India is changing and so are the aspirations of its 1.2 billion people. Our country, once regarded as a third-world economy, is today the hub of billion-dollar firms and is a hot investment destination. This change is certainly not the result of a one-day effort and no single person can take credit for bringing it. The change took some 68 years to happen, facing challenges like corrupt governments, a weak economy, and low purchasing power.
Today, Indian start-ups are putting their sweat and blood to build a successful business in India. This well-advertised boom in start-ups and venture capital has coincided with the emergence of new players in start-up ecosystems. One of these, start-up accelerators, has received a great deal of attention but also little scrutiny. Moreover, they are commonly misunderstood or mistakenly lumped in with other institutions supporting early-stage start-ups, such as incubators, angel investors, and early-stage venture capitalists.
For start-ups, securing the first round of funding is a daunting process. Doing so requires founders to take what is often a very complex idea, product or solution, and boil it down to dollars and cents for investors who, for the most part, only care about how quickly they will make their money back. There is no shortage of money out there, but what is desperately missing is an investor approach for seed stage entrepreneurs that preserves the craftsmanship of company building from experienced operators and investors while preparing founders for the rocket fuel rounds the mega fund VCs are now focused on. This is where start-up accelerators step in and have reshaped the start-up culture by providing not only valuable mentorship but also seed-investment opportunities to the deserving start-ups.
Start-up accelerators support early-stage, growth-driven companies through education, mentorship, and financing. Start-ups enter accelerators for a fixed-period of time, and as part of a cohort of companies. The accelerator experience is a process of intense, rapid, and immersive education aimed at accelerating the life cycle of young innovative companies, compressing years’ worth of learning-by-doing into just a few months.
The four distinct factors that make accelerators unique are- they are fixed-term, cohort-based, and mentorship-driven, and they culminate in a graduation or “demo day.” None of the other previously mentioned early-stage institutions — incubators, angel investors, or seed-stage venture capitalists — have these collective elements. Accelerators may share these with others, but it is clear that they are different, with distinctly different business models and incentive structures. They have a purely ‘investment’ based business model, which can also be non-profit, coupled with ‘intense’ mentorship for a fixed period of 3-6 months and have on-site venture location.
India has the third-highest number of start-up incubators and accelerators in the world after China and the US, as per the latest reports by research bodies in the IT industry of India. With 140 incubators and accelerators, India is closely followed by lsrael, whose count stands at 130. However, the gap with the top two is still immense—China and the US have over 2,400 and 1,500 incubators and accelerators, respectively. Though the number of incubators and accelerators in India grew a sharp 40% in 2016, there is still a visible lacuna in the need and availability of accelerators. (Source of information- VCCircle) The momentous rise of the Indian start-up ecosystem and a tremendous growth towards creation of innovative start-ups needs to be matched with an exponential rise in the number of start-up accelerators to ensure their booming success and growth.
To summarize, accelerators do have a positive effect on the performance of the start-ups they work with, even compared with other key early-stage investors. Considering the growth of accelerators in recent years, this evidence is encouraging. By and large, accelerators seem to be a positive addition to start-up ecosystems across the country and the world. Some may not make much of a difference, but many clearly do, and the best ones are poised to meaningfully improve the odds of success for the start-ups that graduate from them.
By Mona Singh, Co-Founder, India Accelerator