Accel rethinks early-stage startup investing in India.

By any measure, Accel stands as one of the premier venture capital firms in India. With nearly twenty Indian unicorn startups under its belt, including several leading the market in their respective categories, Accel's impressive track record speaks volumes. Nevertheless, the partners overseeing the firm's early-stage accelerator program, known as Atoms, have been unusually reflective about their experiences and the adjustments they've been making to enhance the chances of success.

"One core belief we hold is that eventually, all VC firms appear similar to founders. It boils down to just being a source of funding," explained Priyank Swaroop, a partner at Accel, during an interview. Over recent years, all VC firms have increasingly directed their focus towards making early-stage investments in India, aiming to discover the next Flipkart right from the seed stage. This shift is largely driven by the realization that India isn't producing many billion-dollar exits, thus making it crucial for VC funds to intervene earlier to significantly boost their returns.

Running an accelerator program under a fund that invests across various startup stages presents unique challenges. If the firm fails to adequately support its accelerator portfolio in subsequent funding rounds, it can send a negative signal to the industry. Additionally, seasoned entrepreneurs might not view an accelerator as the most fitting partnership option for their ventures.

These challenges have been on Accel's radar for almost five years. Before launching Atoms, the venture firm explored initiatives like building a knowledge repository and a community through Seed to Scale, an earlier program launched by Accel.

"We conducted Demo Days, attempting to emulate many other funds," Swaroop recounted to TechCrunch.

However, just as swiftly as Accel implemented initiatives, it also retracted some steps. For instance, it no longer orchestrates interactions between Atoms portfolio startups and other investors. Swaroop recalled a founder expressing how such meetups felt like a forced treadmill to impress potential backers.

Further feedback from founders revealed discomfort in engaging with industry peers who were far ahead in their journeys.

"We're striving to carve out our own distinct path, recognizing that what works for other firms may not align with our approach," he noted.

So, what does this distinct path entail? The third cohort of Atoms comprises just eight startups, notably fewer than other renowned accelerators. All selected startups operate within two sectors: AI and Industry 5.0 (smart manufacturing).

Accel invests up to $500,000 in each carefully chosen startup's pre-seed round, without imposing a valuation cap. Alongside aiding in strategic planning, Accel facilitates introductions to industry players who could potentially become partners or customers in the future.

Accel chose AI and Industry 5.0 as Atoms' themes because it believes these sectors will witness substantial growth in the next decade, according to Bharath Subramanian, the other partner leading Atoms.

AI holds undeniable appeal, while Industry 5.0 has gained prominence as outdated manufacturing plants in India and elsewhere undergo modernization, creating opportunities for startups to bring efficiencies and capture a share of the billions of dollars currently flowing to consulting firms and others each year.

"The factories generate significant data, which until now has largely gone untapped," Subramanian observed.

The smart manufacturing sector has also benefited from New Delhi's incentives to attract foreign firms to expand their manufacturing presence in the country, coupled with the growing trend of global giants shifting from relying solely on China to a "China + 1" strategy.

Over 800 startups applied for Atoms 3.0, with between 300 and 400 focusing on AI. Swaroop noted that nearly two-thirds of all pitches cantered on AI startups aiming to address HR and marketing challenges. "When there's too much noise in the market, it signals to us that we should explore other areas," he added.

Pallavi Chakravarty, co-founder and CEO of Meristic, emphasized the impact of being selected by Atoms, stating, "Beyond the capital and learning sessions, being part of Atoms has given us a strong founder community and highly collaborative peer group. For instance," Chakravarty continued, "when Meristic is faced with a challenge, we can turn to any other team at Accel Launchpad, where we currently operate, or to anyone from Accel's network of over 200 portfolio company founders, to arrive at a solution."