How Incubators and Accelerators are Changing the Game for Indian Start-ups
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Once home to the mythical Indian rope trick and turbaned Maharajas, India today proudly boasts of the third largest number of start-ups worldwide. The history of Indian start-ups can be traced back to the birth of the Indian information technology industry in 1984 followed by the launch of the first commercial internet service by VSNL around a decade later, in 1995.
Policy Framework Towards Influencing the Growth and Expansion of Start-ups
At present, the country is already home to more than 56,000 start-ups, and the presence of incubators and accelerators have played no small role in the dynamic growth of the industry. With $13.5 billion funding across 885 deals and almost thirty-four new funds launched in 2017, it is clear that this industry is growing from strength to strength. This impression is bolstered by the decision of the Maharashtra government to sanction grants worth Rs.1 crore to innovative start-ups disrupting the healthcare and rural sector in its very own version of Shark Tank at the Magnetic Maharashtra convention. And there’s more to it! The Karnataka government has set up a Fund of Funds with a corpus of USD 31 million and sanctioned grants ranging between USD 80k to USD 310k to 44 start-ups.
India’s Start-up Journey and the Role of Incubators and Accelerators
While academia has long supported ideas of the student community, the formal incubator establishment has made its presence felt only in the past 4-5 years. Incubators and accelerators have seized the day by providing start-ups with not only co-working space but also mentorship and structured financial support. 9% start-ups benefit from formal funding, 1% are acquired and 16% dead-pooled, leaving the door open for incubators and accelerators to fill the space. For the start-up universe, incubators and accelerators mitigate the risks and challenges on their journey to success. For the entrepreneur, it is important to understand that incubators and accelerators are not synonymous.
Value Addition of Accelerators in the Journey of Start-ups
In a nutshell, accelerators “accelerate” the tempo of the growth of an existing business while incubators “incubate” potentially disruptive entrepreneurial ideas with the objective of developing a viable business model. First time founders can look to attract venture capital investments after the ‘acceleration’ or ‘incubation’ but the frameworks are different. Look at it this way: An incubator takes the seeds and creates the best soil conditions to promote germination and sprouting. An accelerator is a greenhouse for young plants to enjoy the best conditions for growth.
Accelerators would be inclined to invest a specific quantum of capital in the venture for a pre-determined percentage of equity. Accelerators, therefore, have a fixed time frame for delivery of measurable success results. Generally, start-ups would need to apply for admission to an ‘accelerator’ program which would have a limited number of slots. Needless to say, the accelerator would select the applications that have the best prospects of rapid scalability, attractive return on investment and the quickest exit schedule. In most cases, outside of the friends, family and ‘hot pockets’ circle, an accelerator investment will be the first external investment for a start-up.
Specific Role of Incubators in the Journey of Start-Ups
Incubators, traditionally, are not capital providers. Their focus is on innovation and fostering growth, and they are open to a longer time frame to commercialisation. At the incubation stage, most start-ups may not need capital as much as basic physical infrastructure, mentorship, feedback, and course correction advice. A typical incubator would generally offer shared space in a co-working environment and month-to-month arrangements for payment for rental, utilities, etc.
In terms of business environment, both incubators and accelerators adopt a hand-holding approach freely providing collaboration and mentorship for start-up founders, giving them access to multiple resources that may include physical space, intellectual resources, peer feedback and mentorship from business veterans who have ‘been there and done that’.
Evolution and Success of Start-up Incubators and Accelerators Over the Last Couple of Years
Today, incubators and accelerators go beyond the four walls of the corporate start-up office to reach out, add value and contribute to the wider business ecosystem. They play an important role in the shaping of India’s robust start-up network. With the rapid growth of India as a start-up hub, the potential for incubators and accelerators and their role in providing mentorship, nurturing creativity and innovation, supplying technical support and finance, and helping ventures to transform and grow to the next level is enormous! Is your start-up ready to catapult to success?