Startup ecosystem: Expansion of incubator support needed for India’s startup ecosystem: IITM-IIMB report

india startup ecosystem needs to expand support for incubators across the country, according to a joint report by IIM Bangalore and IIT Madras published on Friday, noting that the ratio of incubators in the country is just 0.8 per million people, compared with eight to 10 in the US, UK and China.

The report, titled ‘India Incubator Kaleidoscope 2024: Democratizing Entrepreneurial Dreams’, was produced through a collaboration between NSRCEL, the startup incubator at IIM Bangalore, and the Center for Research on Startups and Financing Risk Management (CREST), IIT Madras.

He offers ideas and recipes to business leaders and policymakers on creating and nurturing startup incubators, which he says are critical to job creation and economic growth.

“Incubators play a crucial role in making entrepreneurship more accessible and inclusive across the country, but their activities and impact are not well understood,” said Srivardhini Jha, president, NSRCEL.

The report highlighted the need to improve the performance of underutilized incubators in conducting outreach activities and raising awareness about the benefits of incubation, stating that only 8.2% of startups in the country undergo incubation .

Furthermore, only 10% of the country’s incubators support 98% of the new companies that are incubated, he stated.

According to the report, incubation is sought by people with modest financial resources, students, female founders and young professionals. At around 12%, the incubation rate is highest among deep technology sectorssuch as AI/ML, biotechnology and data analytics, he said.

Incubated startups secure their first round of funding before non-incubates, according to the report.

A year after their incorporation, 27.1% of incubated startups received their first round of funding, while the corresponding figure for non-incubated startups was 15.4%, it said.

Thillai Rajan A., Director, CREST, IIT Madras, said: “Our research finds that incubators improve the credibility of the startups they support. This manifests itself most convincingly in seed financing. Incubated startups are two and a half times more likely to obtain funding compared to non-incubated ones.”

Incubated startups participate more actively in the creation of intellectual propertyaccording to the report, with a percentage of incubated startups that have published patents approximately five times higher than that of non-incubated ones.

The contribution of incubated startups to the economy is significant, he said, with the average annual revenue in the initial years per 100 incubated startups being about Rs 1,590 crore. For the ninth year, the average asset value per 100 startups incubated was estimated at Rs 10,627 crore.

Having grown steadily, the incubators number more than 1,100 in the country, with the southern region hosting 45% of them and having the highest density.

According to the report, almost half (48%) of the country’s incubators are located in first-tier cities.

However, the geographical mix of incubators hosted by academic institutions, industry and the public sector shows variations between cities. Gurgaon (84%) and Bengaluru (71%) have a high proportion of industrial incubators, while Chennai has a higher proportion of academic incubators (82%). However, the revenue performance of startups associated with industrial incubators is 50% higher than those backed by academic institutions.