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Why IITs create more entrepreneurs than IIMs

Why IITs create more entrepreneurs than IIMs
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Around 200 IIM graduates take up entrepreneurship every year, while around 1,600 IIT students annually turn entrepreneurs. Statistically, this is one reason why India produces more entrepreneurs with an IIT background than an IIM one.

Across India, annually around half a million graduates vie for around 9,600 seats in 16 IITs while nearly two lakh entrants strive for less than 3,500 seats in 13 IIMs. Consequently, the number of IIT graduates (including post graduates) turning entrepreneurs is also more than their IIM peers.

Why More IITpreneurs?

Interestingly, IITs, which teach students to become engineers and scientists, end up becoming the breeding ground for fledging start-ups in a stark contrast to IIMs where students learn how to manage a business.

“Management institutes are for managing businesses not for generating businesses. Engineers are supposed to innovate and make products. They know how to take risks, whereas IIM graduates don’t know how to take risk, they are only taught how to analyse and then take a calculated risk,” says Mahesh Gupta, Chairman, Kent RO, who graduated from IIT Kanpur in 1975.

“Students who join IITs come from different parts of India, which is not there in regional colleges because of reservations. The cultural mix of people who come to a college is much more diverse in an IIT because it is a national exam. This cultural and language mix of people opens up many possibilities. When I was in IIT Varanasi, there were only two students who were from Varanasi,” says Sanjay Sethi, Co-Founder, ShopClues. He did his B.Tech in Mechanical Engineering from IIT BHU in 1993 and an advance course in software technology from IIT Delhi in 1996.

Being a high-risk profession, entrepreneurship goes well with IIT students. Right after the studies or within a few years of professional life, they have nothing to lose as they have less chances of having paying back huge bank loans as compared to IIM students. So, this reduces the risk taking appetite among IIM students.

“In IITs, you do not need a large amount like in IIMs to pay the fees. Also, you graduate from IITs at a fairly young age of around 22 so you have a lot of time to make mistakes. Furthermore, there is no societal pressure of getting married,” says Aprameya Radhakrishna, Founder, TaxiForSure. Aprameya worked for two and a half years after passing out of IIM-Ahmedabad and launched TaxiForSure in June 2011.

“Once you reach the IIM stage, the risk-taking capability goes down a bit. When you are fresh out of IIT, you don’t have many expenses and can let yourself free while when you reach IIM stage you have a lot of needs,” says Amit Jain, an IIT Delhi 1999 alumnus and CEO & Co-founder, CarDekho.com.

“Around 30 per cent of IIM students already have some work experience. They start searching for a stable job after IIM so that they can start business after two-three years of marriage, but that rarely happens,” says Beas Dev Ralhan, CEO, Next Education. Ralhan started his first company right after graduating from IIT Bombay in 1999 but it failed. The biggest lesson shares Ralhan during his IIT days was not doing something which you were not passionate about because “what you would do casually would be the passion of someone else. And you would eventually fail,” he adds.

Moreover, many IIT graduates also go to the US for higher studies, so they are exposed to a better entrepreneurial environment; whereas IIMs is a post graduation institute, many graduates end up taking jobs.

Amitava Saha, who Co-founded online portal for baby care products and toys, Firstcry.com in 2010, is an alumnus of both IIT and IIM, graduating from IIT-BHU in 1997 and from IIM Lucknow in 2001. “I wanted to do something of my own. As I had educational loans to return, I thought of working for few years and become an entrepreneur after that,” says Saha.

The other fact, why IIM has fewer entrepreneurs is that students choosing IIM self select themselves for a management degree to become a manager in most cases. Whereas in IIT, a budding engineer who has the passion to create a product will look at the possibility of monetising it. So, a lot of innovation comes out of IITs than IIMs resulting in more companies from IITs than IIMs. However, there could be a lot more IIM CEOs than IIT entrepreneurs.

Most of the IIT and IIM colleges have entrepreneurship cell, student-run initiatives to promote entrepreneurship or courses on enterprise management or an elective or minor course on entrepreneurship but no main courses. “IIT-B does not give any special training on entrepreneurship. We have large amount of co-curricular activities like STAB (Student Technology Activity Body) and other is e-cell that encourages innovation and entrepreneurship,” says UA Yajnik, Dean, Student Affairs, IIT Bombay. Out of around 1,500 students graduating out of IIT Bombay every year, including both graduates and postgraduates, around 150 take entrepreneurship.

“The initiatives offered by the IITs and IIMs give information, but they cannot create entrepreneurs. It will only make you wannabe entrepreneurs,” says Suvir Sujan, Co-founder, Nexus Venture Partners.

Good for Technology Business?

In the last 25 years in India, technology has been a major driver of innovation that has impacted everything around us. As a result, maximum business opportunities have emerged at the technology front. IITians, who already have competitive edge in technology, can solve the problems related to technology, and hence have turned entrepreneurs in large number.

“Companies started by IIT students most often have a very essential technology component. Graduating as engineers doesn’t mean that they have to be corporate engineers. They can be engineers for their own enterprise. So they put those engineering, mathematical and analytical skills in their entrepreneurial venture. Hence, their entrepreneurship is not contradictory with their engineering degrees,” says Yajnik.

“IITs turned out technologists not entrepreneurs. However technology adoption in the world created business opportunities which only technologists could have spotted. Also most people turn tech entrepreneurs because it doesn’t require large capital to get started,” says Ralhan. However, may be in the next 10 years, once everybody will know about the possibilities of technology, then businesses will get to know what the deeper complex problems to solve are and we will see more non-tech entrepreneurs.

Investors’ Favourite

Traditionally, investors, particularly VCs, who invest in growing businesses, have themselves been mostly from IITs. If not, the money, entrepreneurs believe that having an IIT tag will at least fetch them one round of meeting with investors.

“Yes, most likely entrepreneur will get at least one meeting, but VCs will need to create some comfort around the uncertain success of the business in the future and this can only be created by the team of the company who can find the right solution to the future problems,” says Sethi.

ShopClues has raised more than $15 million so far from investors like Nexus Venture Partners and Helion Ventures.

“Most of the PE and VC investors are foreign return people who had studied at IIT. Hence, they prefer them over IIM ones. Also, the technology ventures get a lot more favouritism from these investors because there is a rupee arbitrage,” says Ralhan. However, Nexus Venture Partners denies this favouritism. “Investors do not prefer IIT or IIM entrepreneurs. It is just that the sheer number of entrepreneurs happen to be from IITs,” says Sujan.

Last month, Nexus Venture Partners had announced the extension of its seed funding programme to IIT-Bombay to nurture and support bright young ideas. This will be later taken to other IITs.

So far Nexus Venture Partners have invested in six entrepreneurs (former IIT-Bombay students) and around 25 entrepreneurs from IITs across India while it has few entrepreneurs from IIM portfolio. The ratio is about 70:30.

“We thought of going deeper into the graduating class or those who graduated a few years ago from IITs and see if they are interested in starting a company by providing co working space, seed funding and mentorship,” adds Sujan.

Recently, a US-based PE and VC research firm, PitchBook Data ranked IITs fourth among 50 top undergraduate universities, ahead of Ivy League schools like Yale and Princeton, in terms of producing VC-backed entrepreneurs. The report stated that IITs had 264 entrepreneurs that have started 205 companies and cumulatively raised $3.15 billion.

“Earlier, IIT entrepreneurs would go to the US to do PhD and then stay there and start companies there. Now it is happening in India itself,” maintains Sujan.

IIMs Gaining Ground

Apart from the sheer number of entrepreneurs coming out of IIT being larger than IIMs that eventually gives IITs an upper hand, IIMs can do a handful of things to remain competitive.

“If fee is the bottleneck, then deferred payments will help in enabling entrepreneurship,” says Yajnik. On the other hand, Ralhan suggests, “There is a loan liability of IIM people. If the government makes IIM education free for students opting for entrepreneurship, this will be the greatest thing they can do.”

IITs will continue to empower bright ideas as technology will be the lead category in creating business opportunity for young entrepreneurs to tap on. Until technology becomes common and consumers become efficient in its adoption, IIMs will have a hard time to churn more entrepreneurs or rather would only produce better CEOs than IITs. 

Edition: October 2016

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