Devising a methodology for comprehensive evaluation of start-up incubators in India

Abstract

Business incubators are vital to the economy as they serve as a catalyst tool for economic development. They are organisations which are designed to accelerate the growth and success of entrepreneurial companies through an array of business support resources and services. Major functions of an incubator include the following: 1. Funding support: Financial support can be from the incubator itself or incubator can assist the start-up through its connections to get funding etc. 2. Business services: Assistance in business planning, management training, access to legal, accounting expertise etc. 3. Mentorship: External coaching and support throughout the operations of the company from industry experts, faculties, established professionals etc. 4. Infrastructure: Physical space, resources, IT support etc. 5. Networking opportunities: Sessions with industry people & investors, start-up meets conferences etc. Though there are more than 100 incubators and 40 accelerators in India growing at a rate of 40% in the year 2016, this industry is still in the nascent stage when compared to advanced economies like the US or Europe. Out of these 40, 30 are academic incubators and accelerators established under the ‘Start-up India Stand-up India’ initiative. These incubators are spread across sectors and industries such as technology, the internet, fashion, automotive etc. Bengaluru, Delhi-NCR and Mumbai are the leading hubs with 40% of incubators located in these locations, but tier 2 and tier 3 cities also saw 66% growth in a number of incubators in 2016, with over 50% incubators/accelerators located in tier 2/3 cities. Further, of the 140+ incubators and accelerators, 51% are established by academic institutions, primarily engineering and management institutions in the country, 32% are independent and are mostly located in top tier cities. 9% are affiliated to corporates while the last 8% are government supported/owned, usually by the state government as the central government prefers to give grants for promoting entrepreneurship rather than setting up their own incubators/accelerators. The journey of a start-up can be divided into four stages: 1. Idea Generation: Ideation and conception and team formation are the main activities. 2. Seed Stage: Product development, and faculty and alumni support are required by the start-up at this stage. 3. Growth Stage: Market validation of the product takes place. 4. Accelerator Stage: Investor pitching and leadership mentorship are the primaries In the first two stages, an incubator plays a pivotal role in shaping the start-up while in later two stages the work is more of an accelerator. Different incubators have different mission and vision with some of them targeting shareholder wealth some promoting growth via technology and some other creating social value. However, due to various factors which affect incubator’s performance, very few of these are on the path to sustained development and output. Therefore, though start-ups have no dearth when it comes to some choices, to choose the best suitable incubator for their business requirements; it is difficult for them to compare and choose, due to lack of set matrix to evaluate an incubator because of variation in incubator models. Similarly, from incubator’s perspective also, it is of paramount importance to understand the success parameters so that they can be used to develop a sustainable business model. Apart from start-ups and incubators themselves, the industry as a whole and funding organizations are the key benefactors of the evaluation of incubators. For investors, it provides visibility and effectiveness of partnership with the incubator, as well as helps them to decide on timely investments. For industry, evaluation provides an opportunity to establish incubators as the drivers of economic development and also helps in creating best practices and setting milestones for scaling.