Why Bengaluru Startups Attract Maximum Funding

Bengaluru continues to remain a startup’s best bet when it comes to funding. This is according to the data provided by private market intelligence platform PrivateCircle Research.

In February, Bengaluru startups raised 53% of the total funding, which amounts to Rs 2,661 crore. Bengaluru was followed by Mumbai (Rs 922 crore) and Delhi NCR (Rs 829 crore). Overall, startups raised Rs 5,039 crore in the month of February this year, a spike of 43% over the same period last year.

It’s not for nothing that Bengaluru is known as India’s Silicon Valley.

“Bengaluru has more than 50,000 startups,” said TV Mohandas Pai, Padmashree awardee, a founder of tech giant Infosys Ltd. and chairman of Aarin Capital Partners. “It has been the largest tech centre in India for the past 25 years. The tech ecosystem is very complete because the market for startups in Bengaluru itself is very large and is well-connected to the U.S. and the West. The reasons for Bengaluru dominating the startup scene, with 40% of startups in the country, is its history of engineering excellence and the very warm and welcoming culture.”

Investor, mentor and advisor Sanjay Anandaram agreed. In his view, the one single differentiator that propels Bengaluru to the top, however, is what he calls talent density.

“Talent density is not just about the number of people who are entrepreneurs,” explained Anandaram. “It is about the mindset of ‘paying it forward’ in Bengaluru. What this state of mind means, is that one may not get anything out of a particular interaction but mentors and entrepreneurs are willing to connect you, to spend half an hour with you over a cup of coffee and help you."

"There definitely does exist an ecosystem here and by that, I mean money, market, policy and key service providers. But, what makes Bengaluru the startup capital is the ‘paying it forward’ mindset. And this came with the Silicon Valley companies to Bengaluru in the 1980s. Over a period of time, it became self-fulfilling and everyone benefits from this,” he said.

Startup founders agree enthusiastically. “The founder ecosystem in Bengaluru is great,” said Amrutha Moorthy, founder, Patenti Technology Solutions, a legal tech startup. “It is impossible to do everything as a founder and the process of applying for grants and funding can be very intense. There is an ecosystem of founders that serves as role models and inspiration for following through grants and seed-funding exercises, which take months to materialise."

"As for government schemes, all the NIDHI (National Initiative for Developing and Harnessing Innovations) schemes are very good. The Karnataka state government offers schemes like Elevate, which is also very useful. There are also venture capitalists here who provide residency programmes for budding entrepreneurs like me. Introduction to potential channel partners or technology partners is also easy in a big city like Bengaluru,” she said.

So, what differentiates Bengaluru from other metros like Mumbai, Delhi and Chennai?

“Mumbai is the financial capital and it is too expensive for startups,” explained Mohandas Pai. “Chennai has not developed because it is a very hostile place for outsiders. The political rhetoric there is very bad. They go on abusing outsiders and it is a very parochial culture. So, people don’t want to come. In fact, Chennai was the home of the SaaS industry but most of them have migrated to the U.S. or come to Bengaluru. Hyderabad has come up in the recent past as a software service and ITeS centre."

"Pune is very interesting. There are many startups coming up there because it is an engineering centre. Pune is a smaller version of Bengaluru. Gurugram, Noida and Delhi is another centre, it is the next biggest after Bengaluru. This region has an advantage because it is close to the capital of India and the multinationals are situated there. In the north, people are more entrepreneurial and you will find more B2C companies there. Kolkata is half dead. There too, the business environment is very hostile,” said Pai.

Karnataka has a booming digital economy on the back of the services sector, which is largely headquartered in Bengaluru and Mangaluru. It is expected to contribute over $300 billion to the GSDP in 2031-32, from $61 billion in FY22, according to a FICCI report last year.

The government of Karnataka has implemented radically industry-friendly policies in order to encourage the startup ecosystem. For instance, world-class infrastructure like 5,000-seater technology clusters and building plug-and-play workplaces and co-working hubs have helped.

Pai said that the IT industry had a long history of working with the government since the 1990s when the first IT park came up in the state.

“The Startup policy came up in India and in Karnataka because the industry worked with the government,” explained Pai. “It was because of RV Deshpande, a former Industries Minister that the first IT Ministry was set up in Karnataka. The government has been receptive and very good. One of the good policies we’ve had is the policy of Elevate. Elevate was started by Priyank Kharge and Prashant Prakash. The programme was that all startups would compete and get grants. 100 startups would get Rs 50 lakh each. You need money at the bottom of the pyramid to start off right?” he said.

Bengaluru is also one of the most preferred cities for women entrepreneurs as women-centric schemes and incentives abound. “Both industry and government have supported startups,” said Sucharita Eashwar, founder and CEO at Catalyst for Women Entrepreneurship, who has mentored at least 100 women-led businesses. “The government of Karnataka has played a big role in making Bengaluru what it is. They gave them awards and grants for people who were in the idea stage. They have given them workspaces, tax breaks and many other facilities.”

Eashwar said the multinational companies brought in gender policies early on, which were later taken up by Indian firms. “Transnational companies have a policy of supplier diversity. They set aside a portion of their supply chain for women-owned businesses. We worked with government and brought in a policy that 3% of what the public sector procures would be from women-owned businesses."

"The Karnataka government has always listened to industry. In 2018, we said there are an equal number of women graduating, and they heard us and set up the first tech incubator for women. A couple of years ago, there was a public-private partnership setup called Karnataka Digital Economy Mission or KDEM. This is a think-tank for industry which came out with a Beyond Bengaluru initiative,” she said.

There is, of course, scope for improvement. “The government has been reactive and not proactive,” said Pai. “We need the next-generation innovation in Artificial Intelligence. We need 3D printing. We need to make sure we have R&D in genomics. That requires investment from the government and that is not there. They need to put money on the table, they need to market. You need the government to take greater risk and give direction. You need vision and leadership and that is lacking in the state."

"The government of India has a new technology fund for AI but the problem is that it is all government-centric. All the funding goes to central government institutions and colleges and there is nothing available for the private sector,” he argued.