How do incubators make money? Revenue models in India

An incubator's first budget is usually written around a grant. The harder question comes later: what pays the CEO's salary, the lab maintenance and the electricity bill once the grant runs out?

This guide sets out how Indian incubators earn money, source by source, using the official scheme rules to show what each grant will and will not pay for. For the grants themselves and their amounts, see our map of grants for incubators in India.

How do incubators make money in India?

Indian incubators earn from seven sources: government grants, host institution support, equity or convertible stakes in startups, rent and service fees, CSR contributions, corporate programmes and fund management fees. Grants dominate the early years, but every major scheme expects the incubator to replace them with its own income within five years.

Source	What it pays for	When it pays
Government grants	Fit-out, equipment, team, seed funds	Years one to five
Host institution	Space, utilities, overruns	Every year
Equity and convertibles	Future operations, a new seed pool	On exits or repayment, years later
Rent and service fees	Running costs	Monthly
CSR contributions	Projects, labs, programmes	Yearly, by agreement
Corporate programmes	Staff time, programme costs	Per programme
Fund management fees	Selection, diligence, monitoring	With each grant instalment

What can government grants pay for, and what can't they?

Government grants pay for setting up and running the incubator for a fixed period, usually five years, and for seed money that must pass to startups. They do not pay for land, buildings, vehicles or the host's notional rent, and the share of running costs they cover falls as the incubator ages.

The scheme texts are specific:

• NIDHI-TBI: DST's guidelines pay recurring costs on a taper, 100% in the first two years falling to 40% in the fifth. DST meets the gap between spending and revenue for at most five years; land and building are never part of the project cost.
• Atal Incubation Centres: AIM's November 2023 guidelines cap capital spending at 35% of the grant. They exclude land, buildings, vehicles, notional rent on the host's own space, and any outside agency hired to run the centre. Board meeting and audit charges cannot come from the grant either.
• Seed Fund Scheme: the grant goes to startups and cannot be used to create facilities. The guidelines add a 5% management fee for selection, due diligence and monitoring.

Our explainers on the NIDHI-TBI guidelines and the Atal Incubation Centre guidelines set out the full budget heads.

What does the host institution pay for?

The host usually pays for what grants exclude: land, a furnished building, utilities and any budget overrun. Under NIDHI-TBI the host commits space on a lease of at least 30 years and meets extra spending if the budget overruns. It is the incubator's most reliable funder, but it rarely pays in cash.

For colleges, the Ministry of Education's National Innovation and Startup Policy 2019 asks for at least 1% of the institution's annual budget to go into a separate innovation fund. It also tells institutes to raise money through sponsorships, donations and the alumni network.

AIM draws a firm line here. Revenue an Atal Incubation Centre earns does not count as the host's contribution, and the rental value of space the host already owns cannot be booked as a contribution or a cost.

Can incubators earn from equity in startups?

Yes, and AIM wants them to. Its guidelines say seed money is meant to let an Atal Incubation Centre buy equity in its startups and build a self-sustaining fund, and they encourage the equity model wherever possible. The catch is timing: equity pays only when a startup is sold, lists or buys back shares.

Three scheme rules shape equity income:

1. AIM's incentive: a centre that grows its seed pool through repayments, royalties or equity exits can keep 15% of each year's surplus for incubation work.
2. DST's seed programme: the NIDHI Seed Support Program page says sharing in startups' success helps incubators' long-term sustainability, with up to Rs 1000 lakh per incubator.
3. College policy: the 2019 startup policy lets institutes take 2% to 9.5% equity in return for services and facilities.

A grant buys an incubator its first five years. Rent, services and exits have to pay for the sixth.

What do rent and service fees bring in?

Rent and service fees are the steadiest income an incubator controls: monthly charges for desks, labs and equipment time, plus fees for legal, accounting, IP and fundraising help. The 2019 startup policy tells institutes to offer a mix of equity, fee-based and no-charge models, so a startup can take support on a rental basis.

One scheme limits this. The Seed Fund Scheme says neither the incubator nor its staff may charge any fee, in cash or kind, to applicants or beneficiaries for selection, disbursement, incubation or monitoring. Startups it funds cannot be billed for those services.

How do CSR and corporate programmes fund incubators?

CSR money can flow to incubators funded by the central or state government, a public sector undertaking or a government agency, which Schedule VII of the Companies Act lists as an eligible CSR activity. Corporate programmes are separate: a company pays the incubator to run a challenge, scout startups or manage pilots.

Under section 135 of the Companies Act, 2013, a company with net worth of Rs 500 crore, turnover of Rs 1,000 crore or net profit of Rs 5 crore must spend at least 2% of its average net profits on CSR. That makes large companies and PSUs the natural prospects.

AIM builds this into its community innovation centres: AIM gives up to Rs 2.5 crore, covering at most 50% of project cost, and expects the rest from partners such as CSR funds and PSUs. Our guide to corporate accelerators and pilots covers how the corporate side works.

Can an incubator earn from managing funds?

Yes. Schemes pay incubators to manage seed money: the Seed Fund Scheme adds a 5% management fee to each grant, released with each instalment, and AIM lets centres keep part of any growth in the seed pool. AIM also accepts SEBI-registered AIFs as applicants, so a fund manager can host an incubator.

Fund management income is small at first and grows with the portfolio. It also brings obligations: separate bank accounts, audited utilisation reports and, in the Seed Fund Scheme's case, unused repayments returned to DPIIT if they sit idle for three years.

Questions

How do incubators make money in India?

Most combine several sources: government grants for setup and early running costs, support from the host institution, equity or convertible stakes in startups, rent and service fees, CSR contributions from companies, paid corporate innovation programmes, and management fees for running seed funds. No single source usually covers the full cost.

Can an incubator charge startups a fee?

Generally yes, and the Ministry of Education's 2019 startup policy suggests a mix of equity, fees and no-charge support. The exception is the Seed Fund Scheme: an incubator and its staff may not charge any fee, in cash or kind, to startups it supports under that scheme.

Can CSR funds be given to an incubator?

Yes, within limits. Schedule VII of the Companies Act, 2013 lists contributions to incubators funded by the central or state government, a public sector undertaking or a government agency as an eligible CSR activity. Privately funded incubators do not fall under that item.

What happens when an incubator's grant ends?

The incubator has to cover its costs from its own income. NIDHI-TBI support lasts five years with recurring support tapering to 40%, and AIM expects an Atal Incubation Centre's cash flows to show enough surplus by year five to fund its sixth year.

Sources: DST, NIDHI-TBI guidelines and proposal proforma, Sep 2023 · Atal Innovation Mission, Guidelines for Atal Incubation Centres, Nov 2023 · Atal Innovation Mission, Guidelines for Atal Community Innovation Centres, Jun 2022 · DPIIT, Guidelines for Startup India Seed Fund Scheme, Jan 2021 · Ministry of Education Innovation Cell, National Innovation and Startup Policy 2019, Sep 2019 · India Code, Companies Act, 2013, section 135 and Schedule VII · DST, NIDHI Seed Support Program page

For more on running an incubator in India, read the MyStartupValley blog or see MyStartupValley for incubators.