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Accelerators In India’s Nascent Startup Ecosystem Face A Reality Check

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Is the startup accelerator bubble ready to burst in India?

That’s the question several VCs, entrepreneurs and early to late stage investors have started asking in the country’s fledgling startup ecosystem. Their concerns don’t look unfounded, especially after India’s oldest startup accelerator, The Morpheus, said it’s planning to move away from the existing model, and even stopped taking applications for next batches.

Founded by Sameer Guglani and Nandini Hirianniah in 2008, Morpheus is shifting away from incubating startups over 4-month long batches. It will now work with startups that are anywhere between 2-5 years old, or even up to 10 years in existence. 

Last year, The Hatch, an 18-months old accelerator in Mumbai, shut down fueling speculations about the uncertain future faced by many startup accelerators in the country.

Guglani told me that Morpheus is not shutting down completely as is being speculated.

“We’ve been feeling the need to evolve and it could involve fading away the current accelerator model. We would be launching a new avatar,” he said.

Later, in a blog post titled “Morpheus is going Nowhere”, the founders had this to say:

Founders these days are a lot more mature when they get started. Also a 0-2 year old startup has many good sources of support / advice & money. Lots of accelerators, incubators, hackathons, events, demo pitches, blogs, videos and a lot more.

Indeed, for entrepreneurs, it’s better to build their startups outside incubators if a longer gestation period is what it takes. Amarpreet Kalkat, who graduated from Microsoft Accelerator last year and founded big data startup Frrole, told me it’s getting tougher in India.

“An Indian startup would have a longer gestation period, so more time, and resources,  are needed. My vote is for outside, because the battleplace is the market, how long can u keep fighting a proxy battle from inside a fenced garden,” Kalkat said.

Morpheus’ journey so far, and its future path going forward offer crucial lessons for anybody looking to get involved with the Indian accelerator ecosystem.

The Morpheus

First of all, there is much more early seed money available compared to six years ago when Morpheus started. The catch however, is that this money can now be accessed through several different platforms, including traditional venture investing.

Many established VCs too, are beginning to scout for early stage deals and ensure that they catch the ‘next big thing’.

All this is putting tremendous pressure on standalone startup accelerators who don’t see enough exits for them to support 2-3 batches of entrepreneurs every year.

In India, the Nasscom and Google-backed 10,000 Startups program is adding to the pressure of already existing incubators. Ravi Gururaj, an entrepreneur turned investor who now leads Nasscom’s software products and startup initiatives, told me that there will be “ups and downs” as these incubators are like startups themselves.

“I expect we will see lots of changes in the next couple years as new models are experimented with and some of the weaker under funded players may become roadkill,” said Gururaj.

Accel India scanned around 1,000 companies across 62 different accelerators and incubators in India over last few years, and the results speak for themselves — only 30 of them went on to receive Series A funding .

Prashanth Prakash of Accel India told me that for the deal flow, he works more with startups directly funded by the angel groups.

“Some of the larger ones (accelerators) are backed by global tech MNC’s. For our deal flow we continue to work with a significant number of startups that are directly funded by Angels/Angel groups,” he said.

“Morpheus’ model worked well in the early phase of the market evolution in India. Now the game has evolved, making old ways of doing things not so relevant,” said Rajesh Sawhney of GSF Accelerator.

And the famous Series A crunch is always lurking around, as more incubators, accelerators fight for the same (and not growing substantially) pool of early venture money.

As I reported last year, many entrepreneurs graduating from these accelerators have been struggling to raise the next round.

The problem is also about the quality of ideas, which is normal in a growing ecosystem, but then accelerators have been positioned as the guys who handpick ‘the next big things’.

“I got over a dozen car-pooling ideas for the last batch, over three dozen e-commerce pitches and only 1-2 real product ideas that solved a big problem,” founder of one of the accelerators told me.

Some accelerators and even entrepreneurs are realizing that India is no Silicon Valley, and if anything, startup ideas in the country take much longer to bake.

Mukund Mohan, director of Microsoft of Microsoft Ventures said the Y Combinator model won’t work in India because it takes longer than just $20,000 and 4 months. Even globally, Y Combinator and Tech Stars are the only two successful accelerators that provide any meaningful exits for company founders

Clearly, independent accelerators in India seem to be facing questions about whether they can last.

But this doesn’t mean a doomsday for startup accelerators in India, at least for now.

While GSF Accelerator is going global after the Little Eye Labs exit, Kyron is funding its accelerator experiment by setting up corporate accelerators for Target among several others. 

Kyron is also shifting to a model that offers more than a year for startups to graduate. It now offers a 16-month program.

“Accelerators are also startups, most will fail, only a few will succeed. So if a few shut down, we should not be alarmed,” said Rajesh Sawhney of GSF.