Beware the Incubator Bubble is about to Burst

June 29, 2010  —

Beware the Incubator Bubble is about to Burst

The startup ecosystem in india is quite interestingly poised today. Fred Wilson has written a good post which explains quite succinctly how a startup ecosystem evolves in a certain geography. You can roughly set the age of startup ecosystem in India to 10 years (starting from 2000 - IT revolution). During this first decade there have been quite a few successful startups created and exited. Two interesting things happened during this time. First, it created a lot of second time entrepreneurs (referred as STE’s henceforth) who have learnt from success or failure of their earlier ventures and are now more seasoned to start a new venture, and second, it created a lot of HNI’s either through successful exits or those high paying MBA jobs. This I would say has set us into second decade of the startup evolution. We now have seasoned entrepreneurs (STE’s) and a lot of money to be invested in. Ofcourse a lot of VC’s have also started focusing in India, but that is only natural thing to happen not dramatic (HNI’s looking to invest in startup is dramatic).

In my opinion the above factors are a perfect recipe for a bubble to be created in this ecosystem - Huge demand to start a venture, and a lot of money ready to be invested in. The bubble in itself is not a bad thing cause any evolution goes through that process. The shakeout essentially helps getting rid of not so serious or inept players and making the survivors stronger. In the last couple of months we have seen a lot of new ventures raising big money and also some sort of consolidation happening (two companies working on same idea merging for undisclosed sum). What really worries me though here is this sudden increase in incubator firms mushrooming.

That brings me to the topic of this post. The increase in number of startups in the last year (post the economic recession) has created a demand for mentors/entrepreneurs. And since the supply is not up to that level, a lot of incubator firms have started trying to help out these startups. Now I am not against the role of an incubator in startup ecosystem. But what I see is a lot of these self proclaimed mentors aping western incubator business model here in India. Firstly, I firmly believe that western incubation model does not work here. The startup ecosystem here is not as mature as that of silicon valley. Secondly I do not think it is physically possible to ^help^ 10-20 startups at the same time.

Any entrepreneur will tell you that running a startup is a FULL TIME job. You can neither do it as a night job (or moonwalking as others call it) or do 10-20 of them at the same time. A VC (from personal experience) more often than not invests in a Team. The Team cannot be built of mentors (spending less than 10% of their time in you). Invariably what will happen is that of these 20 startup’s, 2-3 will be success. The others will invariably die out of over dependence on incubation (and incubator not delivering to them as they are too busy making the first 2-3 startups a success) than viability of their idea.

From my past startups I do know quite a few entrepreneurs who do mentor couple of startups. But they do that out of interest and not to make a business out of it. All of them are running their second or third startup, because that is what they really like doing. Mentoring to them is more out of hobby than to make a business out of it.

Today it is not so difficult to either get mentoring (as there are a lot of STE running their next venture) or angel funding (as there are a lot of HNI’s/STE’s ready to invest). I would definitely not use any of the existing incubation and would advice others the same.

To summarize, I would like to quote someone’s advice from a mailing list who got black listed for her bold opinion on a similar topic

Vyast raho, Mast raho aur Inse dur raho!

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