Smaller city start-ups need capital support

Last Updated: Wed, Nov 14, 2012 21:21 hrs

Though a majority of incubators in the country are located in non-metro regions, start-ups based in metros account for almost 80 per cent of angel investments, according to a study by Indian Institute of Technology-Madras (IIT-M).

Measures have to be taken to ensure risk capital is available and accessible to the vast majority of entrepreneurs in smaller cities, said the India Venture Capital and Private Equity Report 2012, released by the institute.

Business incubation is a business support process that accelerates entrepreneurs with an array of targeted resources and services. Companies that get such support are called incubatees. An investor who provides financial backing for small start-ups or entrepreneurs is an angel investor. While around 83 per cent, or 874 of the total 1,058 incubatees selected for the study, were from non-metro regions, 149 angel investments of the total 185 selected happened in metros.

"There is a gap in location, where a majority of incubators and incubatees are in non-metros, while a majority of the companies that received support from angel investors were from metros," said Thillai Rajan A, associate professor, Department of Management Studies, IIT-M, who coordinated the study. It was seen that 70 per cent of the incubation facilities are located in non-metro regions. Entrepreneurs located in non-metro regions face several additional challenges, in terms of access to capital, human resources, top class facilities, to name a few.

Bangalore has the largest proportion of angel investments, accounting for more than one-third of the investments in metro cities. Of the 149 companies that got angel investments in the six metro cities, 50 were in Bangalore, while Mumbai saw 42 companies bagging investment, Chennai 22, Delhi 21, Hyderabad 13 and one in Kolkata.

The study says one in South India accounted for around 86.47 per cent of the angel investment distribution.

According to the study, largest number of incubation centres are located in south India, with 71 centres or 45 per cent of the total 159 incubation centres.

On a state-wise comparison, Tamil Nadu has the highest number of incubation centres--19 per cent of the 159 centres.

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