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.
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).