Is the pandemic a silver-lining for startup accelerators and incubators?

Latest data from EY show PE and venture investment in startups doubled in H12021 to $6 bn. With more activity in the market, ancillary businesses like accelerators and incubators also thrived

One of the gauges for startup activity is funding and it’s pretty clear that the pandemic was a watershed moment in this regard. Latest data from EY show that private equity and venture capital investment in startups more than doubled in H12021 to $6 billion. With more activity in the market, ancillary businesses like accelerators and incubators also thrived.

Accelerators and incubators--ventures that support early-stage startups with mentorship and business support in return for equity-–are essential to a robust startup ecosystem. While the pandemic forced many of them to shift online, the move seems to have worked for the better. Most major accelerators have taken in more startups as mentees over the past 12 months than previously, according to data.

Sequoia’s Surge, one the most-sought after accelerator programmes, accepted 23 startups from India-–the highest ever–in its winter cohort launched last month. For Y Combinator, this year’s intake from India at 43 startups was the highest it has ever picked. Major Indian accelerators like 500 Startups, TLabs, and Indian Angel Network are also said to be getting higher-than-usual interest.

“The online format has allowed us to make the programme more interactive and inclusive, even for founders from prior cohorts,” Sequoia Surge said in a statement. It essentially means founders from companies that previously graduated from Surge can participate in on-going sessions and virtual networking events, something that Sequoia sees as a big value-add.

Going remote has also allowed founders who would otherwise not have been able to commit the time and money, an opportunity to part-take. On the other hand, global players have been able to accommodate more applications, which has resulted in higher in-take. From typically 180-200 in-take at Y Combinator in every cohort–that too, about 60 per cent from the US–Y Combinator accepted 350 start-ups in its March programme.

“YC going remote has helped make YC more attractive to companies at different stages and far away geographies. For companies in India, founders no longer have to spend three months away from their customers or teams,” US-based Y Combinator said in March, when it announced its mentees.

That said, the mix of companies that have come forward are skewed towards digital, said K Ganesh, serial entrepreneur and founder of foundry Growth Story. “The pandemic has presented itself as an opportunity especially for digital businesses and many first-time founders as well as VCs are taking advantage of this,” he said. Sequoia said 40 per cent of “Surge 05” cohort companies are SaaS and DevTools companies, and the rest comprising B2B commerce, logistics, edtech, fintech, and digital health.

The move to online, however, has come with its own challenges. Founders complain that the opportunity for deeper connections are diminished in the online world, which disrupts the mentorships experiences. Moreover, with the physical office space – something that accelerators used to entire early-stage firms – no more an offering, the value-add is diminished.

“Covid has been both good and bad. I think it has freed up time with mentors who are now able to do more. At Nasscom, we made use of the virtual opportunity and enabled funding by investors from places like Japan,” said Sangeeta Gupta, senior vice president, Nasscom. “In totality, not all incubators may be doing great. With space (office space) being a key differentiator – which is not there anymore – it will be things like mentor connect and funding opportunities that will be the selling point for incubators in the times to come.”

According to Nasscom, India is home to over 520 incubators and accelerators, of which 42 per cent were added in the last five years. About 6,200 start-ups go through these programmes every year.