As the Second World War ended in 1945, a few German economists developed an appetite for an economic system which was neither as centrally planned and controlled as the Soviet Union’s, nor one which left everything to the free market. These economists believed in capitalism and rejected government intervention, but also held that the state had a strong role to play in creating a stable economy. The result: Ordoliberalism.
Ordoliberals believed that capitalism requires a strong government to create a legal environment and framework which enables competition, prevents monopolies and provides policies that free markets need to function most efficiently. The government’s job was to ensure that markets worked, without its interference.
On June 5, 2014, just a day after he took oath as the first Minister of Information Technology of India’s youngest state of Telangana, K Taraka Rama Rao, known simply as KTR, was sitting in a conference room at the Indian School of Business (ISB) campus in Hyderabad. He had one simple question for Srinivas Kollipara: What can the new government do to make Hyderabad the startup capital of the country?
In 2014, Kollipara was among the very few people in the world who had developed a deep understanding of how startup ecosystems were built, studying their growth as a science. A serial investor himself, he had worked through the dotcom boom and bust in the US in a biotech company. He was then mentoring startups and had helped 65 teams come on board the incubator program at the International Institute of Information Technology (IIIT) in Hyderabad.
“When KTR called, I didn’t really want to do anything with the government because of the way they usually work. But KTR was very clear from the beginning, the government will keep away from the daily affairs,” he says.
This was the genesis of T-Hub, India’s largest startup incubator and perhaps the first ordoliberal experiment in the space, even if the founders don’t necessarily subscribe to the German economic ideology.
K Taraka Rama Rao, Minister of IT, Telangana
KTR did publicly proclaim that they would stay away from it as much as possible. In an interview in 2015, KTR had said, “We wanted it to be as un-government like as possible. I don’t think entrepreneurs can thrive in a government-like environment.” T-Hub would be “completely autonomous” and “free spirited”, just the way entrepreneurs in a free-market economy prefer, he had said.
The T-Hub journey begins
T Hub is an incubator, but also a unique public-private partnership between the government of Telangana, IIIT-Hyderabad, ISB and NALSAR, and other private sector players. And T-Hub is not just an incubator which support startups through their journey, it is a startup which is creating a startup ecosystem in Hyderabad to make the city the startup capital of India.
The concept of T-Hub is this: it is anchored at an impressive building called CatalysT inside the IIIT campus in Hyderabad. The building is a 70,000 square feet co-working space where startups get access to infrastructure, networking opportunities, workshops and assistance from the senior management team of T-Hub, in return for a small monthly fee. A few startups are on board the LAB/32 program, through which T- Hub helps startups become successful businesses in return for a small stake in them.
T-Hub is at the intersection of government, corporates, venture capitalists, research sector and startups.
“By 2014, our IIIT incubator had managed to create a startup culture in Hyderabad. In fact, many success stories like RedBus and Bookpad attributed to Bengaluru actually have roots in this city. But no one was bringing things together to take it to the next level. That’s what T-Hub does,” says Kollipara.
Srinivas Kollipara, COO, T Hub
The role of the government here is simple - it is only a facilitator. The broad framework and policies have been created, and capital expenditure of Rs. 40 crore was allotted by the government. T-Hub is run by professionals with zero government intervention, and has to become financially sustainable on its own. No handholding by the government. If it fails, it fails. If the startups in the incubator cannot scale up, they will be weeded out.
Today, T-Hub supports 200 startups in the co-working space and guide 5 incubatees in which they have a stake.
A monument and a dream-team
The CatalysT building is a monument in itself. A five-storey creative ensemble by W Design Studio in Hyderabad, it is a high-energy, colourful and vibrant working space which is extremely agile and unorthodox. “It is a mix between the corporate world and college campus. The building had to be creative and inspirational, and suitable for low budgets and long-working hours put in by entrepreneurs,” says Gokul Krishna of W Design.
Inside T hub
As one walks into CatalysT, the silent energy of ideas is hard to miss. It’s a space where a 3D printer is being tested in one corner, and VCs are discussing investments with startups in another.
Another key member of the project is Jayesh Ranjan, the IT secretary of Telangana, a bureaucrat with wide-ranging public policy experience from some of the best universities and institutions in the world.
Kollipara, KTR and Jayesh knew that throwing money at Hyderabad was not going to make it a startup capital. There had to be a sound business model, a clear vision, the willingness to learn along the way – and all of it had to be built on top of the existing foundations of the city. “To build something like this, we need a strong minister, an IT secretary who gets it, and most importantly, the right person to execute the plans,” says Kollipara.
Just as the idea was taking shape, a few members of what is today the Board of T-Hub got together and decided to task a hiring firm to find a CEO for the company.
Jayesh Ranjan, IT Secretary, Telangana
In March 2015, serial entrepreneur Jay Krishnan had pretty much made up his mind to return to the US after a stint in Bengaluru, when he got the call from the hiring firm. In May that year, he was presenting to the T Hub board members his vision for the company.
“Interestingly, there were many similarities between what Srinivas had thought through and what I had articulated. There was a lot of common ground there, of course there were differences too,” recalls Jay Krishnan.
He was hired as the CEO and moved to Hyderabad in July, and worked as the 'construction manager' for their landmark structure until the official launch of T-Hub in November 2015.
Jay Krishnan was the person Srinivas was looking for, a serial entrepreneur who had seen through successes, acquisitions and failures in the startup world. Described by a Hyderabad-based business reporter as “almost too cute to be a CEO”, Jay Krishnan, along with Srinivas, is part of the team of two key heavily-accented executives who run T-Hub.
A semi-conductor engineer, Jay Krishnan was a ‘PIGS’. “Poor India Graduate Student in the US,” he explains, “and all that mattered to us was Apartment Department Advisor Budweiser.” His first venture in 1996 was a partnership with his thesis advisor at the University of Connecticut, Hartford, spun out of his thesis. The company got acquired for its intellectual property, and since then he has worked in three startups over 10 years and put in another 10 years in the corporate space. He also worked on a startup in Bengaluru, which was later acquired by the Birla group.
“It’s almost an entrepreneurial challenge to put Hyderabad on the world’s startup map,” he explains, “and just like any startup, if framework and policies are well defined, it becomes a scalable organization by just hiring people.”
Jay Krishnan, CEO, T Hub
Under his leadership, T-Hub has now broken even. “Through our co-working space rentals, we now have enough income to cover our fixed expenditure every month,” says Jay Krishnan. T-Hub has multiple revenue streams: rental income from workspace, events and workshops they conduct in the building and divesting stake in companies that they invest in at a later stage. But their main job is to create a startup ecosystem.
Firing up startups, the Hyderabadi way
“If you look at incubators in general, they are designed to fail because you are targeting a customer base which has a probability of 10% success. 90% of the startups across the world fail. Incubators don’t have the magic wand to make that any better. So we are not here to change that, but to tell the 90% to learn from their mistakes and come back and build a successful company,” Jay Krishnan explains.
Instead of trying to replicate Silicon Valley, T-Hub has chosen 6 key sectors from which they would incubate startups, and all of them were chosen based on the strengths of Hyderabad as a city. Health technology, agricultural technology, financial technology, transport and logistics, sustainability and social sector are their key areas.
For the startups incubated at the Hub, the partnership has catalyzed their growth immensely.
Mukesh Chandra, founder and CMO of fin-tech company Paymatrix which is incubated at T-Hub, recalls how the partnership threw doors open for them in the market. “We had a good idea and the technology, but not all banks and payment gateways were willing to work with us. There were some lingering doubts. But once we came on board T-Hub, they were confident,” says Chandra.
Paymatrix is a service which allows users to pay housing rent using their credit card and also helps them with rental documentation. In the near future, Paymatrix will also allow peer-to-peer lending as well. So if you are out of cash, you could borrow money from small lenders registered as non-banking financial companies for your rent through this service.
“The networking opportunities which T-Hub provided us helped us a lot. The senior management monitors us very closely, helps us leverage the brand of T-Hub. We have been able to crack better deals,” says Anusha Kurupathi Parambil, founder and CEO of Paymatrix.
Founders of Paymatrix
In fact, T-Hub itself has been a great market for them. Many other startups who use the co-working space at CatalysT pay for it through Paymatrix.
For Ravi Bhogu of Monitra Healthcare, also incubated at T-Hub, it is the infrastructure and atmosphere which have won his team over. “The team’s motivation is high in this working space. We love to be here, and this has shown in our productivity,” says Bhogu, the founder and CEO of Monitra. He also says that experts facilitated by T-Hub have helped him change his global strategy for the better with important insights.
The company builds health monitoring devices which can be used by the patient easily, while carrying on with daily life. The company has designed a device to pre-empt cardiac arrests
Earlier this year, Life Circle Health Services, a home nursing and professional care services provider incubated in T-Hub, raised $150,000 from European healthcare services provider Groupe SOS. The startup offers subscription-based care-giving and home-nursing services.
Another app being developed under the supervision of T Hub is WOWSOME, which solves marketers’ problems using augmented reality. The platform provides computer-vision-based solutions which merge creative advertising and digital marketing – for instance, a well-designed visiting card with a QR code which brings your smartphone to life with details about the person or business entity.
T-Hub has also managed to get institutions like Samsung and ICRISAT on board as partners, and this helps startups gain exposure on the one hand, and help corporates keep a close eye on the fast-evolving market.
Converting euphoria to substance
Yet, they still have a long way to go, says Jay Krishnan. “One of the problems with Indian startups is that they are not solving problems of India. Ecommerce was a big success in the US because it really was needed at that point. We have copy-pasted these ideas in India. T Hub faces the same problems too,” he says.
“Indian startups are more about euphoria and less about substance, and they just chase capital rather than being the next frontier in technology,” Jay Krishnan says. He adds that Indian startups also have a sense of entitlement: “They think they should get funding just because they have an idea.”
Inside T Hub
The signal-noise levels in Hyderabad, however, are lower he says. “Bengaluru has a lot of good ideas – the signals – but there is too much noise too. So it’s difficult to find the right guys there,” he comments.
Further, the economic philosophy of the new state government itself is a great playing field. If their taxi-aggregators policy is anything to go by, they strongly believe in letting markets do their job. In spite of immense pressure, sources say, the Telangana government has not banned surge-pricing or overregulated services like Uber, letting startups disrupt the market. “I can’t speak for the government, but at T-Hub we believe in the power of the markets to solve problems,” he says.
Even as some of their companies get funded, and many others lose steam and bow out, the Telangana government has approved phase-II of T-Hub – another incubator in Hyderabad with the same team, but with 5 times the present footprint and an investment of Rs. 175 crore. They have established a chapter of T-Hub in Silicon Valley, to get companies abroad to set up shop in Hyderabad, and help companies here access the global arena.
Kollipara is creating a framework which ensures that they remain accountable to the government, but operate independently: “We are an independent non-profit. We are the government’s partner and in terms of the structure we are isolated. And we will ensure we will remain so, whatever the future holds.”