Indian Incubators: Incubating A Growing Economy One Step At A Time

In the 1950s, the small city of Batavia started leasing out industrial space to incubate surplus chickens, essentially turning into an egg farm or an ‘incubator’.  No more limited to the humble egg farm, today business incubation is considered a powerful tool in both developed and developing economies.

Incubators, globally, have become an ecosystem with an array of initiatives that stimulate and support economic growth by promoting the creation and development of innovative companies and the result in developed markets have been astounding. Some of the poster-child startups we know today emerged from well-known incubator stables.

For instance, Airbnb, Dropbox, Zenefits, Instacart, and Reddit are among the billion-dollar companies that were incubated by Y Combinator at an early stage.  And that’s just one example of what a successful incubator can do!

Bounding Up The Global ladder

The Nasscom report on the Indian startup ecosystem 2018 states that India:

• Stands firmly in 3rd position on the world stage with more experienced professionals taking the entrepreneurial route.
• is 57th on the Global Innovation Index
• is the highest Unicorn holder with 8 ventures right after the US and China
• is expected to add 10 more unicorns by the end of 2020

The fact of the matter

However, these pride-inducing numbers don’t reveal how many startups are fledgeling as they emerge. Going by IBM Institute for Business Value and Oxford Economics numbers, for every 1 startup that succeeds, 9 bite the dust within the first 5 years. So, alongside this celebratory growth, there is critical scope for learning and improving our global position as a startup hub — not just by the number of emerging startups, but also the number that manages to sustain their businesses and scale-up.

In 2018, according to the Nasscom report, there were 1200 tech startups that were added in India taking the number to 7,700. With startups mushrooming in India every day, do we have enough incubators across the country to support their growth?

Fact is, the Indian startup ecosystem is growing at a pace much faster than the incubators in our country. While it is reassuring to know that India ranks third in the world, following US and China, when it comes to the number of incubators we have, it is worth noting that there is a yawning gap between India and the top two. Nasscom pegs the China and US incubators and accelerators at 2400 and 1500 respectively while India has 200.

Incubators Are Very Much In The Game

Despite the push from institutes and government alike, the general perception still remains that incubators take equity or function like real-estate players. Startups hesitate to engage with incubators for fear of having to relinquish control or disclosing information.

The importance of incubators cannot be overstated for those staggering to bring great products and ideas to life and helping businesses stabilize, scale and sustain. The growth of a credible incubator ecosystem requires building awareness of the value they add.

How Innovators Benefit Through Incubators?

The tech-savvy entrepreneurs of today are rapidly innovating. But they still play safe and haven’t yet birthed ideas which can command global dominance. Often times, innovation stays restricted with local or regional issues which have its own merit, however risk-taking ability in innovation needs to be nurtured.

The support of an incubator could be just the shot-in-the-arm the inhibited innovator of today needs:

• Lack of seed capital can inhibit innovation as access to capital in the initial stages can be difficult, but an incubator lends credibility and bring access to a diverse and experienced network of financers.
• Going beyond access, incubators are essential gatekeepers to the business arena, who protect not only the consumer interest but also ensure that there is a safe space for innovators to test out their idea in a close to a real environment
• Sometimes, being too close to the project can make the best of innovators lose objectivity. Incubators bring an experienced and objective third party view to suggest pivots in order to ensure success.
• Incubator with a global panel of mentors can also help innovators to access global think-tanks, which may otherwise be a difficult task.

How Startups Benefit Through Incubators?

 Mentoring: Businesses can’t sustain or achieve scale on a great idea alone. There are many critical aspects spanning management, market strategy and regulatory support which young entrepreneurs may struggle with.

• In a knowledge-based economy, start-ups can access otherwise hard to gain insights from mentors.
• Incubators ensure access to a panel of mentors who are dedicated experts invested in their success. A time-bound commitment to see a challenge through is ensured by incubators which might be difficult to drive through an independent mentor.
• Incubators lend credibility to startups which lack brand recognition/awareness at the start of their journey which helps expand customer base as well as investor access.

Funding: The Indian startup ecosystem raised an equity funding of $341.3 Mn in the second week of July across 18 deals. Of this 85% was raised by late-stage deals and less than $12 Mn by early-stage deals driving home the fact that while funding is certainly going up, it is not easily available for less established players.

• Incubators make access to investors easy
• They lend credibility and help open previously closed doors

How Economic Growth Is Impacted By Incubators?

The startup India movement did shed a welcome spotlight on building awareness and disseminating knowledge, but the road ahead is long. Currently, only 8% incubators in India run with government-backed support. India’s state-backed incubators in Gujarat, Telangana, Rajasthan, Kerala and Karnataka are evidence that government support is lifting the startup ecosystem.

Strengthening the incubator ecosystem which relies heavily on the pillars of angel investors, universities, corporates etc and striving for quality alongside quantity must be given priority because incubators hold the potential

• to fight unemployment and reduce poverty
• propel the economy forward by arresting the high failure rate of SMEs
• build a culture of innovation & entrepreneurship

The Road Ahead

Incubators in India are a fairly recent phenomenon and given the diverse nature of India, the models will have to evolve. The next generation of innovation will rise from Tier I and Tier II cities, making the role of incubators even more vital to the survival and success of startups. If India needs to push itself ahead as a global startup hub, then incubators need to be at the forefront of these efforts.