Do Indian start-ups need more incubation time?
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Bangalore: When Vikas Singh, 32, joined Bangalore-based start-up accelerator Kyron in March for a four-month programme, he was confident that he would be able to raise funds quickly from investors. The plan seemed perfect or at least he knew that many entrepreneurs had made it big after graduating from Silicon Valley-based accelerators such as Y Combinator.
But nearly three months after he completed the programme in July, Singh is realizing that India is no Silicon Valley and investors in the country take much longer to make investment decisions—no matter where these ideas come from. To that, add the time you need to build prototypes of a product and test them with potential customers in India.
Realizing how painfully long it could be before entrepreneurs are able to raise money after graduation, Kyron is increasing the programme duration by fourfold. The accelerator will have a 16-month programme, which will include six months each before and after the four-month-long incubation of the selected start-up teams. “An entrepreneur here goes through a gruelling journey and immense pressure to get to the same level when compared to the Valley,” said Singh. “I am not saying being an entrepreneur in the Valley is easy, but the kinds of things start-up guys have to go through in India could be something that the West might not have even heard of or could understand.”
“It took me almost two months to get Psi Phi Labs (his latest venture) incorporated, that too when I had a previous experience of all the legalities. Blame it on the system or call it just a one-off case of bad luck, but the point is things are different here,” Singh said.
Another start-up accelerator, which struggled to get some of its graduating firms funded last year, said longer batch durations could help deepen the engagement with founding teams and their ideas.
“First few weeks are spent on getting used to each other, getting to a level of trust. It’s very difficult to accelerate at the Silicon Valley speed,” a senior executive at the accelerator mentioned above said. He requested anonymity because he did not want to publicly accept the challenges faced by his accelerator.
Accelerators typically offer three-six months of mentoring programmes that include vetting a business idea and getting it validated as well as an infusion of capital and introduction to investors.
Lalit Ahuja, an Indian technology industry veteran who started Kyron in October last year backed by $56 million, said he will shift to longer start-up batch durations because the Indian ecosystem is different. He added that this course correction became necessary after the first few entrepreneurs graduated from Kyron. From next year, Kyron will pick 25 start-ups who will go through a six-month programme. Some 5-10 of those will go to the next level, which will be a four-month incubation.
After the start-ups graduate, some of them will be able to opt for another six months.
“Some of them will get funding, some others may start generating revenue, but there could be some whose ideas might need longer runway. This will ensure that we improve success rate of the ideas we incubate,” said Ahuja.
Unlike in the past when Kyron picked around 10% equity stakes in exchange for few thousand dollars and other support, the 25 entrepreneurs selected initially next year will only have to divest equity in “low single digit”, added Ahuja.
As reported by Mint in June this year, NextBigWhat, a website on start-ups, found in a recent survey of more than 12,500 Indian entrepreneurs that half of those polled were willing to part with a sliver of equity, 2% or more, for real estate. Many more would do so for customer connections. And 83% would surrender that much for help in reaching Series A funding.
“Every ecosystem is different. US/Silicon Valley had an early-mover advantage. They are like 10 years ahead of us when it comes to the start-up ecosystem maturity in every aspect (start-ups, investors, government support, even education system and society support that is so critical to build a strong support system), but this gap is closing fast. Israel is a completely different dynamics and so are other countries. One cannot expect to blindly copy the West because the challenges here are different from there,” said Singh.
Among the challenges are financial and tax authorities who treat start-ups differently, he said.
“May be when India starts having entrepreneurs and start-up exits like the Valley had in early 2000 and these entrepreneurs turn into investors, then the Indian start-up ecosystem will also have a different maturity level. Till then, we need to tweak and hack and figure out how can we—start-ups, investors and government—together move forward. We can’t be like Silicon Valley, and we honestly don’t want to. India will have its own Valley, its own start-up ecosystem dynamics,” Singh added.
“By extending an accelerator to 16 months, I think a company gets too much cushion and not enough incentive to move forward fast enough, make mistakes, learn from the mistakes and iterate faster. Start-ups need to iterate faster, not slower,” said Jain. “A 16-month accelerator programme may make sense for a large corporate that wants to incubate its own ideas, but I don’t think it’s a great idea for start-ups, even in the Indian ecosystem.”
From just two such accelerators five years ago, there are now over a dozen large start-up accelerators in India. Mukund Mohan, a director at Microsoft Ventures in India, said different accelerators will try different options. “I think there are all types of companies. So there’s clearly no ‘one-size-fits-all’ approach that works. Does that mean that all accelerators need to have longer batch durations—no. How is it that companies from India go to US accelerators (over 50+ now) and the four months seem enough? Same for companies from US that go to US accelerators. Some are rocket ships and can do with the four months, others need more time,” he said.
Another concern for extending accelerator programmes is higher cost of operations and entrepreneurs being forced to divest more equity stakes. “If the company is going to fail, it’s better to do it sooner rather than a prolonged death. That being said, there are a lot of founders that need significant hand-holding and even then, fail. Will a six-month-long accelerator programme help? I doubt it,” said Jain of 500 Startups.
Ahuja of Kyron, however, argued that higher costs will not matter if they help improve the success rate of start-ups that go on to make it big and make up for additional expenses. “There is only so much you can achieve in just four months of acceleration; validating the ideas, demonstrating business proposition and making them fundable need more time,” he said.