Daybreak - Why IITs and NLUs are setting up their own companies

Episode Date: March 5, 2025

Over the past few years, public universities here in India have been stuck in a rather difficult position. For decades, they were almost entirely dependent on state funding to keep the lights on.But now the state funding has steadily been drying up. So now, they have no choice but to fend for themselves. But legacy institutes like IIT Bombay, IIT Madras and IIT Delhi have found a workaround. They are all taking a page out of the Ivy league playbook and setting up their own endowment funds. In this episode we delve into what that means and why it isn't as easy as it may sound. Stay tuned. Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Over the past few years, public universities here in India have been stuck in a rather difficult position. For decades, they were almost entirely dependent on state funding to keep the lights on, but off late, that state funding has steadily been drying up. You see, back in February,

the central government significantly cut down the money allotted to the University Grants Commission, or the UGC as it's better known. That's the statutory organization that regulates and funds higher education in the country, and the amount that was allotted to it year on year has steadily been declining over the years. In February, it dropped by at least thousand crore rupees compared to a decade ago. Now, in addition to all of that, the government has also shifted from just giving the money to colleges as grants to giving it to them with the understanding that they will pay all of it back. So now, public universities are clearly stuck between a rock and a hard place.

They have no clue but to find a way to fend for themselves. And turns out, legacy institutes like the IITs have finally found a workaround. They are all taking a page out of the Ivy League. Playbook. Let me explain what that means. You see, like most Ivy Leagues in the United States, these institutes are setting up their own Section 8 companies. These are companies that essentially act like the fundraising wings for universities to bring in more donations, basically like an endowment fund. And with this, they're able to tap into the pool of wealthy alumni, company CSR funds and even big-time philanthropist to raise funds. And it's really been paying off. Just take the case of

IIT Kanpur, for instance. Before it set up a Section 8 company in 2020, the university received about 20 crore rupees as annual endowments from multiple sources. But by 2022-2020, the institute had raised nine times the amount. These universities recognised somewhere down the line that there was a need to formally professionalize these monetary engagements with stakeholders across categories, alumni, industry, or philanthropists. So these Section 8 companies act.

as a bridge between the institute and the stakeholder. It's also not just the IITs that are following this model. NLU Delhi was the latest to take the plunge when it launched the NLU Foundation in January 2024. Even Delhi University set up one in 2023. But here's the thing. Breaking away from the red tape of government funding and taking matters into their own hands is one thing.

But making it work is something else entirely. Welcome to Daybreak, a business podcast from the Ken. I'm your host Rahal Philipos and I don't chase the news cycle. Instead, every day of the week, my colleagues, Nixar Sharma and I come to you with one business story that is worth understanding and worth your time. Today is Wednesday, the 5th of March. So far, most of these universities that switched up their approach to funding have seen a fair bit of success and that's mainly because of the non-profits that they formed.

IIT Kanpur is perhaps one of the best examples. You see, right after it was formed, the IIT Kanpur, Development Foundation announced one of its biggest endowment projects yet. It's called the Gangwal School of Medical Technology, which is a hospital and medical tech center that's later to open in 2026 within the same campus. The top-of-the-line center is expected to have a 500-bed hospital, research facilities for medical tech, and also plans to offer advanced medical post-grad programs. Now, to fund this very ambitious project, the university approached its alumni, including

Infus is founded at Ryan Moore. and Dave Junija, Chief Risk Officer at American Investment Management firm, Exceris Point Capital Management. Cut to today, the donors who've been receiving quarterly, half-yearly and annual reports on the project, have pledged 400 crore rupees. Similarly, take IIT Delhi's endowment fund. With a team of around a dozen full-time staff, mainly MBAs, the fund seems like a well-oiled machine. Some focus on alumni in India, others abroad, and some work with both. small and large donors.

But of course, when the fund was managed by a college department, it lacked the manpower to do all of this. An IAT Delhi official said that today, IAT Bombay, Madrasan Delhi raise about $10 million annually on average. So clearly the system seems to be working. But what goes on behind the scenes? What are the building blocks of these Section 8 companies?

Well, for starters, they function like semi-autonomous corporate arms and are led by directors or vice-chancellors. Simply put, they are a team of professionals with one goal, driving alumni engagement to ramp up funds. The money raised goes straight to the university's endowment. These professionals are then paid through maintenance grants that come from the institution, which are often a fraction of the total funds raised. And because of this whole system, donors are also increasingly seeing the benefits of this company structure, especially when it comes to tax exemptions.

For context, alumni donations to universities are exempt from tax. Earlier, receiving tax exemption certificates was a hassle and could take months because of bureaucratic delays. Whereas now, alumni donors receive the necessary receipts on the same day. All of this has also made donors trust the system far more, which ends up leading to more donations. For instance, IIT Delhi's Endowment Management Foundation website lets alumni donate to specific departments, hostels, research labs, entrepreneurship programs, or the university as a whole. Before the company was formed, the university didn't have the resources to build and maintain such a detailed website. The process has gotten to a point where it's so efficient that even those in power are taking notice now.

In October 2024, the government announced setting up three AI centers of excellence led by IAT Delhi AIMS, IIT Roper and IIT Kanpur respectively. And while granting a total budget of 1,000 crore rupees over five years, the one key condition was that these instances, institutes form a Section 8 company to execute the projects. But for most public universities, efficiency doesn't always come easy, because fundraising means navigating a bureaucratic maze of epic proportions. Stay tuned. The bottom line is, the whole fundraising process just is not easy. Take the example of the University of Hyderabad.

An official from the university recounted a rather unfortunate incident back in 2012 when a donor tried to make a donation for equipment at the university. university's incubation center. But the tender process proved to be very, very tedious, especially because after all of it goes through, a purchase committee would question why a particular piece of equipment was preferred over the other. Until that happened, the university could not even access a penny from the yearmark donation. So managing the incubation center was an additional responsibility for the university's

faculty who were already burdened with their own academic load. On top of that, very few startups ended up using the incubator because everything moved at a snail's pace, which also meant the university lost out on a potential fee income from the startups. All of this led to the formation of a non-profit called Aspire in 2018. Unlike university departments, the company could now submit quotations, get approval from the purchase committee all within a week,

and then pay suppliers as soon as the equipment arrived or within the same week. Everything would just move fast. But having said that, getting a constant stream of donations through these companies is challenging, especially when you're not an IIT. Stay tuned. When it comes to setting up a Section 8 company and raising a steady stream of funds, no one does it better than the IVs. They are the gold standard.

You see, compared to the non-profits here in India, US universities have more advanced versions, with 400 to 800 professionals involved in raising funds and then investing in assets like stocks. IIT Kanpur Development Foundation's chief executive couple calls said India's system is still new. Today, most universities have fewer than 200 professionals working on them. The IITs were still among the earliest to see merit in this model. But the thing is, it doesn't really yield the same results for everyone. The University of Delhi Foundation, since its inception in 2023, has only been able to raise about 8 crore rupees,

which is one-tenth of what IITs raise annually. Similarly, Aspire, which we just spoke about, has raised less than 1 crore through Startup India funds and CSR grants in the past seven years. Compare that with IIT Delhi's Endowment Management Foundation, with secured 255 crore rupees in pledges even before its launch. Sure, other institutions are free to form their own companies, but big donations are never a given. So like Hyderabad's Osmania University, many are left with no choice but to hike student fees to keep the coffers full. Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news platform.

What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. Head to the Ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippo's and edited by Rajiv Sien.