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AEGAEUM JOURNAL ISSN NO: 0776-3808

START-UP ECOSYSTEM IN INDIA: A STUDY WITH FOCUS


ONENTREPRENEURSHIP AND UNIVERSITY BUSINESS INCUBATORS

Deepak Kumar Adhana

Research Scholar, Institute of Mgt. Studies & Research (IMSAR), M.D. University, Rohtak.

Alisha Kumar

Assistant Professor, School of Commerce & Management Lingaya’s Vidyapeeth, Faridabad.

ABSTRACT:

On one side India is growing to be one of world’s biggest markets after China. The incomes
and consumption of not just the thriving middle class but even the rural economy is rapidly
growing. On the other hand India has lot of really big problems to be solved - be it in
education, infrastructure, agriculture, logistics, retail, healthcare etc. This combination is the
most fertile ground for startups. The big businesses are comfortable making money off the
shortcomings rather than solving them or changing their existing established business models.
It’s the startups that will come up with innovative disruptive business models to solve the
challenges India faces. And this is the biggest impact startups will have on the Indian
economy.

But entrepreneurship is not an easy path and the more you grow the more challenges you
face. From awareness and sustainability of businesses to regulations associated with legality
and enforceability, the list of challenges is long. Given these challenges, it can be hard to get
started on your entrepreneurial journey without guidance and assistance. So how does one
move forward and get ahead? Where do entrepreneurs get their dose of skill and know-how
supplements to turn their startup ideas into reality? Incubators have an answer to the problem.

The present paper develops an in-depth understanding of the startup ecosystem in India. This
paper discusses the role of Incubators in producing and nurturing successful business
ventures. It also studies the government’s policy measures in fostering entrepreneurship

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culture and setting up university business incubators. At last the paper discusses the
availability of grants to academic institutions for establishing the incubators in their premises.

KEYWORDS—Business Incubators, Ecosystem, Entrepreneurship, Start-ups, University

I. INTRODUCTION:

It’s a matter of great pride that India is ranked 68th out of 137 countries as per the Global
Entrepreneurship Development Institute, This appears nothing but moderate, if we consider the
performance. However, looking at the performance by specific criteria, deeper insights about the
phenomena are derived. Its strength areas, where its performance is above its overall score, are in
product and process innovation, internationalization, opportunity start-up, risk acceptance,
opportunity perception and robust competition in the marketplace.

Its performance on human capital is broadly at par with its overall performance. In broader
terms, India’s USP lies in its ability to identify the opportunities and risk-taking, which in turn
links to its capabilities in product innovation and a healthy attitude towards globalization thus,
seeking new markets beyond the home base. India has proven its mettle for entrepreneurship and
exhorted us to grow exponentially in innovation.

India, in global context has increasingly pioneered in “frugal innovation” in which products meet
acceptable performance standards and features which are often aimed at the bottom of the
pyramid of consumers and associated with an extremely low cost for the consumers. However,
experts also point towards the concerns about India’s investing in technology, technological

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partnerships, the need to stay abreast of current trends, greater labour market flexibility and a
more supportive education and training system. Amidst these strengths and weaknesses, it is
encouraging to note thatIndia hasmanaged to be second -largest hub of startups in terms of
numbers of existing startups.

As per the Startup Outlook report 2019 (Feb), two factors make India appealing as a startup
nation-

• First, is the cost of doing business which is low because of proximity between customers
and vendors
• Second is the mammoth size of the domestic market along with huge base of internet users.
Interestingly, India is also second largest consumer internet market in the world (overtaking
China) with around 500 million1 internet users. Obviously, it has never been as easy and
cheap as today to launch digital products or services in India, courtesy, the economics of
digital innovation.

While the technology is evolving and our population gives us an edge, the government at the top
is pitching in its energies to promote entrepreneurship in India. Recently, during the
announcement of Vikas Niti 2019, PM Modi addressed entrepreneurs as growth ambassadors of
India. India’s dream of becoming $5 trillion economy by 2024 can be only facilitated when,
other than infrastructural and labour related issues, the topic of employing the roughly one
million young people who join its workforce every month is addressed critically. One of the
ways in which this critical problem can be very well addressed is by imparting vocational skills
to the workforce and encouraging them to start their own ventures. Policy makers also
understand the path to achieve this target and are thus all geared up for making a paradigm shift
in the system education that should create job creators instead of job seekers.

Digital India is an umbrella programme to prepare India for a knowledge based transformation.
The focus is on being transformative to realize IT INDIAN TALENT +IT INFORMATION
TECHNOLOGY=IT INDIA TOMORROW. The government has thus come up with several
initiatives for promoting entrepreneurial capabilities among the youth. Programs like startup
India, Mentor India and Atal Innovation Mission are some such examples. As a result, the startup
ecosystem in India can boast of numbers like more than 14,600 recognized Startups DIPP2,

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approximately 270 incubation & business acceleration programs, 200 global & domestic VC
firms supporting homegrown Startups, and a fast-growing community of 231 angel investors and
8 angel networks. India also boasts of being home to the 3rd largest unicorn community3.
-------------------------------------------------------------------------------------------
1
www.iamai.om, 2DIPP, Ministry of Commerce & Industry as of 12th December, 2018,
3
CB Insights, YourStory, Economic Times

II. OBJECTIVES AND METHODOLOGY:

The objectives and the research methodology are as follows:

OBJECTIVE

The study has been geared to achieve the following objectives;

1. To study an in-depth understanding and performance of the startup ecosystem in India


2. To identify the role of Incubators in producing and nurturing successful business ventures
3. To study thepolicy measures taken by government in fostering entrepreneurship culture and
setting up university business incubators
4. To discuss the availability of grants to academic institutions for establishing the incubators
in their premises

RESEARCH METHODOLOGY

Data Collection Method: This study has been carried out with the help of secondary data only,
all the data has been collected from the various sources such as websites & reports and compiled
as said by the need of the study.

Sources of Data Collection: The study is based on the published data. For the purpose of
present study, the data was extracted from the various newspapers, journals, articles and websites
particularly fromNitiAyog and Department of Industrial Policy & Promotion (now DPIIT) has
been used.Startup Outlook report 2019, States Startup Ranking Report 2018 by DIPP and Global
Innovation Index 2019 Report has also been analysed.

Data available from above mentioned report have been analysed using representative figures as
and when required.

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III. STARTUP INDIA:

Startup India
ndia which is a flagship initiative of the Government of India was launched to catalyse
startup culture and build a strong and in
inclusive ecosystem for creativity and entrepreneurship in
India. The Action plan of 2016 highlights the various benefits that the startups could derive on
the portal which are discussed ahead in this paper.

Mentor India

Mentor India is another initiative by government wherein a panel of celebrated entrepreneurs is


created who has agreed to mentor startu
startups from time to time through deliberations, workshops or
discussions.

Broadly, the government is taking two pronged approach. At one hand through programs like
“Atal Tinkering Labs”, it is trying to inculcate the innovation and skills among school children to
think out of box while on the other hand there are other initiatives that cater to the already
existing startups for facilitating th
their survival and success by creating appropriate ecosystem.

These ecosystem initiatives are geared to help startups, flo


flourish
urish and range from the establishment
grant for a startup, to benefits like tax exemptions, grants for scaling up the business, support by
the experienced mentors, providing platforms for networking with the angel investors or venture
capitalists etc.

Estalishment Grant

Tax Exemptions

Scale up Grants

Mentoring Support and networking with VCs

Figure 1: States Startup Ranking Report by DIPP 2018, India

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Startup split by region and sectors

India is the world’s youngest nation with 64% of its population in the working age group, soit’s
no secret that the startup ecosystem in India has evolved exponentially in recent years.
According to a recent NASSCOM report, India is the third largest startup ecosystem in the world
and is expanding to become more global. With this reassuring ecosystem, the startup culture is
picking up in India as we can see, although top metros control majority share of Startups
concentration in the country, the Tier-1 and Tier-2 cities have been catching up (See Figure).

Figure 2: Startup split by geographical distribution of the recognized startups


Source: States Startup Ranking Report by DIPP 2018, India

As a result, we see increasing Startup activities buzzing in almost all the States. To promote
balanced regional development, “Startup India Yatra” was launched.

This is an initiative aimed to scout grassroots level entrepreneurs from the non-metro cities of the
country. This provides aspiring entrepreneurs a platform to realize their Startup dream by getting
incubated at excellent facilities and taking their idea to the next level. The initiative is being
conducted through collaboration between the Department of Industrial Policy and Promotion and
States.

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Figure 3: Startup spread across India recognized by DIPP


Source: States Startup Ranking Report by DIPP 2018, India

Hats off to India for being the 3rd largest Startup ecosystem in the world and one of the largest
consumer markets, India has Startups working in industries ranging from Fintech to Food-tech
and Robotics to AgriTech. The following figure highlights the top 10 industries where startups
recognized by the Department of Industrial Policy & Promotion, operate.

Figure 4: Spread of startups across India recognized by Department


Source: States Startup Ranking Report by DIPP 2018, India

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Figure 5: Startup split by Industries


Source:https://www.startupindia.gov.in/

As per a recent report by KPMG, on Indian startup ecosystem, the number of startups in the
country has gone up from 7,000 in 2008 to 50,000 in 2018 and as per NitiAyog, less than half of
them are pure tech startups, now which drives our attention to the kinds of non- tech startups that
exist- we can see the other areas as highlighted in that diagram are textile, outsourcing and
agriculture.

IV. UNDERSTANDING THE OVERALL ECOSYSTEM THAT HELPS FUEL THE


GROWTH OF STARTUPS AND ENTREPRENEURSHIP IN INDIA:

First, Several Government schemes for promotion of startups in India have been launched off
late like-Pradhan Mantri Laghu Udyog Yojana 2016, Mudra Yojana, Start up India Learning
Program, and India Aspiration fund.

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Secondly there are various compliance related relaxations for startups, e.g.

•For •Exemptions
Incorporation under Income
•Labour and Tax
Environmenta
l Laws
Legal
Tax
Relaxatio
Holiday
ns

Relaxed
Faster
Norms for
Exit
Bidding
•Government •With in 90
Tenders Days

Figure 6: Relaxations for Startups.

Thirdly, the GoI has created a fund of funds with a ttotal


otal corpus of Rs 10,000 Cr. spread over a
period of 4 years, i.e. 2,500 Cr. for each year would be disbursed to startups seeking funding.

Fourthly, Investment plunge in India caused by emergence of new forms of investors catering to
the startup market in India such as presence of Venture Capitalists/ Investors eager to invest in
fascinating ideas.

Figure 7: Fuel for Startups

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Then, the existence of University Business and technical Incubators at Institutes of higher
learning in India pave the way for innovative startup ideas to enter into the real business world.

Also, Ecosystem players such as TiE, NASSCOM, and iSPIRT have significantly increased the
maturity of the ecosystem by providing a platform for entrepreneurs to learn and grow very
quickly.

Such a reassuring ecosystem but still we all get to read in the newspapers that only a handful of
startups are able to survive and make it to the level of break even. A report by IBM Institute for
Business Value and Oxford Economics found that 90 percent of the Indian startups fail within
the first five years and the main reason reported is the lack of innovation.

Another study, titled ‘Entrepreneurial India’, states that while the market evaluation of Indian
startups has grown in the past four years, 77 percents of the venture capitalists believe they don’t
have unique business models. However, Ranking 52nd on the Global Innovation Index (GII) list,
it is believed that India can become a global driver of innovation because of its potential, talent
pool and culture of innovation. The talent pool of India is proven worldwide. All India need is to;
channelize this potential, into concrete market research and business planning so that their
struggle is minimized.

Figure 8: India’s Rank on Global Innovation Index (GII)

V. INCUBATORS CAN FILL THE VOID:

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In a market where 90 percent of startups fail, incubators and accelerators can play a key role in
growing the number of sustainable businesses. This kind of support could well be delivered by
an Incubator, which is an organizational setup that nurtures technology based and knowledge
driven business ideas by providing them with work space, shared office services, specialized
equipment along with value added services like fundraising, legal services for the incorporation
or registration, business planning, technical assistance and very importantly networking support
in terms of helping them find their first few clients.

1. In the initial stages of a start-up, the first-time entrepreneur and the investors are likely to
face various challenges and unknowns. The lack of prior experience creates a gap in
knowledge for the entrepreneur, who then struggles to translate an idea or concept into
reality. These challenges and unknowns can be seen as a void which incubators with the
know-how are ready to fill.
2. Incubators also play a significant role in the ecosystem, by serving as a platform for
bringing together, venture capitalists, academicians, university students and of course
government. These stakeholders often meet in events and workshops for exchanging ideas
and discussing solutions for the problems faced by young entrepreneurs.
3. Also, Incubators can play a significant role in promoting startups which are producing eco-
friendly goods, startups run by minorities, by women, startups operating in rural areas or
SEZs etc. for building up a socially balanced economy as well. With the presence of
incubators, innovation and R&D in the economy also gets a boost.

There are a couple of Incubators which are successfully operating, to name a few IIT Guwahati,
Foundation for Innovation and Technology Transfer, IIT Delhi, Shriram Institute For Industrial
Research, Centre for Innovation, Incubation and Entrepreneurship (CIIE) IIM Ahmedabad,
Amity Innovation Incubator, IAN Incubator and iCreate. Now we will broadly understand the
role of incubators and how they can contribute to the economy’s growth in a number of ways.

VI. ROLE OF FACULTY:

In today’s modern era teacher is no longer a sage on stage but is a friend philosopher and guide.
It will be highly satisfying for the faculty to see their students, who are going places, at such
young age are working day and night towards implementing their innovative product idea into a

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prototype, applying the marketing and business skills learnt in the classrooms, out there in the
business world, communicating effectively with clients and investors, and leading their path to
building a successful venture, finally graduating from incubator.

Why should faculty be involved in such endeavor?

There are several benefits of faculty’s engagement with incubator in academic institutions

1. Incubators could pave the way for consultancy assignments for ingenious faculty. This
way the academic tycoons are encouraged to step into the business world. The faculty
could implement her/his empire-building abilities in return of agreed stake in the startups
under their guidance. Faculty and Institute’s stake is decided at the time of negotiation of
the terms and conditions of incubator.

2. Secondly, faculty’s support and time to time guidance is hugely required for the creation
and development of technology based startups.

3. It, of course helps in developing contacts with experienced managers, government


officials, industry experts and with the business world in general.

4. This whole process of setting up and running an incubator could also help faculty to
analyze the efficacy of relevant university resources.

5. Incubators based on particular thrust areas specified by government e.g. Internet of


things, healthcare, energy etc. also persuade faculty to contribute research into these
areas, thereby enhancing their overall profile.

VII. FACTORS DETERMINING THE SUCCESS OF AN INCUBATOR:

1. Location: Itis strongly suggested that the locationof an Incubator should be in proximity
of the academic institutionsothat the research expertise of faculty is easily accessible. The site
where technology is being developed and where it is being converted to a commercial product
should not be far from each other.

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2. Management of the Incubator: Efficient managing team of Incubator including a


dedicated CEOand Manager who have the requisite experience also contributes to the success of
an Incubator.

Manageme
Facilities
nt

Quality of
Location
Incubates

Figure 9: Factors determining the success of an Incubator

3. Quality of Incubatees or tenants: indeed a myriad of facilities are provided by the


incubators but if the startups are not ground-breaking in their product ideas or may be are not
devoted enough towards making their startup a successful venture, the location or management
of incubation center won’t be able to help much. The quality of tenants is very significant, which
is why it is equally important to draft entry and exit rules for the startup tenants. The selection of
tenants probably has a key role to play in the success of an incubator.

4. Facilities: An Incubator not only needs to provide work space to the incubatees but also
the associated tangible facilities like good internet connection, telephone, fax, desktops, laptops,
printers, library facilities, access to relevant journals, technology enabled conference and
meeting rooms, small cafeteria etc. Providing help in market research, developing business plans,
technical support, legal aid, assistance in obtaining angel funding, are amongst the intangible
facilities which are equally important for incubatees or tenants in the incubator.

What Does the University Expect from the Incubator?

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-Information and direct experience of the business world.

-A means of fostering the development of enterprises which make use of the business-supported
scientific and technological state-of-the-art infrastructure and resources offered by universities.

-Business-oriented information which could influence university curricula and activities.

-Support for the development within universities of an environment conducive to co-operation


with industry.

-Help with the development of university components working for a 'university oriented towards
business competitiveness'.

What Can the Incubator Offer the University?

-Fast-growing enterprises which can be used as 'business laboratories' by university facilities


whose task is to support business competitiveness.

-A means for teachers to become consultants and experiential learning for students to practise in
real life situations.

-Support for the creation and development of enterprises based on technology and experience
developed within universities.

-Contacts with experienced managers, university external consultants and with the business
world in general.

-A means to analysethe effectiveness of university resources oriented towards business


development.

Organisation of the Incubator

The presence of business people and university authorities in the incubator consulting council is
important. A network of contacts with industry has to be set up, through concepts such as clubs
of entrepreneurs and interaction with business advisers.

The processes which the incubator should develop are as follows:

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-Identifying opportunities for the creation of businesses.

-Assessing business proposals to compare and contrastwith others.

-Systems to support and analyse the development of a business until it graduates.

-Strategies to identify the appropriate moment to free a university technological development in


order to transform it into a commercial prototype to be developed by an enterprise.

VIII. POLICY MEASURES TAKEN BY GOVERNMENT IN THIS REGARD:

A plethora of policy measures have been taken by NITI AYOG of Government of India in
collaboration with the Department of Science and Technology, Department of Entrepreneurship
and Skill Development, Ministry of Micro, Small and Medium Enterprises, Department of
Industrial Policy and Promotion and the Department of Human Resource Development to build a
world class Startup Ecosystem in India.

At the State Level also, many states have released State Level Startup Policies. The scope of this
paper restricts this study to ornate about only two major schemes of the government- The first of
these is “Atal Innovation Mission” by NitiAyog and second one is Grant provided by
Department of Science and Technology (DST).

A. Atal Innovation Mission (AIM):

The Government of India is all game for promoting a culture of innovation, self-employment and
entrepreneurship. Under its dynamic program of Atal Innovation Mission, the government
endeavors to promote innovation and entrepreneurship by establishing new Business Incubation
Centres called Atal Incubation Centres (AICs) that would nurture creative start-up businesses in
their pursuit to become scalable and sustainable enterprises.

Government’s take on Incubators

As a part of the initiative, NITI Aayog will provide financial support to selected academic and
non-academic institutes and organizations to set up the Atal Incubation Centre (AIC) to support
and encourage start-ups in specific subjects / sectors such as manufacturing, transport, energy,

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health, education, agriculture, water and sanitation, and would provide them with necessary
paraphernalia and other value added services.

In round 1 some of the proposals that got selected for building up of incubator, were from places
like- Banasthali Vidyapith (Tonk, Rajasthan), Indian School of Business (Mohali Campus), Shiv
Nadar University (Uttar Pradesh) among others. In the May 2018 round, i.e. the second round of
call for Applications by the Atal Innovation Mission (AIM), a total of 2676 applications were
received for setting up new incubators and scale up support of the prevailing incubators by the
Atal Innovation Mission (AIM) 10 existing and 72 new incubators have been shortlisted for
Grant-in consideration in two consecutive phases.

Grant or Funding Support provided under this scheme

Successful applicants are given a grant of about Rs. 10 crore over a period of 5 years to establish
incubation centre. This grant will cover the capital and operational expenditure. The amount may
vary depending upon the business proposal presented by the applicant academic institute. The
applicant is strongly stimulated to make the incubator self-sustainable over a period of 5 years.

Expectations from the applicant academic institute

1. The applicant would have to provide at least 10,000 sq. ft. of ready-to-use, built-up space,
for the exclusive use of the Incubator.
2. The Atal Incubation Centre would also put in place a dedicated full time Chief Executive
Officer (CEO) with desired domain and management expertise along with the other core
team and supporting staff for its optimal operations within six months from the date of
release of funds.
3. The AIC set up and registered under Companies Act should have incubation facilities
such as competent team members who understand the incubation and startup ecosystem
and have the ability to successfully guide the incubatee startups.
4. The AIC should also conduct outreach initiatives, build a network of mentors, subject
matter experts and investors, formulate training programs and/or other incubation related
events, building the overarching entrepreneurship ecosystem, for incubatee startups
working with the respective incubator.

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Filing application under AIM

College faculty interested to apply for the Atal Incubation Centre within their college can apply
online at the website of NitiAyog. The prescribed application formats are given in Annexure II,
III and IV on the ministry’s portal. Guidelines are revised from time to time so the
college/universities are advised to go through the latest guidelines before applying.

B. Grant provided by Department of Science and Technology (DST):

Department of Science & Technology, Government of India, is also motivating Technology


Business Incubators primarily in and around academic, technical and management institutions to
tap innovations and technologies for venture creation by utilizing the expertise and infrastructure
that’s already available with the host institution. I would only discuss the points that are relevant
for an academic institution; however the scheme is also applicable to non- academic applicants.

Eligibility requirements of the applicant-

First, the proposal to DST may be submitted by an Academic/Technical/R&D Institution, called


Host Institute, and other institutions with a proven track record in promotion of technology based
entrepreneurship, which means that corporate research labs are also eligible under this scheme.

Second, the incubator has to be registered as a society, a trust or section 8 companies, essentially
a non-profit entity.

Third, Other than state or central government colleges/universities, the host institute should be
in existence for at least 3 years. So by implication, government colleges are exempt from this
condition.

Proposal to DST should be forwarded by head of the host institute in the manner prescribed by
DST. It should be submitted in both online and two hard copies have to be sent to Member
Secretary, DST. The proposals can be submitted all through the year while these are reviewed
twice a year. Like in the Atal Incubation center, here too a governing body will be set up who
will monitor the functioning of the Incubator and will meet every six months to review its
progress. At a later stage, the incubator may apply separately under Seed Support System (SSS)
scheme of DST after minimum of 5 number of incubatees are in place and there is a genuine

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requirement of seed support for nurturing the incubatees to take their start ups to next level. This
is like the scale up support given to incubators by AIM.

CONCLUSION

Through the incubator, enterprises can develop a more technological profile and universities
more business-like behaviour. At the same time, the incubator is an extremely quintessential
mechanism for achieving effective communication between technology-based enterprises and
universities. It is necessary to highlight the needs of industry. Contacts should start by
identifying what enterprises need in terms of human resources, and then look for contacts in
consultancy, services, and so on. The university is part of an interdisciplinary network of
services which promote the support organisation.

The crucial role universities play in supporting the creation and development of high technology
enterprises-currently called technology-based enterprises-has aroused great interest in India.
India is all geared up to create socio-economic impact across business systems around the world
in the near future. Startups form the core of this movement and need incubators that are set up
with a motive to make them into scalable and profitable enterprises.

With the aid of incubators, startups are becoming machines of rapid and tremendous growth that
provide solution mechanisms. They are manifesting advances with widespread technological
innovation at a breakneck pace. With the active participation and contribution of the Government
of India, the country’s entrepreneurial collective can expect to receive the incubation and support
it needs to truly transform the future of the country’s economy, thereby it a future superpower in
the world.

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6. Department of Industrial Policy and Promotion, “States Startup Ranking Report 2018,
India”, available at https://www.startupindia.gov.in/content/dam/invest-
india/compendium/Startup%20India%20-
%20National%20report_Final%20Version_web.pdf, accessed on 24th July, 2019
7. Guillermo Fernández de la Garza (1993). The Importance of University Incubators in
Latin America. European Journal of Education, 28(1),31-34
8. SRCC, Delhi University Online Refresher Course

Web Links:

a. https://aim.gov.in/atal-incubation-centres.php
b. https://www.ikuretechsoft.com/
c. https://www.startupindia.gov.in/
d. https://www.moneycontrol.com/news/business/90-indian-startups-fail-within-5-years-of-
inception-study-2689671.html

Volume 8, Issue 9, 2020 http://aegaeum.com/ Page No: 772


Electronic copy available at: https://ssrn.com/abstract=3702510

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