This article examines the current state of Startup Incubator ecosystem in India, and highlights its key challenges and successes.
First, about Incubators and Accelerators
Incubators are institutions that support entrepreneurs in developing their startups, especially in the early stages. They provide workspace, IT infrastructure, and few resources, often at monthly subscription charges.
Accelerators run programs/cohorts typically of 1-3 months for selective startups by providing them mentorship, resources, and funding in exchange for part equity. More here.
Reality of Incubators in India
[1] Despite a booming startup ecosystem, only 8.2% of all startups in the country undergo incubation, and just 10% of these incubators support 98% of the startups. Tier-I cities account for 48% of incubators in India, leaving other regions underserved. South India leads the pack, housing 45% of all Tier incubators, and having the highest density of incubators per startup.
India has only 0.8 incubators per million, which severely lags behind US, UK, and China each boasting 8 to 10 incubators per million. Data reveals that around 50% of India's startups now operate in tier-2 and tier-3 cities. Thus indicating a critical gap in its distribution, and their reduced effectiveness in the startup ecosystem.
[2] India hosts ~1,150 incubators (including accelerators):
770 of them are academic and public-funded startup incubators.
~400 of them are industry run (by Corporations).
[1] Chennai has a high proportion of academic incubators (82%), whereas Bengaluru and Gurugram have a high proportion of industry incubators at 71% and 84% respectively.
Startup incubators aim to provide early-stage support, including mentorship, training, and networking opportunities. However, many struggle to connect startups with investors, often due to management and operational inefficiencies.
Additionally, geographic concentration in metro cities limits their accessibility for tier-2 and tier-3 city entrepreneurs, diminishing the democratization of entrepreneurship. This trend is reversing however, as incubators located in academic institutions have been instrumental in spreading into tier-2 and 3 cities.
Too Focused on Tech Startups
Most incubators are focused on tech startups (IT services and software).
However, India’s growth potential lies in a wider range of industries such as AgriTech, HealthTech, MedTech, CleanTech, and DeepTech.
The above sectors require specific support systems i.e. specialized infrastructure, sector-specific mentorship, and innovative funding models, which the current incubators aren't fully equipped to provide.
Top Incubators: NSRCEL (IIM-B), T-Hub Telangana, IIM-A (CIIE), IIT-Madras (IITMIC)
[2] NSRCEL is the startup incubator of IIM Bangalore, with the highest (1,563) startups incubated in India. This 24-year-old incubator, one of the oldest in India.
[4] According to The Hindu Business Line, 21% of startups incubated at NSRCEL have secured funding, cumulatively raising funding worth ₹3,494 crore ($412 Mn).
[2] Though YNOS Venture Engine rather contest that only 87 startups incubated at NSRCEL have secured funding, a meagre 6% of incubated startups.
T-Hub is India's largest startup incubator, located in Hyderabad (Telangana).
It has incubated 660+ startups, offering a variety of services, including: mentoring, funding, market access, fully managed workspace, and top-tier infrastructure and facilities.
[4] According to The Hindu Business Line, 38% of startups incubated at T-Hub have secured funding, cumulatively raising ₹9,813.6 crore ($1.16 billion), the highest in the country.
T-Hub has also helped startups secure nearly $2 billion in funding through its collaborations with angel investors and VCs. T-Hub also has an international arm called T-Bridge, which aims to help entrepreneurs scale globally.
With 11 soonicorns and 58 minicorns, Telangana's T-Hub incubator is the beacon for the startups of tomorrow.
IIM Ahmedabad's (IIM-A) Centre for Innovation, Incubation, and Entrepreneurship (CIIE) partners with industry experts, mentors, and investors to help incubate early-stage startups.
CIIE has incubated startups such as Razorpay, Hashcube, Rolocule, and Thrillophilia.
About 80% of startups incubated by CIIE have gone on to raise follow-on funding.
Re-christened as IIMA Ventures, it is both an incubator as well as accelerator.
It claims to accelerate and support over 100 early-age startups by 2025.
IIT-Madras Incubation Cell (IITMIC) is tagged as India's leading DeepTech incubator, boasting 80% survival rate since its inception in 2010. It enjoys a high success rate in DeepTech ranging from SpaceTech, Drones, Robotics, Hyperloop, and Life Sciences, etc.
IITMIC incubated startups totaled 351 in 2023, with a combined valuation of ₹45,000 crores ($5.4 Bn). In FY 2022-23, these startups achieved a combined revenue of ₹3,000 crores ($354 Mn). IITMIC aims to incubate 100+ startups in 2024.
Successes of Incubated Startups
[2] As per NSRCEL report:
The contribution of the incubated startups to the economy has also been significant.
Annual average revenues in the initial years for every 100 incubated startups has been ~₹1,590 crores ($187 Mn).
Average value of assets for every 100 incubated startups by the 9th year from incorporation has been estimated at ₹10,627 crore ($1.25 Bn).
Revenue performance of startups associated with industry incubators is 50% higher as compared to those supported by academic incubators.
[3] While successful stories like chennai-based spacetech startup Agnikul Cosmos, EV 2-wheeler giant Ather Energy, and MediBuddy (India's largest digital healthcare platform) found their existence owing to these incubators, they're considered to be exception, rather than the norm.
Funding and Investor Dynamics
[3] Altogether, over 14,100 startups came out of these incubators, and barely 871 or 6.7% of their startups secured Angel or VC funding. This reflects a very sorry figure for the majority of incubators in the country.
[3] 70% of these 871 startups that secured Angel or VC funding, have been incubated by those incubators that have nurtured 50 or more startups.
[3] Take the example of NSRCEL, which has produced the most number of startups, 1,563 to be precise. And, just 81 of these have bagged Angel or VC funding.
The funding statistic significantly exposes the startup ecosystem's inefficiency, with investors rather prioritizing on founders' potential and startup's scalability over mere incubation. Few founders surveyed by the article lamented on incubators' lack of connectivity with investors as a key reason for inability to raise funding, despite having incubated under 2 or more incubators like T-Hub and NSRCEL.
Role of Startup India
Government grants like the Startup India Seed Fund Scheme were launched to help early-stage startups, but they often deter private VC investments due to concerns over equity stake and bureaucratic processes. This dynamic calls for a balance between government support and attracting private funding through credible and high-quality incubators.
Success Hinges on Quality and Connections
Data reveals stark disparities in outcomes across incubators. Just 261 academic incubators have nurtured 10 or more startups, with institutions like IIT-Madras Incubation Cell (IITMIC) standing out, which is tagged as India's leading deeptech incubator.
[1] Performance of industry incubators exceeds academic incubators by 50%.
Success stories stem from incubators offering strong networks, professional mentorship, and seamless access to resources, a combination missing in most of the academic, and public-funded incubators.
An investor that requested to remain anonymous highlighted that "a startup idea being accepted by an incubator doesn't guarantee quality. In a few cases, an incubator accepts a certain number of startups (no matter how bad the idea is) just to bag government grants, their only source of income to sustain."
How to Improve the Incubator Ecosystem?
To improve outcomes, Indian incubators must focus on quality over quantity. Collaborations between smaller incubators and established ones can create stronger networks, while self-sustainability models like charging subscription fees or taking equity stakes can reduce reliance on government grants. The emphasis must shift to producing scalable startups that solve real-world problems and appeal to investors.
International Expansion: Incubators also need to foster international partnerships and offer their startups a pathway to global expansion, whether through mentorship from international experts or connections to global investors.
Sources:
NSRCEL, IIT Madras, IIM Bangalore & Centre for Research Report on Startups and Risk Financing
YNOS Venture Engine
The CapTable Article
The Hindu Business Line
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