind to the understanding of an incubator. The investors show reluctance in providing funds to incubators by asking them to show results and maintain a healthy financial statement. Lack of monetary strength in incubators discourages students to enter into entrepreneurship, where they finally end up taking jobs from the campus placements.
Another hurdle for lacking funds in the incubator is the industrialist’s perception of startups. They believe that funding the incubators might result in mushrooming of competitors. Whereas startups work in a different way than traditional businesses, the startups leverage new-age technology and ideas that can solve the existing or future challenges.
The expansion of CSR funds to incubators will aid in developing better research facilities and will encourage more students to take up a career in startups.
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The new provision of Schedule VII of the Companies Act entails CSR of 2 percent fund to be spent on incubators that are funded by the central or state government or any agency or public sector undertaking.
What are corporates currently doing in CSR?
Technology major Honeywell will be investing in deep science startups through a tie-up with SID ( Society for Innovation and Development) -the industry interface of India’s artificial intelligence research and IISC (Indian Institute of Science). It has funded six of SID’s stem cell deep science startup incubators Azooka Labs, Protein Design, PathShodh Healthcare, Siamaf Healthcare, Mimyk Medical Solutions, and HealthSeq Precision Medicine. These incubators focus on healthtech solutions around cancer care and covid sampling and AR/VR platforms to train surgeons and precision medicine.
Besides Honeywell, tech moguls and e-commerce majors such as Google, Microsoft, SoftBank Group, Samsung, Alibaba, Flipkart, Tencent, Reliance, Times Group, Qualcomm, Intel, Naspers, Target, etc. have been investing in startups either as venture capital arms, family offices or in-house incubators and accelerators investing alone.
What lies ahead for the startups from this increased funding support under CSR?
Getting funds in the early stage of funding is crucial for a startup, as the business model and the product is in the testing phase. With the expansion of funds, incubators can directly offer these funds as grants and investments in return for equity. For the corporates, funding in such incubators might help them to recognise talent fit for their company or the solutions offered by the startups can be adopted by the conglomerates and biggies for solving their business challenges, therefore, helping startups earn their first client and help in getting more clients further through recommendations.
