Accelerators have supported twice the number of entrepreneurs to the Indian startup ecosystem

I have been researching the data from Thomson Reuters to understand the optics of the accelerator business in India. There are 37 accelerators we track, who give a little seed money and take a percentage of the company in return.

Based 2012 data, accelerators have funded 89 companies with their first check, compared to less than half that done by angels and VC’s in India.

Most accelerator funded companies take 6-8% of the company in exchange for 5-10 L ($10K to $25K) in India. That 6% dilutes to ~4% at series A (assuming 20% for angels and 30% for VC’s).

The first scenario for you, the entrepreneur, is to get funded directly by a VC. The chances of that happening in India are low – 1.4%. The other challenge is that those companies got relatively poor valuations (average about $1.4 Million pre money). Only 19 out of 1300 entities got funded last year to raise their series A through a VC directly. In this case you will possibly dilute 30-40% and still own >60% of the company. I have used 30% dilution in the chart below.

The second scenario is to get angel funding and then in 18 months get VC funding. The chances are better that you might go through this scenario (2X more – 43 companies got angel funded last year), and then venture funding. You will end up owning 56% of your company (by giving about 20% to the angel investors). The valuation challenge persists with angel investors as well, with the average valuation being less than $1 Million.

The third scenario is to get into an accelerator. The chances are twice as much (nearly 9%), but give up 6%, then get angel funding and finally a venture investment. You will end up owning 52% of the company now compared to 56% in the previous scenario. The 4% should get you a better valuation and it does for last year’s data (Average valuation was $2.3), nearly 60% higher.

See the chart below for the data.

Accelerator Metrics
Accelerator Data

The numbers on top of the boxes are the # of companies that got funded last year. The number in the parenthesis is the % of companies of the previous box.

The numbers at the bottom in percentage are the % of your company you will give up to that entity.

The circles at the far right are the % ownership of the company you will have post that path.

I’d love for you to let me know if there are any mistakes in this analysis.

This data will change as accelerators get older and have been around for some time, since most of the VC deal flow is still not through Accelerators or Angels. I suspect as companies from accelerators get more mature and the accelerators get better at running their programs, we will start to see a better benefit for entrepreneurs in India.

Thanks to Anand of Accel, Rahul of Canaan and Abhijeet of Bessemer Venture Partners for reading drafts and reviewing the information. Amaresh & Hanaan at Microsoft brainstormed this model.

All the data above is for Series A valuations and numbers from Thomson Reuters. Overall, there were  143 – 155 companies that reported receiving funding last year in India, and many of them were follow on financing (series B or later).

10 thoughts on “Accelerators have supported twice the number of entrepreneurs to the Indian startup ecosystem”

  1. Good work Mukund. Would love to look at that data in greater detail if possible. 75% of those which got a first round (Incubator + Angel) got a 2nd round ?? That number seems high to me. What am I missing ?

  2. Accelerators have “given” entrepreneurs to the Indian startup ecosystem? Perhaps you should reconsider the phrasing…unless you actually believe that these startups wouldn’t have been in existence without the presence/contribution of the acclerator in question?

    Also,contrasting accelerators with angel funds is an apples to oranges comparison – much more so here in India than elsewhere.

    Finally, looking at the valuation figures purely with respect to investor type is misleading simply because there is no way to know whether the relationship is causative or correlative.

  3. Accelerators contribution to Indian startups is limited to mostly money. Most of them give a space for three months, some money and mentoring without much focus. Important things like Goto Market Strategy, Growhack, fine-tuning company vision etc are completely missed by Accelerators.

    My own startup slowed down dramatically after having gone through one such accelerator last year. Perhaps saying accelerators are adding up to growth is over estimated.

    This is not an isolated case and my friends in other accelerators too felt the same. Hope accelerators addresses this issue.

  4. Interesting analysis Mukund. Totally agree with “as companies from accelerators get more mature and the accelerators get better at running their programs, we will start to see a better benefit for entrepreneurs in India”.
    Does Thomson Reuters give any info about revenues of the companies too? Will love to understand how the companies from accelerator (specially the ones which have not raised next rounds) are faring on this?
    basically – wanting to see if there is data supporting the other two benefits of an accelerator:
    (a) overall costs of figuring out I-dont-want-to-do-this is much lower than what you would have otherwise.
    (b) there is still an option of growing the company on its revenues post an accelerator. This reduces significantly post angel/VC round, which tends to you get into a fundraise-to-fundraise loop.

  5. Which is an interesting point. “Whether the company really accelerated or slowed down instead”. As some also believe, that it’s better to rent of some office space than give away 5-6% of that valuable equity to a so called accelerator and also tolerate the hindrance, of some formalities that must be there.

    Instead, yes, what would be an up and coming model for great accelerators, where not only mentoring were focused, but also the whole office space and other so called “generic resources” which most start ups can do without, or frugally manage, will be downplayed. And “real” value, in terms of industry expertise could be lent, apart from well, funding would be the most obvious but instrumental value additions of an accelerator. Few even claim to be doing so, but only those who go through the gears, must tell, what’s the story behind the wheels..

  6. Interesting analysis Mukund. I do not see anything grossly wrong here with respect to dilution numbers. However, dilution does not create a company. The sustainability of any of these pieces of the funding chain relies on (a) do they really add value and enhance prospects of success, (b) do they capture enough value in the process to be viable. Those are the key questions, and would be great to exchange thoughts on those.

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