Seven years after launching the country’s first startup accelerator and supporting 82 companies, The Morpheus founders Sameer Guglani and Nandini Hirianniah realised it was time to shut after a boom of accelerators left them with little value to add.
“We realized that several of the smartest entrepreneurs had found other channels to get knowledge and guidance,” Guglani said. The duo’s insight on a potential accelerator bubble was preemptive. According to software industry body Nasscom, 2016 witnessed a 40 per cent growth in the number of accelerators and incubators.
For this year, its conservative estimate is for a 25 per cent growth while other industry experts anticipate no slack. Consequently, the number of startups queuing up to join accelerators and incubators doubled to about 900 last year. Incubators provide support to startups from the time of idea-generation and typically handhold them for 6-36 months.
Accelerators are more sharply focused on the growth stage, providing startups mentoring as well as financing for shorter durations of 3-12 months to help kick-start their businesses. The accelerator ecosystem in India has been growing rapidly—56 accelerators were launched in 2016, adding up to a grand total of about 140. Besides these, there were 30 additions last year under an academic umbrella with support from the government’s Startup India, Standup India initiative. That places India only behind China and the United States in terms of number of accelerators. But, at least to some startup industry experts, the numbers may not mean much and mask an underlying problem of quality.
“We need to focus on quality, the mentorship and the speed of acceleration that these accelerators offer,” said Sangeeta Gupta, senior vice president at Nasscom who worked on the accelerator report. “It is also important that startups are mature enough to take forward the experience.” Apoorv Sharma, an investor and Co-Founder of seed investment and innovation platform Venture Catalysts, put the onus on startups. “There is a massive volume of startup applications in India (to join accelerators) and only a few of them have a proper viability to run the entire business lifecycle,” said Sharma, who holds a PhD in incubation and has researched on the role of incubators in economic growth.
“Trimming down on the number of prospective applications is a good way for funds to be concentrated on startups that have true potential and reduce the burnout rate.” Axilor Ventures chief executive Ganapathy Venugopal is convinced India needs more accelerators and a few hundred startups emerging from these platforms every quarter to build the right network and community.
“In India, the startup ecosystem grew too fast in the last few years, leading to a paradox of there being more venture capital than angel and seed capital for startups. Accelerators can fill that gap,” Venugopal said.
“Another important reason for accelerators is that enterprises in India are still reluctant to work with startups, and we can help connect them.” Bala Girisaballa, managing director at Microsoft Accelerator, which has supported 122 startups over 5 years in India, too, is batting for more accelerators in India.
“When compared to China, which has more than 1,000 accelerators, I don’t think India has too many.” As for the quality, he said: “On a scale of 1-5, the quality of the accelerator ecosystem is probably between 2 and 3.” Ask the startups and they swear by accelerators. And why not? Artificial intelligence-enabled shopping assistant startup Niki.ai has benefitted from multiple accelerators in its two years—FB Start accelerator, Amazon’s AWS Activate, SAP, Pitney Bowes and Swiss Re. “It was about taking opportunities to learn and gain knowledge on different domains,” said CEO Sachin Jaiswal.
Accelerators also open up wide networks for the startups. “Startup accelerators are like business schools—the real value is not in the education but in the contacts and the peer-learning one gets,” said Venkatesan Seshadri, CEO of Flatpebble.
The online marketplace for hiring service providers such as photographers was among 12 startups from across the globe at the Microsoft Ventures Accelerator programme in 2015. This, Seshadri said, helped his team learn different perspectives to a problem and his company become more metrics-driven. For all this, 78 out of 390 startups that had been through the 10 most active accelerator programmes in India have shut shop in the last three years, according to Venture Catalysts based on data collated from multiple sources. That’s not an unfortunate number, even if, according to industry experts, several more accelerator-portfolio startups are passive. “Globally, the success-to-failure ratio of startups in accelerator programmes is about 30:70,” said Sharma of Venture Catalysts.
“This could be because of limited time period for acceleration, huge volume of startup applications and little money given out in the initial stages— these are some of the other most significant factors for some firms not benefiting from accelerator programmes.” While India may have come a long way from its first startup accelerator, industry members believe the ecosystem is still nascent.
“Accelerators are playing an important role. However, it may take a few years for them to achieve the brand value that a Y Combinator has,” said Harshil Mathur, CEO of Bengaluru-based payments startup Razorpay that was a part of the coveted USbased Y Combinator programme in 2015. Another indicator that accelerators in India are yet to come of age is that barring a few startups such as Oyo Rooms, which was part of Mumbai-based VentureNursery, companies such as Flipkart, Paytm and Ola never went through an accelerator programme.
Whereas in the United States, the likes of Airbnb, Stripe and Dropbox went on to become hugely successful after graduating from Y Combinator. “One of the key benefit of our association with Y Combinator was its alumni network, which connects you to the best and biggest of brands across the globe,” said Mathur.
“We reached out to the alumni network to get a connect with (Canadian ecommerce company) Shopify… Without that connect, it would have taken us much longer to enable Shopify for our merchants.”Razorpay now mentors other startups through the Global Super-Angels Forum, or GSF.
Experts say that unlike the US and Israel, India does not leverage its strengths to push for a better structured and robust startup environment. “While the major industries of Israel and US belong to technology, real estate and construction, India’s strength lies in (consumer goods), retail and healthcare,” said Sharma.
“The large investors belonging to these segments have not put much of their weight behind startups. Hence, the most significant development that we see in the entrepreneurial environment is related to technology, which is an acquired, and not a conventional, strong segment of the Indian economy.” The success and value of an accelerator, according to Axilor’s Venugopal, depends on whether it can help startups achieve traction through access to clients and business momentum at the time of exit, and provide the right network of investors, clients and other entrepreneurs. The most important impact of accelerators, although intangible, is the improvement it can bring in the mindsets of entrepreneurs, he said.
“People often do not appreciate this because it is invisible. But when a startup makes fast progress in a matter of 100 days, it does bring about a change in the mindsets of entrepreneurs to stay more focused and driven. That is the most fulfilling part of an accelerator,” Venugopal said.
Axilor is among the biggest accelerator platforms in the country and has had five batches of startups in areas such as AI, fin-tech, consumer internet, enterprise and health-tech graduate. According to Axilor, at least half of the startups from its fifth batch have secured further funding. Microsoft Accelerator said 79% of its startups secured funding over the last 12 months. According to Venture Catalysts, about 390 startups were funded/incubated by the 10 most active accelerator programmes in India, and 150 of these raised further funding.
“The Indian startup ecosystem is still extremely volatile and most accelerator programmes still find it difficult to be of any meaningful contribution to businesses within a stipulated time frame of a few months,” said Sharma of Venture Catalysts. Some early-stage investors believe that while India’s accelerator ecosystem is still nascent, it provides them a selection of vetted startups.
“Lot of micro venture capital funds including us would expect the companies to be at a certain level before we invest in them. In that scenario, an accelerator is the best place for a startup to be at,” said Arpit Agarwal, principal at Blume Ventures, which has invested in NowFloats, HealthifyMe and Locus, all of which were a part of Microsoft Accelerator. Padmaja Ruparel, president at Indian Angel Network, agrees there is a lot to be done but is bullish about the accelerator ecosystem in India. “Increasingly, we will see good companies breeding out of these entities,” she said.
Microsoft’s Girisaballa anticipates that growth in the number of accelerators will continue at the same pace in the coming years, if not higher. “With the growing number of startups in the country, we need to see more accelerators in the future to support the companies,” he said. Guglani of Morpheus, however, struck a note of caution: while accelerators are doing a good job in mentoring startups they may have become commoditized businesses.
“We now need to see more excellence labs focused on giving startups long-term value,” Guglani said.
Source: Economic Times