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DESIGN INNOVATION AND INCUBATION CENTRE Madan Mohan Malaviya University of Technology, Gorakhpur

(As approved in Board of Management in its 1st meeting held on 14th March, 2014)

1.0 Policies and Procedures of DIIC

1.1 Policy Objectives:

The goal of Design, Innovation and Incubation Center (DIIC) at MMMUT, Gorakhpur is to promote technology based innovations, entrepreneurship and thereby facilitate practical application of knowledge for public use in the areas related to Mechanical Engineering. DIIC wishes to facilitate the creation of ideas and inventions that benefit society. To this end, DIIC has adopted this Innovation and Incubation Policy to provide guidance and management structure to facilitate development of entrepreneurship.

The scope of this document is to define the policies and procedures for the operational matters related to the Design, Innovation and Incubation Center (DIIC) at MMMUT, Gorakhpur. It covers the following processes:

1. Eligibility
2. Admission procedure
3. Infrastructure and Services provided to incubatees
4. Period of Incubation/Exit
5. Intellectual Property evaluation
6. Seed funding
7. Periodic assessment
8. Consideration
9. Conflicts of interest
10. Disclaimer
11. Agreements

The policy is subject to periodical review and amendments. It will be the responsibility of the companies admitted to DIIC to update themselves from time to time on amendments in Incubation policy and procedures. MMMUT reserves the rights to make an exception of all or any of the terms of policy for a particular company or a promoter on a case to case basis.

1.2 Eligibility:

The admission to DIIC can be in any one of the following categories:

1.2.1 Category I:

Faculty, academic staff and students of MMMUT having the intent of trying out a novel technological idea for upgradation to a commercial proposition, scaling up a laboratory proven concept, and setting up a technology business enterprise qualify for a pre-incubation project. It is expected that the innovator would like to commercialize the technology and would graduate to category II within 1 year from beginning the pre-incubation.

1.2.2 Category II:

Technology based start-up company promoted by a first generation entrepreneur desirous of R&D partnership with the institute or a company, with the objective of commercializing a novel technological idea, scaling up a laboratory proven concept and setting up a technology business enterprise.

Following are the eligibility criteria for admission to DIIC for Category II:
• DIIC is open to the faculty, staff, alumni and students of MMMUT. DIIC would also welcome outside promoters.

• A company has to be registered with ROC (Registrar of Companies) to be incubated in DIIC (except Category I). A company not registered with RoC (Proprietorship or Partnership) would have to do so within 6 months of admission to DIIC or before the disbursal of seed fund, whichever is earlier. A company can exist as a private limited company, proprietorship or partnership before it is admitted.

• DIIC would admit only technology based companies in any engineering discipline. Acceptable business would involve innovative, technology-based product, idea or service.

• The product or service to be developed should be less than 12 months from market.

• Realistic financials demonstrating significant revenues within the first five to seven years. The business plan has to be submitted during the application phase.

1.2.3 Category III:

Technology/ R&D unit of an existing small/ medium size enterprise, industry association or an R&D company who desires to have a close technology interface with MMMUT. The subsequent details of this policy are applicable to category II incubation projects. Category III projects would be governed by individual contract with the specific company.

1.3 Decision Regarding Eligibility :

Final decision regarding the eligibility shall be taken by the DIIC authorities with the approval of University as prescribed from time to time.

1.4. Admission Procedure:

Following admission procedure would be followed:

1.4.1. STAGE 1:

Submit Executive Summary or Business Plan

As a first step in the admissions process, the prospective company should submit an executive summary. DIIC will submit the executive summary to an internal review committee. DIIC does not require the submission of a final business plan for category I, but the incubator does want to receive a written indication that the company's founders have thought through the entire business process and, to some extent, have addressed the essential issues which will affect the company's success. Category II and III companies must submit the business plan along with the application.

1.4.2 STAGE 2: Presentation to DIIC

If the initial evaluation of the business plan / executive summary is positive, DIIC will arrange a meeting at DIIC with the company founders, during which the company will be expected to present a PowerPoint presentation describing critical aspects of the business plan to an evaluation committee. The presentation will be followed by 30 minutes of questions. After the presentation, a final determination will be made regarding the company's entry into the incubator. The company will be informed of final decision within a week after the presentation.

1.5 Research & Due Diligence:

Throughout the application process, on an as-needed basis, DIIC will perform research and due diligence of the company, the management team, the industry, and current and future competitive elements facing the business. DIIC may require further information from the applicant, and may ask the applicant to revise the executive summary and/or presentation.

1.5.1 Non-Disclosure:

DIIC adheres to strict confidentiality throughout the application process. However, DIIC will not sign any "non-disclosure" agreements.

1.5.2 Time:

The approval process can take as long as Eight weeks. The length of the approval process is largely dependent on the preparedness of the prospective company.

After successful completion of the admission process, the time between approval and the actual move-in date is flexible, due to varying conditions such as space requirements, paper work, etc.

1.6 Documents to be Submitted:

A company or a team of founders desirous of being incubated in DIIC should submit the following documents:

1. Business Plan/ Executive Summary
2. Intellectual Property declaration worksheet
3. Application for seed fund (if required)
4. Statement of infrastructure requirements
5. The details expected are – office space (in sq feet), number of PCs (maximum of 5), any special lab facility needed, if the proposed company wants to be closely coupled to any lab in the institute, furniture requirements, telephone, connectivity and alike. R&D Support required from MMMUT, if any.
6. Statement of Purpose (what benefits and values do the promoters see from getting incubated in DIIC).
7. Schedule – proposed date of moving in and anticipated duration of stay
8. Memorandum of Association and Articles of Association (if the company has already been formed, otherwise this would have to be submitted within 30 days from the date of incubation)

1.7 Evaluation Criteria: Some representative criteria to be applied for evaluation (not limited to these)

1. Strength of the product idea in terms of its technology content, innovation, timeliness and market potential
2. Profile of the core team/ promoters
3. Intellectual Property generated and the potential of the idea for IP creation
4. Financial/ Commercial Viability and 5 year projections of P&L, Balance Sheet and Cash Flows
5. Funds requirement and viability of raising finance
6. Time to market
7. Break-even period

1.8 . Infrastructure and Services of DIIC:

Upon admission to DIIC, the following facilities will be offered to the incubatee companies on an individual basis:
• Office space: Company dependent
• Personal Computers – up to five, depending on the team size
• Printer
• Internet connection
• Phone lines (Intercom) – Each company will pay the rentals and bills
• Furniture
• Accommodation (One room in DIIC guest house)

1.9 Common infrastructure: DIIC provides a common pool of hard and soft infrastructure to be shared by all incubatee companies. Following resources are provided:

• Fax machine
• Photocopying machine
• CD-cutting machine
• Document Scanner
• Library: Management Books, Subscription to IT, Business, Management and Trade journals and newspapers
• Meeting/Conference room with projection equipment
• Teleconferencing facilities
• Other facilities created from time to time as per requirement

1.10 University infrastructure: DIIC will facilitate access to university infrastructure as per norms of MMMUT.

1.11 Services: DIIC will associate with professionals for accounting, IP, legal and management expertise on a part-time basis. Incubatee companies can avail of their services. Any direct services provided to an incubatee would have to be paid for by the incubatee to the service provider.

DIIC will also provide soft infrastructure and business services to the incubatee companies. Possible services and support items are listed as follows:
• Training in business management: structured short courses
• Training in business communication: written as well as verbal
• Accounting tools/ software
• Common secretarial pool/staff
• Experiences of successful companies – a knowledge/ information site would be created where management concepts, intellectual property evaluations, deal making, negotiations, networking, VC funding, company registrations etc are provided
• Networking events/ showcases
• Tie-ups with chartered accountants and other professional organizations as required
Intern Support: Also, to provide support in management, incubatees will be assigned an MBA /B. tech./MCA/M.Tech. student, if desired.

1.12 Mentoring and Advisory Services

Strategic Checkups:
The DIIC Head will meet with company CEOs at least once in each month for strategy reviews and discussion of operational issues.
• Each incoming company is offered a "CEO Mentor." This is a person with extensive business experience or specific industry insight who will advise the company on a limited basis regarding matters of particular importance to the company.
• A faculty advisor from the relevant discipline will also be associated with the incubatee as a mentor on technology issues.
• Specialized mentors are also available to the companies to assist with particular strategic areas or to provide project-oriented consultation. These arrangements may begin as a pro bono arrangement with an option for both parties to graduate to a paid relationship.
• All companies would be provided access to consulting by professionals.

Market Research and Consulting:
DIIC partner organizations provide consulting and market research services to incubates. Services may include:
• Market research and opportunity identification
• Valuation of Businesses
• Competitor Research
• Market analysis and sizing
• Customer Search
• Electronic Research
• Marketing plan formulation
• Consulting on strategies at various stages: Launch, Growth and Harvest of businesses.

Any specialized consultancy work for a specific company has to be paid for by the innovator / incubatee directly. However, DIIC may provide certain services to all incubates, which it may choose to bear the complete cost of. However, it would be sole prerogative of DIIC to choose who would pay for these specialized services.

1.13 Tenure of Incubation:

Companies will be generally permitted to stay in the incubator for a period of one year. Two extensions may be granted for 6 months each at a time at the sole discretion of the Advisory Committee of DIIC.

Exit: An Incubatee company will leave the incubator under the following circumstances:
• Completion of one year stay (if no extension granted)
• Underperformance or non-viability of initial proposal as decided by DIIC on case to case basis
• Irresolvable promoters’ disputes as decided by DIIC on a case to case basis
• Violation of any MMMUT direction or policy
• Raising substantial investment (Rs 2 crores or more)
• Number of employees of the incubatee exceeds 20
• When the annual revenues of the incubatee exceeds Rs 2 crore or the Profit After Tax exceeds Rs 50 Lakhs
• When the company enters in an acquisition, merger or amalgamation deal or reorganization deal resulting in a substantial change in the profile of the company, its promoters, directors, shareholders, products or business plan
• Incubatee plans for a public issue
• Change in promoters'/ founders' team without concurrence of DIIC.
• Any change of more than 50% of equity ownership would require a prior approval of DIIC
• Any other reason for which DIIC / University may find it necessary for an incubatee company to leave
Notwithstanding anything written elsewhere, the decision of DIIC / University in connection with the exit of an incubatee company shall be final and shall not be disputed by any incubatee company.

1.14. Periodic assessment:

A committee set up by DIIC will evaluate the performance of incubatees every 3 months. The emphasis of evaluation will be on checking if the milestones specified in the business plan are met. For a company which has taken seed fund loan, additional checks will be done on the financial health of the company in terms of its order booking, expenses, profitability, utilization of seed money loan for the specified purposes and its ability to repay the loan. Further seed fund disbursal will be dependent on the progress shown in previous appraisal. Periodic assessment would vary depending on the stage of incubation the company is in. Some representative criteria for evaluation are:

A. Ideation / Innovation stage
• Concept development / Opportunity spotting
• Product Development
• Market assessment / Competition analysis
• First level Business Planning / Business Modeling
• Founding Team
• Intellectual property protection
• Seed Funding

B. Pre-Market Stage
• Proof of Concept/ Prototyping
• Product Development and enhancement
• Financial Assistance Required
• Test marketing
• Full scale business planning including production, sales and sourcing

C. Implementation Stage
• Full scale Business Planning
• Pitching for Venture Funding
• Scaling up operations
• Large scale commercialization
• Mature Team Formation

D. Exit stage
• Going National / Global
• Exit options for MMMUT
• Full scale business Graduation
• Post incubation Survival
The incubatee may be asked to provide more frequent updates to DIIC.

1.15. Intellectual Property:

Promoters should fill an IP declaration worksheet at the time of admission. If some MMMUT, Gorakhpur IP is being used, the worksheet should contain the following details.
1. Intellectual Property that is being transferred from MMMUT to the company. This can be a patent, software code, copyright, design registration, developed product, and alike.
2. If any MMMUT seed grants have been used in developing the technology which will go into the product(s) of the proposed company.
3. If any students have worked on the technology and if their work will be incorporated in the product(s).
4. If funds from Government agencies (DST, MIT, BNRS, DBT ……) have been used in the development of technology. If yes, what was the understanding with the funding agency in terms of sharing the IP.
5. If collaborative work with faculty members (who are not promoters) is being incorporated into the product(s).
6. If any MMMUT infrastructure (hardware, testing setup, instrumentation, computing resources, processes) has been used in developing the technology that will go into the product(s).
7. If any consultancy projects were executed in the proposed area.
8. An agreement with MMMUT that the IP has been assigned to the company for commercialization.
The entrepreneur would have option of first purchasing the rights of IP from MMMUT and then being incubated or assigning equity to MMMUT in lieu of direct payments to MMMUT. Please refer the consideration section for details.The incubatee would maintain a register with the details of any IP (patents, licenses, copyrights etc) that has been brought into the company prior or during their stay at DIIC. Also, any IP developed during the stay would be maintained in the register.

Notwithstanding anything written above, Intellectual Property Rights will be governed by the Intellectual Property Policy of MMMUT.

1.16. Seed Funding:

DIIC, MMMUT may provide seed loan subject to the availability of funds/ grants/ schemes meant for this purpose. Seed loan will be sanctioned only to the registered companies and shall be based on merits of each company. Promoters/ founders whose companies are not registered at the time of application shall not be eligible to apply for seed loan. Further, admission to DIIC shall not automatically entitle the companies to seed loan.

A company desirous of getting seed loan may submit an application for seed fund simultaneously with submission of the application for admission in DIIC. Sanction of seed loan will be decided based on the eligibility criteria as decided by DIIC. It would be also subject to the terms stipulated under specific grant or scheme as the case may be.

One of the criteria for approval of the seed loan will be the contribution brought in by the promoters to the capital of their companies. Preference will be given to companies who already have some sources of revenue or some customer order booking. DIIC will have sole discretion to sanction or reject an application for seed loan and the decision of DIIC in this regard shall be final. DIIC is not bound to give any reason in case an application for seed loan is rejected.

Though seed loan may be sanctioned at the time of approval of the proposal for admission, disbursement shall be subject to satisfaction of DIIC Head that suitable progress has been made.

The seed fund will be treated as a soft loan. The following terms apply for seed fund provision:

a. Up to Rs 10 lakhs of seed loan will be given to a company. This is the upper limit. Companies will usually be given a much smaller amount unless there is a strong justification for releasing this quantum of investment.
b. The release of funds would be company specific and governed by rules regarding it.
c. The loan will carry an interest rate of three percent per annum and is repayable at the end of three years from disbursal. The company may choose to repay the loan in cash or to convert half the loan amount into equity as outlined in the Consideration Section.
d. Company will submit its current balance sheet, profit and loss statement and any other material to substantiate its loan application. The application should be substantiated by providing the outstanding client orders, Letters of Intent, Strategic Alliance agreements, invoices for services rendered, and alike.
e. Company will submit projected Balance Sheet, Profit and Loss Account and calculation of working capital requirements
f. Every 12 months or at the end of financial year (whichever is earlier), a balance confirmation certificate and a Promissory Note for the balance outstanding shall be taken by MMMUT.

In case the incubatee company defaults in repayment of the loan within the due period, the Steering Committee will review the performance of the incubate company and advise/recommend for the extension of the time period of the loan repayment, or to take appropriate legal action, or of writing off the loans to the Advisory Committee of the DIIC. On the advice of the Advisory Committee of the DIIC, the competent authority of MMMUT will initiate appropriate action.

1.17 Consideration: DIIC will charge the incubatees for infrastructure and services, seed loan and MMMUT Intellectual Property. This payment would be in the form of service charges and equity share as per following details.

Consideration for infrastructure and services: The incubates will have to pay the charges as follows:
Item Charges in Rupees *
Office rent at Rs 10/sq.ft per month 2,500
PC rental at Rs 1000 per PC per month (2 PCs) 2,000
Printer at Rs 200 per month(inkjet) 200
Internet connection per login per month 500
Electricity charges including air-conditioning On actual metering
Telephone Bills On actual metering
Accommodation charges for Suites on per day basis 2000
Mentoring / Consultancy charges for the teachers of University Rs. 2000 per month / project
* DIIC Advisory Committee may change the rates from time to time with the approval of the Vice Chancellor of the University.

The incubatees would have option of deferring 50% of the rent till the time they exit from DIIC. For the deferred amount an interest rate of 3% would be charged to incubatee. However, the incubatee would need to provide a personal guarantee for the total sum deferred and interest (at 3% per annum) thereof. This amount would have to be paid back at the time of exit or converted to equity. The price for conversion would be as per the guidelines for seed fund.

Additionally 3% equity in paid up capital of company would be assigned to MMMUT for providing infrastructure services in all cases.
Consideration for MMMUT Intellectual Property:

As per the Intellectual Property Policy of MMMUT, Gorakhpur.
Consideration for seed fund:
The seed fund is provided as a soft loan and the incubatee are expected to pay back the seed loan at 3% per annum simple interest rate. The incubatee would need to provide a personal guarantee to the extent of seed loan and interest thereof.

Half of the financial support given to the incubatee company would have to be returned and the remaining 50% would be converted into equity at the time of valuation. The entrepreneur would have the option of paying it back in cash also. 50% seed loan may be converted into equity as per following details:

- Based on the valuation of the company at the time of exit OR
- Cost contribution (in case no valuation of the company is conducted or agreement reached on valuation): MMMUT and the promoters would share the equity of the company as per the investments made by them. For e.g. if the promoters have contributed Rs 90 Lakh and MMMUT Rs 10 Lakh, MMMUT will get a 10% stake in the company.
The repayment of the loan and the interest amount will start after three years of the disbursement of the first installment and will be recovered/repaid within the next three financial years in quarterly installments or as soon as the company makes operating profits and is in a position to service the loan, which ever is earlier.

Other Considerations:

Access to institute infrastructure (labs, library etc) and faculty expertise would be charged as per the defined MMMUT rules and regulations. Any consultant that is hired directly by the incubatee would have to be paid for directly but it is obligatory to inform the DIIC about the same, which may even interfere in such hiring in exceptional circumstances related to credentials of consultant, availability of facility in University etc..
MMMUT will have a right to put suitable number of Directors (negotiated with the incubatee) on the Board of Company. MMMUT will nominate members on the board of company whose powers and duties would be the same as if he were a nominee director of a financial institution. However, the nominee director shall not stand as a guarantor either to MMMUT or any other party. The said director shall stand indemnified by the company at all times of any liability for any legislation or act for the time being in force.
Equity Disposal by MMMUT: MMMUT would have the first right to sell-off its equity stake in the company. When the incubatee raises funds in any form (Angel Investment, VC fund, acquisition etc) where equity transaction would take place, MMMUT would sell its equity to the buyer.

In case, no such transaction takes place within five years of exit of the company from MMMUT, the promoters would undertake to buy-back the entire equity stake of MMMUT at a price which is highest of the following:

• Book Value of the shares
• Price that will give MMMUT a net return of 12% p.a. compounded annually (for the investments made in seed fund)
• Market Price of the shares as defined by independent valuation
In case the company closes down, MMMUT will initiate due process to recover the investment.

1.18 Business Plan Template

The following template shows a possible structure for a comprehensive business plan. The shown sequence is not mandatory; however the business plan must cover all the issues listed in the template.
Recommended Subsections in a business plan:
1. Introduction / Company overview
2. Concept / Proposition / Product description
3. Market opportunity
4. Competition survey
5. Development plan and milestones
6. Marketing plan
7. Management / Organizational chart
8. Financials
9. Risks and de-risking strategies
10. Appendix