Setting the trend for B-schools and engineering institutes, the Centre for Innovation, Incubation and Entrepreneurship of the Indian Institute of Management, Ahmedabad, has formed a company under Section 25 of the Indian Companies Act, 1956.
This will enable the firm, a wholly-owned subsidiary called CIIE Initiatives, to buy stakes in the companies that it incubates by investing its time and resources.
Although several IIMs and IITs run similar centres, their current structure is such that they cannot hold equity in companies they incubate.
"The only mechanism by which they work is a service model under which they charge for their services but do not share the risk," explained Rakesh Basant, IIM-A faculty member and chairperson of CIIE.
"By setting up this company we will also be able to share the risks in the companies we incubate," he added.
IIM-A Director Samir Barua will chair the new company's board and other faculty members will be directors.
"Instead of shares, the company will direct the proceeds from sale of shares to IIM-A," Basant explained.
He said work has begun on modifying all the "incubatee" companies to allow CIIE Initiatives to buy stakes in them.
The recently-formed company has also created at least two seed funds with government help to finance the activities of companies it incubates.
A Rs 1.50 crore IT fund is being set up with the help of the department of information technology and a Rs 1.25 crore science fund will be financed by the department of science and technology. "We are also planning to set up a renewable energy seed fund," he added.
CIIE Initiatives is also in talks with several companies to finance these seed funds. Basant added that the new company will also invite entrepreneurs on its board.