Incubators help Indian startups navigate the funding winter

IT sector, jobs, incubators
In the face of reduced investments, India's startups are finding a lifeline in the country's vast network of supportive incubators.

India’s startups are facing a funding winter but despite this, the country is poised for a much stronger startup ecosystem. An expansive network of startup incubators and accelerators is cheering founders in getting their companies off the ground, according to a report by Nasscom-Zinnov titled “Weathering the challenges“. India’s network of startup incubators and accelerators is the second largest in the world which has provided some warmth to otherwise cold funding. 

India has a vibrant startups incubator ecosystem and there are 718 incubators and accelerators in the country, behind only the US, which has 2,301. However, as there are more startups in the United States, India leads in the number of incubators per startup. In India, there are 23 incubators per 1,000 startups compared to the US’s 14. In present testing times, startup incubators become even more crucial as is evident from the current situation.

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The winning duo of incubators and startups

Indian startups and incubators share a successful relationship. One such example is the IIT Madras Incubation Cell (IITMIC) which helped form companies like Agnikul Cosmos, Mindgrove Technologies and ePlace. Top Indian tech universities take keen interest in startups and are fuelling the involvement of incubators in the startups ecosystem by hosting accelerator and incubation programmes. 

While incubators cannot provide shiny investments like big investors and cannot replace large funding rounds, some incubators provide small seed investments or grants, enough to jumpstart operations and prove viability. Incubators or investors not only extend monetary but moral support as well to startups. Incubators often provide a range of services for startups, providing validation for ideas and identifying market needs, carrying out market research and building a prototype product. Ultimately, the end goal of incubators is increasing their chances of success.

According to the report, 90% of the top Indian tech universities host such programmes. IIT Madras Incubation Cell (IITMIC), alone incubated 70 new deep-tech startups in 2023 and closed 2023 with a portfolio of 350 incubated to date, with a valuation of Rs 45,000 crore. The institute recently announced it would incubate 400 startups in 2024. 

Examples abound of the successful relationship shared by startups and incubators. The Society for Innovation and Entrepreneurship (SINE) of IIT Bombay, which was set up in 2004, has been involved with tech startups. So far it has supported over 220 and generated more than 6,300 jobs. These firms have raised nearly Rs 6,224 crore so far. In fact, SINE was incepted decades ago, when business incubators in academia were a fairly new concept. The tech-based incubator provides start-to-scale support for business ventures.

In December 2023, Policy Circle had reported that Indian companies and startups are losing their sheen, and witnessed a drop of 41% in private equity and venture capital investments this calendar year. Indian startups have been witnessing a challenging year. There has been a marked 65.8% fall in funding from January to November 2023. Factors such as inflation, rising interest rates, geopolitical tensions, and recession fears have impacted funding. Globally, venture funding reached a record low in 2023.

Apart from the breather provided by incubators, another fact that is keeping the Indian startups ecosystem buoyant is that the country leads with the highest number of STEM (science, technology, engineering, and mathematics) graduates, which is crucial for driving innovation. 

India’s startup ecosystem is the third-largest globally, behind only the United States and China. Owing to a supportive government, a burgeoning young population, and the rising reach of technology, the startup ecosystem in India is brimming and what it has witnessed in the past couple of years is considered a hiccup. India’s startup ecosystem has come a long way but there are challenges that it faces and needs to overcome to become the first biggest in the world.

For one, there is an urgent need for evolving and maturing of the incubators. India’s incubator network constituted primarily government-supported academic institutions and industry took no interest in it. While the situation is changing, Indian startups need a reliable incubator system like the US, where the entrepreneurial ecosystem is also much older. The incubator ecosystem needs to evolve beyond academic institutions to include private incubators, companies, high net worth individuals, and successful entrepreneurs.

Moreover, seasoned entrepreneurs who have built successful businesses in India must also come forward to hand-hold budding startups. Efforts are already underway on that front with Paytm’s Vijay Shekhar Sharma having launched the VSS Investment Fund, his maiden fund, with Rs 30 crore last year. Zerodha founder and CEO Nikhil Kamath also recently unveiled his Rs 80 lakh WTF Fund to back and mentor entrepreneurs below 22. More such individuals are required to help shape the burgeoning startups ecosystem.