What's Needed To Tweak The "Incubator" Model For Indian Entrepreneurs And Startups?

13 April, 2012

I had an opportunity to meet with 10 companies that were batch 3 of the CIIE (Center for innovation, incubation and entrepreneurship) in Ahmedabad last week. A few weeks before that I had a chance to meet 12 companies those were a part of the Morpheus startup acceleration program. Both these (and many others in India) are fairly similar and are modeled around the YCombinator model 12 to 15 weeks of mentorship, guidance, and invest about 500,000 to 1,000,000 rupees ($10K to $20K) in funding for 8-12% equity.

The entrepreneurs are mostly young, very enthusiastic and extremely confident. It is amazing to see the progress they make in a few months, which reinforces the value of focused effort with structured help in short bursts.

The challenge with startup mentoring and incubation is that not all startups are the same. For the mobile applications company, B2C Ecommerce Company or small web Application Company, the 3 month effort suffices. For startups focusing on building software for the SMB or enterprise market, however the3 months are hopelessly inadequate in the Indian scenario.

The reason I believe it is insufficient (for companies selling to other businesses) is because of the effort required for market development. The reason for changes and "tweaks" to the US model (like YC or TechStars) is that these companies are selling to the Indian market in most cases. Finding those early adopters takes lot longer in India. Indian businesses of all sizes are a lot more risk averse. Most of them look for a personal incentive to adopt first, and would reject a solution even if their company would benefit (Yes they value personal benefit over their company's gain).

I have personally seen this in several startups whose founders get the first 5-10 quickly customers due to personal connections and networking. That leads them to believe they can scale and they tend to raise money to hire more sales people in various regions. That's when unpredictability comes up. The average sales cycle time in India is a misleading number. If you have the relationship, the deal takes 1 month, and if not, anywhere from 3 months to 2 years.

There are 3 solutions to this challenge, each of which comes with its own set of issues:

  1. Only focus on a non-diverse set of companies looking to build B2C businesses (consumer facing) and continue with the 3 month program
  2. Take in far fewer companies in each batch (say for e.g. 5 companies, not 10) thereby giving more time and energy to fewer companies
  3. Tweak the "graduation" rules companies that hit specific milestones can graduate (at say 7% equity) and others that need more help need to give up more (say 12% equity)

I don't claim to have the right answer, but copying the YCombinator model to the T, given different market conditions is not going to work for certain set of startups. The US market is a lot more evolved and hence adoption of new innovative solutions tends to be faster, unlike the Indian market.


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What's Needed To Tweak The "Incubator" Model For Indian Entrepreneurs And Startups?

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