The Great Indian Startup Robbery: How “Mentors” and “Incubators” are Looting Tier 2 Dreamers

The “Gold Rush” Has Created a Market for Fake Shovels

In 2025, being a “Founder” in India is no longer a job title; it is a status symbol. It is the new “IAS Officer” dream for the youth of Bharat. From Bolangir to Bhatinda, everyone wants to build the next unicorn. The word “Entrepreneur” is printed on bio-data, t-shirts, and Instagram bios.

But wherever there is a gold rush, there are people selling shovels. And in the Indian startup ecosystem, half the shovels are made of cardboard.

While we celebrate the Zeptos and Zomatos, a dark, parasitic industry has grown quietly in the shadows. It doesn’t build products. It doesn’t serve customers. Its entire business model is to extract money from aspiring entrepreneurs.

In this Webverbal Pulse investigation, we are not talking about “failed” startups. We are talking about the Scam Economy—the awards, the mentors, the franchises, and the fake VCs—that view you, the founder, as the mark.

If you are a founder from a Tier 2 or Tier 3 town, read this before you spend another rupee.

1. The “Vanity Award” Racket: Buying Glory for ₹50,000

Open LinkedIn on a Saturday morning. You will see a flood of posts: “Humbled to receive the ‘Young Visionary of the Year’ award!” or “Top 40 Under 40 Disruptors!”

The Contrarian Truth: 90% of these awards are not won; they are bought. It is a sophisticated sales funnel.

1. The Cold Call: You get a call saying you’ve been “shortlisted” by a prestigious-sounding organization (often with “National,” “Indian,” or “Global” in the name).
2. The Ego Massage: They tell you your profile was selected by a “Jury” (who usually doesn’t exist).
3. The Catch: To receive the award, attend the gala dinner in a 5-star hotel in Delhi or Mumbai, and get media coverage, you need to pay a “Delegate Fee” or “Processing Charge” of ₹25,000 to ₹1 Lakh.

Why It’s a Scam: Real recognition—like a Padma Shri or a Forbes List (the editorial one)—cannot be bought. When you pay for these awards, you are not buying credibility; you are buying a trophy and a photo-op. The “organizers” are event management companies making crores off your need for validation.

• The Lesson: If an award asks for a “Nomination Fee,” run. Validation comes from customer revenue, not a glass trophy.

2. The “Fake VC” and the “Registration Fee” Trap

This is the cruelest scam because it targets desperate founders looking for capital. With “Shark Tank India” popularizing the concept of pitching, thousands of scammers have set up fake “Investment Firms” or “Angel Networks.”

The Modus Operandi:

• They set up a professional-looking website claiming to have a fund of ₹500 Crores.
• They invite you to pitch. They listen intently. They nod. They say, “We love your idea. We want to invest ₹2 Crores.”
• The Sting: “But first, our protocol requires a Due Diligence Report / Valuation Report from our ‘authorized vendor’. It costs ₹45,000.”

The Outcome: You pay the ₹45,000. You get a generic PDF report. The “investor” ghosts you. The “vendor” and the “investor” were the same person.

• The Webverbal Rule: Real investors pay you. You never pay them. No legitimate VC (Venture Capitalist) will ever ask a founder for a “registration fee,” “pitching fee,” or “due diligence fee.” If money is leaving your bank account to get an investment, you are being scammed.

3. The “Franchise FOCO” Ponzi Schemes

The “Franchise Owned, Company Operated” (FOCO) model has become the favorite tool of modern fraudsters in India. We have seen this explode in the Chai, EV, and Supermarket sectors.

The Pitch: “Invest ₹10 Lakhs in our franchise. We will set up the store. We will run it. You just sit at home and get a guaranteed return of ₹50,000 per month.”

The Reality: This is not a business; it is a Ponzi scheme. They take ₹10 Lakhs from you. They use ₹50,000 of your own money to pay you for a few months to build trust so you refer your friends. Then, the “brand” declares bankruptcy, the stores shut down (or never opened), and the founders flee to Dubai.

Indian Context: We saw shadows of this in the chaotic expansion of certain “Chai” chains where outlets were sold aggressively to uneducated investors in small towns without any feasibility study. When the outlets failed, the “brand” had already made its money on the franchise fee.

• The Lesson: There is no such thing as “passive income” in early-stage startups. If a business was truly generating 60% annual returns guaranteed, they would take a bank loan at 12%, not your money.

4. The “Digital Marketing” Pyramid Schemes

In Tier 3 towns, this is an epidemic. Young students are lured into “EdTech” or “Affiliate Marketing” startups.

The Pitch: “Join our platform to learn ‘High-Income Skills’. Buy our course for ₹4,000.” Once you join, you realize the “course” teaches you nothing but how to sell the same course to three other people.

This is not a startup. It is Multi-Level Marketing (MLM) wrapped in the language of “Digital Entrepreneurship.” They call themselves “CEOs” and “Founders,” but they are essentially recruiting victims into a pyramid.

5. The “Incubator” that is Just a Landlord

Across India, “Incubators” have popped up in every college and industrial estate. Many are government-backed and genuine. But many private ones are predatory.

The Trap: They promise “Mentorship” and “Network.” In reality, they charge you excessive rent for a co-working desk and give you access to “Mentors” who are just failed consultants looking for consulting gigs. They take 5% to 10% of your equity just for letting you sit in a room, providing zero value in product or sales.

• The Lesson: Equity is more expensive than cash. Never give equity to an incubator unless they are giving you cash upfront or have a proven track record of exits. A desk and a coffee machine are not worth 5% of your life’s work.

Why “Bharat” is the Primary Victim

Why are these scams exploding now? Because the aspirational gap in Tier 2/3 cities is huge. A founder in Bengaluru or Gurgaon has access to a mature network. They can ask around: “Is this VC legit?” A founder in a small town in Odisha or Bihar often works in isolation. They see the “glamour” on Instagram and assume that paying for an award or a pitch session is “how the industry works.”

The scammers exploit this information asymmetry.

The Webverbal Shield: How to Spot a “Startup Scam”

If you want to survive the dark side, you need a new filter. Here is your checklist:

1. The Direction of Money: In a real startup ecosystem, money flows TO the founder (from customers or investors). If money flows FROM the founder (to mentors, awards, pitch events), it is likely a trap.
2. Guaranteed Returns: Startups are high-risk. Anyone guaranteeing a fixed monthly return on an investment is running a Ponzi.
3. The “Urgency” Tactic: “Offer closes tonight!” “Only 2 slots left for funding!” Real due diligence takes weeks. Scammers are always in a hurry.
4. The “Lifestyle” Flex: If a “Mentor” spends more time showing off his rented Lamborghini than discussing unit economics, he is not a businessman; he is an influencer selling a dream.

Conclusion: Build, Don’t Buy.

True entrepreneurship is boring. It is lonely. It is painful. It doesn’t happen at gala award dinners. It happens in the quiet hours when you are fixing a bug or convincing a customer.

Don’t let the “fake ecosystem” steal your capital. Save that ₹50,000 you were going to spend on an award. Spend it on Facebook Ads to get real customers. Because 100 happy customers are worth more than 100 plastic trophies.