Incubators give warmth to startups in India amid a funding winter

India has the second-largest network of startup incubators and accelerators with 718 such firms

India is poised for a much stronger startup ecosystem despite the weakness in funding not going away.

One of the reasons for such optimism is that the expansive network of startup incubators and accelerators -- the second-largest in the world -- is aiding founders in getting their companies off the ground, as mentioned in the latest Nasscom-Zinnov report “Weathering the challenges”.

Another factor in the enthusiasm for startups 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 incubators and accelerators number 718, behind only the US, which has 2,301. Where India pulls ahead, however, is in the number of incubators, 23, per 1,000 startups compared to the US’s 14.

The other part fuelling this is the involvement of top Indian tech universities in hosting accelerator and incubation programmes. According to the report, 90 per cent of the top Indian tech universities host such programmes.
 

One such incubator is the IIT Madras Incubation Cell (IITMIC), which incubated 70 new deep-tech startups in 2023. It closed 2023 with a portfolio of 350 incubated to date, with a valuation of Rs 45,000 crore.

The institute, which has given birth to companies like Agnikul Cosmos, Mindgrove Technologies and ePlace, recently announced it would incubate 400 startups in 2024.

“We have a healthy pipeline of potential startups that are under evaluation. We are confident of achieving/surpassing the target set by IITMIC chairman (IIT Madras director),” said Tamaswati Ghosh, chief executive officer (CEO), IITMIC.

Another instance of a successful incubator is the Society for Innovation and Entrepreneurship (SINE) of IIT Bombay. Set up in 2004, SINE has been fostering and nurturing 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.

Padmaja Ruparel, co-founder, Indian Angel Network (IAN), is of the view incubators have matured.

“Earlier India’s incubator network constituted primarily government-supported academic institutions divorced from industry, unlike the US, where the entrepreneurial ecosystem is also much older. As a result, the impact of this incubator ecosystem was not very visible,” said Ruparel. Today, she says, the incubator ecosystem has gone beyond academic institutions to include private incubators, companies, high net worth individuals, and successful entrepreneurs.

The other point the report highlights is that though funding has dropped across funding stages, including seed funding, the median cheque size for seed has not seen a substantial decline. The median ticket size of seed funding in 2022 was $700,000, which fell marginally to $640,000.

Despite a 50 per cent drop in funding raised by seed-stage tech start-ups in 2023 over 2022, the impact was minimal. Moreover, funding at the seed-stage remained relatively flat at $700 million, down from the $1.2 billion the previous year, but remained higher than pre-pandemic levels. 72 per cent of funding deals in 2023 were seed-stage deals compared to 64 per cent in 2022, the report said. According to the report, Indian startups that raise series B and series C funding go on to mop up more. The only country that pulls ahead of India in this regard is Israel.

Seasoned entrepreneurs who have built successful businesses in India are also aiding emerging startups and founders to build their businesses. In October last year, Vijay Shekhar Sharma, the founder and CEO of Paytm, launched the VSS Investment Fund, his maiden fund, with Rs 30 crore.

Like Sharma, Zerodha founder and CEO Nikhil Kamath has unveiled his Rs 80 lakh WTF Fund to back and mentor entrepreneurs below 22.

Meanwhile, his brother and fellow Zerodha founder Nithin Kamath had, in August, announced he would allocate Rs 1,000 crore to startups in a perennial structure, or with the ability to stay invested forever, through his investment firm Rainmatter Capital.

“(The startup ecosystem) going down the right path. The fundamentals are being built and should see several successful companies emerging,” said Ruparel.
 

Funding in Indian technology startups fell more than 66 per cent to $6 billion in 2023 from $18.2 billion the previous year.