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How Top Indian Cities Attract Indian Startups

Over the past decade, availability of talent, state government initiatives, local investor confidence and infrastructure support has attracted many startups to begin their operations in Indian cities based on the culture, possibilities, technology infrastructure and entrepreneurship it provided. As the cities of India evolve and smaller cities grow in prominence, a heap of startups is emerging there to make use of the local talent…

By-TEAM URBAN VAASTU

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NDIAN startups attracted $1.44bn of venture capital funding in the first nine months of 2015, completing more than 300 deals and exceeding the record figure of $1.43bn which was invested during the whole of 2014. This places India in the same league as China which raised $3.5bn in 2013 but not quite the US which Ernst & Young estimate attracts $33bn.
Internet and Mobile accounted for a staggering 70% of the value of all of all deals with food and beverage next (including Goldman Sachs $10m investment into Mammagoto, the pan Asian restaurant chain) whilst Healthcare and Life Sciences attracted $43m. Ecommerce is the next big market – it currently generates just $2bn per year but analysts believe this figure could grow to $30 billion, still a long way behind China ($300bn) and the US ($260bn).
India’s startup scene is beginning to take off and more and more companies are threatening to achieve unicorn status, a billion dollar valuation. The success is spread across many cities with different cultures, strengths and weaknesses; infrastructure, talent, property rates, access to funding are all important. Fears of a slowdown have arisen prompted by large scale job losses at 2 major tech startups, Zomato in Gurgaon New Delhi who reduced their workforce by 10 per cent sacrificing 3,000 jobs and TinyOwl in Mumbai which has been forced to cut nearly 200 staff. This has been explained away in some quarters as necessary steps which need to be taken on the path to even greater success but left disgruntled employees unimpressed – there were dramatic scenes in TinyOwl’s offices in Pune as sacked staff refused to leave the building. Mumbai based housing.com also let nearly 600 staff go recently. Are current valuations too high?
Prime Minister Narendra Modi has introduced a campaign, Start up India, Stand up India designed to encourage entrepreneurial young talent to join early stage companies, particularly online businesses. Although there are signs of a bubble emerging there are also signs of consolidation which may trigger the rapid growth investors demand and eventually the opportunity to compete globally with behemoth startup companies from all over the world.
Let’s look at 5 Indian cities and how they compare, starting with the city that’s leading the charge.

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Bengaluru – India’s answer to Silicon Valley and home to 5 of India’s 8 unicorns (the other 3 are in New Delhi), Bengaluru is currently India’s prime destination for startups. Flipkart, Ola, InMobi, Quikr and MuSigma are all valued at more than $1 billion; ecommerce giant Flipkart, having raised nearly $2 billion in 2014, is valued at $15 billion, the next largest being taxi hailing app Ola at $5 billion.
Bengaluru’s infrastructure lends itself to nurturing entrepreneurship having built on its IT services legacy to

create an eco-system that contains talent, investors, R&D grants and plenty of competition as well as excellent weather.
India’s IT sector is worth $146 billion in large part thanks to Bengaluru where global brands Infosys and Wipro are based; InMobi, the mobile advertising unicorn relocated from Mumbai in order to take advantage of the better engineering and technology talent available; there is talk of a brain drain from New Delhi and most other cities towards Bengaluru.

India’s IT sector is worth $146 billion in large part thanks to Bengaluru where global brands Infosys and Wipro are based; InMobi, the mobile advertising unicorn relocated from Mumbai in order to take advantage of the better engineering and technology talent available; there is talk of a brain drain from New Delhi and most other cities towards Bengaluru.

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The City is situated in India’s Deep South and is representative of the modern face of India – it also has a large student community and is one of India’s most progressive cities. Koramangala is a renowned startup neighbourhood – the home of e-commerce giant Flipkart, founded by brothers Sachin Bansal and Binny Bansal; the kind of place where the local cinemas runs ads for software development jobs before its film screenings. Local Oye, a $5m funded local services locator, Zipdial, recently acquired by Twitter and Ola, another unicorn to have relocated to Bengaluru from Mumbai are all based there too.
The culture is spreading from Koramangala to neighbouring HSR Layout where recharging and bill payments service Paytm recently opened an office and the increasing number of startups attracting restaurants, bars and coffee shops and creating a virtuous circle. According to CrunchBase in 2014 Bengaluru, or Bangalore as it’s otherwise known received the world’s fifth largest amount of funding, $2.6bn, only beaten by San Francisco ($13bn), Beijing ($6.4bn) New York ($5.7bn), and, believe it or not, Palo Alto ($3,2bn) makes the top five.

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mumbai-metro

Mumbai’s success stories include messaging app Haptik which has grown to 32 staff and raised $1m in Seed Financing from Kalaari Capital, WizRocket, an analytics and messaging service who have secured $1.6m of funding and are working with 50 global customers as well as launching in Silicon Valley, and TinyOwl, a food ordering service which has raised $3m to fund aggressive expansion with more than 3k restaurants signing up to the service.

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A surge in funding over the second half of 2014 reflected the historic results of the Lok Sabha (Indian parliament’s lower house) elections which boosted investor confidence.
In Bengaluru, there is a perfect storm of companies going public, and successful founders becoming business angels and supporting a new age of entrepreneurship. Top talent from around the world is beginning to realise that Bengaluru could be the place to fulfil their dreams of creating a globally significant, future proof startup and founders, both international and home-grown, are flocking to the city.
Mumbai – only recently overtaken by Bengaluru as the Indian city to attract the most startup investment, you could describe Mumbai as a startup more by accident than by design. The most populous city in India and ninth largest in the world, the capital city of Maharashtra has more than 18 million people living in it – which guarantees you a sizeable entrepreneurial community.
Mumbai is also a wealthy city with the most millionaires and billionaires in India but they tend to be found in the worlds of big business, entertainment or industry rather than tech or IT pioneers. The cost of living and rent in Mumbai is high, bad news for founders, and the per capita income is $7,300 which is more than 3 times the national average.
The city used to rely on its maritime income (Mumbai accounts for 40 per cent of India’s foreign trade) five Fortune 500 companies are based here as well as the Reserve bank of India and Tata group. State and government employees make up a large percentage of the workforce but there is also a thriving tech and IT industry centred on the Santa Cruz Electronic Export processing Zone (SEEPZ) and International Infotech Park in Navi Mumbai, a planned township developed in 1971, helping to provide state of the art resources to young IT companies.
SSEPZ has liberal economic laws designed to promote rapid growth through tax and business incentives; its home to Electronic Hardware Manufacturing Companies, Software companies and jewellery exporters amongst others and provides excellent networking opportunities, mentoring schemes and investment opportunities for young and overseas entrepreneurs.
Mumbai’s success stories include messaging app Haptik which has grown to 32 staff and raised $1m in Seed Financing from Kalaari Capital, WizRocket, an analytics and messaging service who have secured $1.6m of funding and are working with 50 global customers as well as launching in Silicon Valley, and TinyOwl, a food ordering service which has raised $3m to fund aggressive expansion with more than 3k restaurants signing up to the service.
There are no unicorns in Mumbai – two year old real estate portal Housing.com has raised a total of $121 million and is valued at around $250m and in July last year Hungama Digital Media Entertainment, one of India’s oldest internet startups, raised $40m led by Bessemer Venture Partners existing investor Intel Capital. In a city as vast as Mumbai which contributes 7 per cent of India’s GDP startups do not play as significant a role as in other Indian cities but any company that succeeds in making its mark in a city of 18m people stands a good chance of becoming a global player.

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Hyderabad in some ways Bengaluru’s gain has been Hyderabad’s loss. Hyderabad was intended to be India’s first hi-tech city but the startup ecosystem was crushed by the weight of the 2008 financial crisis as well as a scandal involving Satyam Computer Services who’s falsifying of their accounts is likened to the Enron scandal in India and took place in Hyderabad where founder Raju Ramalinga was sentenced to 7 years imprisonment along with 9 others.
Hyderabad has all the right ingredients for a thriving startup community; good infrastructure, available talent, government sponsored incubators such as THub and it is also home to large operational centres for Uber, Amazon and Google, as well as educational institutions IIT Hyderabad, ISB and NALSAR.
The universities provide space for entrepreneurs to work in and there is a Hyderabad Angel network investing in promising businesses from Biotech startups at the Technology Business Incubator at the BITS Pilani Hyderabad Campus and the Life Science incubator at IKP Knowledge Park to ride sharing apps like Zify health tech companies focused on Human Centred Design at D-Labs ISB.

At an event in June 50 startups pitched to venture capitalists and private equity firms at an Investor Connect event which lasts for three days and is run by The Indus Entrepreneurs Hyderabad and Indian School of Business.

Hyderabad has the infrastructure and the will to succeed with a youthful student culture and plenty of academic institutions but needs to develop fast to keep pace with its more celebrated neighbour Bengaluru; IT Minister K.T Rama Rao recently commented “We want Hyderabad to be identified with startups”. Hyderabad could be a coming force.

New Delhi – is where you will find India’s other 3 unicorns, e-tailer Snapdeal, restaurant discovery app Zomato and mobile wallet Paytm. New Delhi is the largest commercial city in Northern India with a large skilled English speaking workforce and several large industries – IT, telecommunications, hotels, banking, media and tourism as well as multinational companies.
Many of the cities startups can be found in Gurgaon, a suburb of New Delhi and investment in them is at an all-time high. Vijay Shekhar Sharma, 37, the founder of Paytm, caused a stir this year by raising $680 million from Alibaba and its affiliates.

Hyderabad has all the right ingredients for a thriving startup community; good infrastructure, available talent, government sponsored incubators such as THub and it is also home to large operational centres for Uber, Amazon and Google, as well as educational institutions IIT Hyderabad, ISB and NALSAR.

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Across the New Capital Region (Delhi plus the surrounding regions) 220 technology startups were launched last year, with 49 winning funding, significantly more than Bangalore where 159 companies were formed and 18 won funding according to a survey conducted by YourStory.in. Some observers believe the turnover rate of companies also compares favourably as there is not enough seed and angel funding available. Entrepreneurs in New Delhi are more target and money focused than their Bangalore counterparts who adopt more of a Silicon Valley approach.
New Delhi co-hosted the Startup Capitals conference alongside Bengaluru last month, a thought leadership event that celebrates the startup ecosystem of cities and deliberate over how to take the whole system to the next level, bringing together thought leaders, investors and company founders.
Notable startups include HealthKart an ecommerce site selling healthcare products which uses referral schemes and social media to attract customers and also offers a wide product range; the company began with just 4 people and has grown to over 100; the company has raised 2 rounds of funding totalling more than $8m and plans to expand its customer acquisition and scaling up warehousing and stocking; they have recently opened a warehouse in Mumbai.
Hike is a messaging app with more than 20m users and over $20m in funding raised that launched in December 2012 in Delhi, and Zomato has curated a list of more than 200, 000 restaurants worldwide and with $37m raised is planning expansion into North America. There are surely more unicorns to come for New Delhi as the startup eco-system is strong and success stories are plentiful which suggests the relationship between founders and investors is strong.
Chennai – in the South of India, Chennai is currently the subject of many startups focus but unfortunately for the wrong reasons; startups from all over India have been coming to the aid of victims of recent heavy flooding in the city that has taken hundreds of lives. All the big startups have got involved; the list of helpers reads like a who’s who of a countrywide scene.
In Chennai itself there is a thriving scene with “open coffee” meetups, startup weekends, hackathons and co-worker and maker communities. There is even a startup walk and perhaps more importantly, a Chennai Angel investment society. Chennai has the fourth largest number of tech workers in the world, behind 3 other Indian cities, Bangalore, Pune and Hyderabad. San Francisco is next on the list.
Chennai is known for its automobile industry as well as IT, and is second only to Mumbai for finance. There are 20+ companies with a net worth of more than $20bn. Bharatmatrimony was an early internet success story, a matrimony site which now has 130 offices and is a nationally recognised brand. Freshdesk, owned by Girish Mathrubootham secured $44 million in funding from Tiger Global management, Accel partners and Google Capital. Indix, which compiles data on more than 200k consumer products from all over the world and provides analysis, has raised $15m to try to reach 1 billion records from Nexus Ventures and is founded by Sanjay Parthasarathy and Sridhar Venkatesh.

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Across the New Capital Region (Delhi plus the surrounding regions) 220 technology startups were launched last year, with 49 winning funding, significantly more than Bangalore where 159 companies were formed and 18 won funding according to a survey conducted by YourStory.in. Some observers believe the turnover rate of companies also compares favourably as there is not enough seed and angel funding available. Entrepreneurs in New Delhi are more target and money focused than their Bangalore counterparts who adopt more of a Silicon Valley approach.

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Social media and SaaS startups are prevalent as well, OrangeScape, Interview Street, who joined Ycombinator, and XLabz Technologies being a few, and many have a global, rather than a domestic reach. Chennai is cheaper than other major cities, and wages are lower which means resources are readily available; well qualified techies at an affordable salary. Support is provided by institutions such as the Chennai Open Coffee Club and The Chennai Geeks but government initiatives and venture capital funding is more scare than in other cities most notably Bangalore and Mumbai.
Chennai as a startup city perhaps doesn’t get the recognition it deserves – barriers to entry are lower and talent is freshly available; it’s to be hoped that after the floods the community continues to thrive and achieve a global reach.

STARTUPS MOVING TO SMALLER CITIES
For the past decade, India’s ambitious startup narrative has been largely dictated by cities such as Bangalore, New Delhi and Mumbai. But now, startups are emerging in cities such as Jaipur, Bhubaneswar, Pune and Ahmedabad. This is largely due to the availability of talent, state government initiatives, local investor confidence and infrastructure support.
As the definition of the quintessential Indian metro evolves, startups are rapidly embracing these smaller cities over the bigger metros.
Cities such as Jaipur, Ahmedabad, Pune, Chennai and Vizag are quickly becoming specialized hubs for the growth of key industries such as fintech, SaaS, agritech and deep tech.

Rajasthan, for example, is renowned for its tourism and handicraft industries, but the past few years have witnessed a slew of entrepreneurs emerging from this north-western Indian state. Data from Tracxn shows that Jaipur-based startups secured around $USD 16 million in funding last year. Between 2014 and 2016, 23 startups were funded and that figure is increasing.

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