Growing number of Accelerators and Incubators are harbingers of a developing startup ecosystem. India has seen a good upward trend in the number of incubators and accelerators being setup. For the uninitiated- Accelerators and Incubators are support systems for startups. They have a certain time duration for which they house a number of startups and support them with funding, networks and infrastructure.If one has to differentiate- Accelerators are places where startups with an idea/prototype and some direction go to and accelerate the process while incubators are a bit more early stage and usually last for a longer duration. Accelerators are more to do with external ideas undergoing pivots and incubators are more about internally brewed ideas.
But with the emergence of a lot of these, some questions have started creeping in:
1) Success Rates
“Everyone is starting an accelerator these days,” is what you hear some of the biggies say at startup events. With the passage of time, people have started questioning the success rates of accelerators and what value they really bring to the table. Taking equity in the range of 7-15%, accelerators put in a seed amount of around 5-25 lakhs and it becomes a tough call for an entrepreneur as to would those few months be worth it? (more on valuating a startup).
There are different ways in which accelerators can try and improve their success rates: Either by becoming very choosy in their selection process (picking only ones which have already shown signs of doing well) or go niche by picking up startups by the sector. These ways in a sense defeat the purpose of accelerators of being completely for the startup ecosystem but even they need to show returns and maximize the chances of their becoming successful.
2) More like office spaces
Emanating from the first point, we see a blurring line between office spaces/ business centers and incubators. A co-working space that organizes a few sessions on weekends and has a few mentors on a panel can easily be packaged as an incubator. This is not the case always (follow our Startup Hatch Series to check out some phenomenal work) but entrepreneurs need to be privy to these facts because we’re dealing with equities after all.
3) Exit options
What happens to the startups once they’re accelerated? More exits via various modes means higher success rates for accelerators but what are the options? Here are some of the routes graduated companies take:
- Go on to raise a VC round and take the business to the next level
- Get acquired/acqu-hired by another company
- Get absorbed into the Accelerator itself! (Different version of an acqu-hire)
- Keep lingering on without much of a growth (hit a plateau)
- Die and shut down.
Now, options 4 and 5 are prevalent and this is the case with any startup ecosystem as startups naturally have a high mortality rate. But the balance should inch closer towards the other 3 points.
These points might look a bit cynical but are practical issues in the path of success for accelerators and incubators. More is merrier but an entrepreneur needs to be prudent about what is the best for his or her business.