Government should support startups with loan guarantees: Romesh Wadhwani

Are you doing anything to enable funding for these ventures?

We have a mentoring and angel investing programme. We are also talking to the government to help create a VC industry. In the US, VC companies were triggered with government support.

We are also talking to the government to provide guaranteed loans to startups. In the US, there were two very successful government programmes for supporting startups. One was the Small Business Investment Corporation (SBIC), where the government would give you $3 or $5 for every $1 that you raised. After that you are responsible for making the investment, the government does not interfere. The other was the Small Business Loan Guarantee Programme, where if you go to a bank for your early stage company, and you don’t have demonstrated cash flows, the government would guarantee 90 per cent of the loan. So the bank has the incentive to give the loan. These opened up so much capital, without all the egregious demands that venture capitalists make.

The rate of company formation from our NEN programme is doubling every year. The number of students in these programmes is doubling every year. If we had those government sponsored programmes, these numbers would be many more. The government may not get back some of the money, but on balance it will gain a lot from the companies that become successful. And the economy gains enormously.

Is your Foundation involved in anything else in India?

We are building a large-scale skills development programme. The government has established some 7,000 industrial (vocational) training institutes, but their success rate is very low. Nobody is accountable for relevance of the training, how many have been placed.

We commissioned a team to identify the scope of the problem. This team came up with the remarkable estimate that the number of kids who drop out in grades 10, 11 and 12, and in first year of college, is over 10 million a year. These 10 million mostly become labourers at construction sites, clerks or peons, earning Rs 1000 to Rs 3,000 a month. We came up with the idea of creating a next generation network of community colleges that would deliver market-driven vocational training. We have been asked by the government to come out with policy ideas. The Wadhani Foundation will fund the entire knowledge infrastructure , including defining the vocational courses that would be relevant - auto mechanics or crane operators, as opposed to gardeners or peons. Many airlines today hire 12th graders, so there are a variety of jobs where a 12th grader , with a targeted 1-year training, can become very productive. The job creation would be in the millions.

We are doing some pilot projects. We need to do these things at scale, has to be outcomes driven. I have said the funding is unlimited; it is limited only by our ability to execute.

We’ll eventually take these concepts to Africa and other emerging countries. But I would like every idea to be tested and validated in India. While I would like to support multiple emerging economies, my heart is here.