Incubators can lose way in their search for equity

Abstract

With all the buzz about starting up, a number of incubators are springing up in the public as well as private sector. This augurs well for the ecosystem.

One common interesting feature among most of these new initiatives is that they plan to seek shareholding in the investee enterprise as a part of the compensation for the incubation services. That is a laudable idea too; because such shareholding will motivate the incubator to select incubatees more carefully and then engage with them more actively to make the enterprise more valuable. It also helps reduce the rental outgo for the incubatee.

However, it may be worthwhile to keep in mind the following points of caution while designing equity shareholding as a part of the incubator’s compensation. First, managing equity investments requires a high degree of financial and legal sophistication in terms of selection of enterprises, valuing and structuring the equity, and harvesting the investment. Institutions that take up equity investing without being organisationally equipped can end up with unhappy consequences. Read more at: https://economictimes.indiatimes.com/blogs/et-commentary/incubators-can-lose-way-in-their-search-for-equity/