Start-up to a Start-up: Starting an Incubator
Entrepreneurship is the most trending and challenging topic in India these days and talking about Gen Y entrepreneurship, it is 10x more trending and challenging lifestyle. This also throws new opportunities for the eco-system to take shape. Angel Investors, Venture Capitalist, Start-up Clubs, Maker Spaces, Incubators, Accelerators, Mentors and Training companies are going to grow leaps and bounds. And one important cog in the wheel is the “Incubator” – a place where Start-ups are nurtured till they grow. When a baby is born, it is kept in the Incubator for first few hours and maybe days – so as to adjust to outside environment and grow stronger before they face the outside world. In a similar way, a Start-up is nurtured in Incubator, which gives them a chance to bring their business in shape, before they reach out to the world. As the trend of Start-ups is growing and its challenges increasing, a lot of Start-up incubators are setup and promoting entrepreneurship in India.
But, honestly student entrepreneurship isn’t much supportive or reachable to all in terms of accessibility, services, mentor-ships and obviously “Funding”. You have a great idea and an amazing team, the next question is about “Execution”. When it comes to execution 90% of students don’t know how to go about with it, and an idea is mere an idea unless it is executed, and your execution of idea which solves a fundamental problem ultimately makes you an Entrepreneur.
So to solve these problems of getting good team, mentors and leveraging ourselves among like-minded people, build a product etc., Incubator are designed to assist businesses to become established and sustainable during their start-up phase. Typically, they do this by providing shared premises, business advice, business services, and access to investor, market and international networks, mentoring and a full-time, hands-on management team.
Incubators provide their resident companies with business support services and resources such as guidance, assistance with business planning and help obtaining finance. Incubators usually also offer companies rental space with flexible leases, shared basic office services and access to equipment all under one roof.
In India, most incubation centres are hosted by an Academic Institute, and funded by DST (Department of Science and Technology) and MSME, which gives them access to government agencies, as well as easy reach to professors and students in the college. Some of the well-known ones are IIM A and IIT Bombay. In addition,there are a number of private incubators as well.With the launch of new scheme Atal Innovation Mission for granting funds for establishing Incubators is a step in right direction.
Government is proposing to make forward looking investments towards building world class incubators. In its first phase, the aim is to establish 10 such incubators. To enable this, GoI shall identify and select 10 incubators who have the potential to become world class. These incubators would be giving Rs 10 Crore each as financial assistance which may be used for ramping up the quality of service offerings.
Atal Innovation Mission (AIM) -Harnessing Private Sector Expertise or Incubator Setup
To ensure professional management of Government sponsored / funded incubators, Government has created a policy and framework for setting-up of incubators across the country in public private partnership.Government shall encourage setting up of:
- 35 new incubators in existing institutions. Funding support of 40% (subject to a maximum of Rs 10 Crore) shall be provided by Central Government for establishment of new incubators for which 40% funding by the respective State Government and 20% funding by the private sector has been committed. The incubator shall be managed and operated by the private sector.
- 35 new private sector incubators. A grant of 50% (subject to a maximum of Rs 10 crore) shall be provided by Central Government for incubators established by private sector in existing institutions. The incubator shall be managed and operated by the private sector.
- Funding for setting up of these incubators shall be provided by NITI Aayog as part of Atal Innovation Mission.
- Participating departments and agencies for setting up of new incubators shall be Department of Science and Technology, Department of Biotechnology, Department of Electronics and Information Technology, Ministry of Micro, Small and Medium Enterprises, Department of Higher Education, Department of Industrial Policy and Promotion and NITI Aayog.
With this basic as the background, let us come to the mechanics of starting an incubator:
- Market Conditions and Entrepreneurs Aspirations. There are few incubator both institutional and private in the country, wherein there is always a queue to get in. While there are others, who have a tough time ensuring 100% occupancy of their premises. Questions like whether there is a demand for incubators, where will incubatees come from, what are the capital costs and operating costs of setting up an incubator should be answered abinitio. One important thing to keep in mind is what do entrepreneurs really want from an incubator – is it just access to cheap space, internet, electricity (the tangible benefits of an incubator) or the spirit to work along with fellow entrepreneurs, chance to meet investors, get access to quality manpower and experienced advisors (the intangible benefits of an incubator). This will help in identifying the real pain area of customers (the entrepreneurs) and address their needs most effectively.
- Team Identification.While it may sound logical to have an incubator which connects the entrepreneurs, investors, mentors, trainers, students and faculty – the real test comes in execution. The team that manages the incubator has to be world-class, as they are the ones who will drive the incubator, while the incubatees will drive their individual businesses. It is also good to identify a set of advisors – preferably a mix of industry veterans, faculty and investors, which always guides the incubation managers on strategic issues.
- Regular Training Calendar.It is important to draw out a calendar of activities, which keeps the incubator always charged. Conducting training programs, mentor meets, entrepreneur leadership talks from experts, job fair, product showcases, technology demonstrations etc. from time to time helps the community to grow and brings in a great network effect.
- Incubator Resources. An incubation center needs resources during setup and operations. All this comes at a cost, and the incubation center management needs to generate to resources for the same – in terms of capital, manpower and time. For an individual or an institute, it is prudent to setup a project team to take up the task in a systematic manner. Government support provides some subsidy towards this, but comes with its own costs.
- Industry Linkages. Since the incubation center is setup, it is very important to establish industry linkages – maybe even before the first company starts operations. This maybe contact with local entrepreneurs, lawyers, CAs, industry associations like CII, FICCI, NASSCOM etc. and other parts of the eco-system like investors. Many incubators are not able to perform well for themselves or for their portfolio companies because of being too internally focused.
- Incubators Start-Ups Funding. Incubators help resident companies secure capital in a number of ways, including:
- Connecting companies with angel investors (high-net worth individual investors).
- Working with companies to perfect venture capital presentations and connecting them to venture capitalists.
- Assisting companies in applying for loans.
- Assisting companies in accessing government business assistance grant programmes.
- Attract, Select, Retain and Manage Start-Ups. Last, but not the least, an incubators’ primary reason of existence are entrepreneurs. The team needs to think about ways to attracting, selecting, retaining and managing start-ups that inhabit their planets. A clearly conceived and stated criterion for selection is important – for e.g., most of the college based incubators do not allow anyone else other than their own alumni/students to get incubated. So, it is important to communicate the same in advance to avoid disappointment.
What Makes An Incubator Successful?
Success of any incubator is in the success of its portfolio companies. I hope that all who are planning to support entrepreneurs through incubation, will keep the start-ups requirements in mind while doing so.
Incubator developers must first invest time and money in a feasibility study to lay the groundwork for a successful incubation programme. An effective feasibility study will help determine whether the proposed project has all the factors crucial to an incubator’s success – a solid market, a sound financial base and strong community support. Once established, model business incubation programmes commit to industry best practices such as structuring for financial sustainability, recruiting and appropriately compensating management with company-growing skills, building an effective board of directors, and prioritising management’s time to place the greatest emphasis on resident assistance.