How Incubators and Accelerators are Changing the Game for Indian Start-ups

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.

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