How the tech city of Bangalore became the Silicon Valley of India

Written by Varsha Saraogi on Wednesday, 17 April 2019. Posted in Global

While the increasing number of unicorns are signalling that the Indian ecosystem is maturing, tech hub Bangalore still has quite a trek before it makes a name for itself as a global startup paradise

When you walk down the streets of the Koramangala neighbourhood in Bangalore, there are three things there’s an abundance of – bars, engineers and entrepreneurs. With a new startup mushrooming almost on a daily basis from hostel rooms and universities, Bangalore is proving to be one of Asia’s fastest growing startup ecosystems. 

In the last few years, Bangalore – or Bengaluru as it’s currently called after being translated to the native Kannada language – was among the top 14 leading global advanced manufacturing and robotics ecosystems, according to Startup Genome’s 2018 ranking, overtaking other metropolitan cities like Mumbai and New Delhi. “Bangalore as a place for entrepreneurs I think is really exciting and is getting more exciting,” says Ben Legg, managing director of Ola UK, the Bangalore-based ride-sharing platform.

Legg speaks from experience as Ola, initially born out of Mumbai, shifted its headquarters to Bangalore after recognising the city’s benefits. “While Mumbai is a bigger and richer city, [the founders] needed a lot of engineers and there’s way more in Bangalore,” Legg declares. “And if you want to build an awesome product quickly, you need to be in a place where an engineering shortage isn’t going to hold you back.” After moving base to Bangalore, not only did Ola scale further and enter international markets including the UK and Australia but also received funding worth $3.8bn through 21 rounds from Indian and foreign investors. “Just like Google, Facebook or Apple’s head office remain where the action is – which is in America, Silicon Valley – I expect the same with Bangalore,” he opines. “With Ola [being in Bangalore], they’re in the heart of things. And that’s the right place to be.”

While Bangalore is deemed the startup hub of India today, the city wasn’t initially seen as a fertile land for business. Being a former British colony, India was mainly an agricultural and manufacturing hub due to its cheap labour and low-cost land. And it was after the country attained independence in 1947 that Bangalore evolved into a hub for public sector industries – particularly in aerospace, telecommunications, heavy equipment, space and defence – and saw massive investments from the government. This caused manufacturing giants like The Hindustan Aeronautics, The National Aerospace Laboratories, Bharat Heavy Electronics, Indian Telephone Industries and Bharat Earth Movers to have headquarters based in the Karnataka capital. “Because of this concentration of technical and scientific manpower, Bangalore witnessed the IT revolution in the early 2000,” explains Abhishek Pasari, partner at AVP Industries, the fashion company. “And that caused more companies to come into Bangalore and venture into robotics, manufacturing marketplaces and tools for the manufacturing sector because they were being influenced by the ongoing ecosystem.”

The benefits of Bangalore’s infrastructure and abundance of resources led many multinational corporations to follow suit and place their headquarters in the city. Apart from global titans like Amazon and Uber, the list includes infotech businesses like Cognizant, Texas Instruments, Wipro, Microsoft, SAP LABS, Accenture and Infosys. “[The] shift of Infosys’ headquarters from Pune to Bengaluru encouraged the setting up of more IT companies and created thousands of jobs,” Pasari says. Additionally, unicorns – namely Swiggy which raised $1.5bn over nine rounds and Flipkart which has $7.5bn funding in total – indicate how lucrative Bengaluru’s ecosystem is. “India’s startup landscape has become the epitome of innovation and Bangalore is one of the future faces of India,” he continues.

Undoubtedly, entrepreneurs from across the Indian subcontinent are increasingly making Bangalore the go-to place for scaling up. From edtech to fintech, the Garden City is progressing at a quick pace. However, the transition from being a manufacturing base to a tech hub took considerable time and effort. “The regulations a decade ago used to be very strict but now we’re seeing a lot of government regulations around supporting startups,” says Esha Tiwary, general manager of Entrepreneur First, the global startup talent investor. 

Indeed, the entrepreneurial spirit is being bolstered by various government initiatives aimed at supporting the city’s startup scene. With the aim to escalate the number of new companies coupled with a commitment to foster entrepreneurship, the Indian government launched Startup India in 2016, a programme to aid startups in areas like branding, funding, intellectual property protection and talent attraction along with providing tax benefits. To date, this project has led to over 234,000 registrations of which 182 have received funding. Additionally, prime minister Narendra Modi launched the Make in India movement in 2014 to encourage businesses to be self-reliant and boost manufacturing in the country. “There’s an overall positive environment created by the government,” Tiwary adds. And where Bangalore is concerned, the state in which it sits is eager to help. The Karnataka government launched the Karnataka Startup Policy in 2015 with a vision to stimulate the growth of 20,000 tech startups by 2020 and included several funds that together have a corpus of $47.3m.

Apart from offering support, the government realised the importance of eliminating illegal practices in businesses. And so in 2016 it demonetised all ₹500 and ₹1,000 banknotes and issued new ₹500 and ₹2,000 notes with the aim to curtail the shadow economy and reduce the use of illicit and counterfeit cash which was being used to fund unlawful activity and terrorism. This action sparked sudden growth in online payment portals and fintech companies. “Indians are really nimble and creative and whenever something like this happens, it becomes an opportunity more than a trek,” Tiwary declares. “So in the past few years we saw a whole train of different kinds of fintech startups trying to capitalise on the online payment industry in different ways.” Indeed, companies like Paytm, MobiKwik, Lendingkart Technologies and Policybazaar started increasingly scaling in the Bangalore ecosystem. 

Consequently, VC investment in fintech startups soared. Just in 2018, fintech startups raised $2.34bn across 145 deals according to Indian startup resource Your Story. With 438 fintech startups in the city already, the number is only set to surge. “Bangalore is a melting pot for tech entrepreneurs and the rise in fintech will change the way people use money – more so in the next decade,” Pasari says. “The tech sector in general has a vibrant startup brigade that’s not afraid of taking risks and trying ideas that have a huge impact. This makes Bangalore the perfect hotbed for VCs.”

Clearly VCs are getting increasingly attracted to inject money in Bangalore given the slew of unicorns already present. “Flipkart and Ola are phenomenal success stories not just for themselves but for the whole Bangalore ecosystem,” Legg says. He argues the success of these unicorns raises confidence and means the employment and training of thousands of people who often end up working at startups sooner or later. Along with providing mentorship, former workers or heads of bigger players pump their money into newer startups. “The co-founder of Flipkart is now investing into more Indian companies,” Legg adds. “Obviously it’s better to have a former founder as an investor than someone who hasn’t run anything.” 

As a result, Bangalore also attracted foreign investors. For instance, Japanese multinational holding conglomerate SoftBank has already invested $8bn in the past three years and is ambitious to invest $100bn through its Vision Fund into Indian tech startups with a focus on Bangalore. Adding to that, Indian startups attracted more than $33.4bn of funding through foreign direct investment. 

Moreover, the city saw the most funding in the AI and machine learning sectors. Tech startups bagged an incredible funding worth $328m in 2018 compared to $26m in 2017. And, given that Bengaluru was named as one of the world’s best rising tech hubs for startups, according to SmallBusinessPrices, investors have every reason for doing so. And fittingly, Bangalore earned the sobriquet of being the Silicon Valley of India after a considerable number of startups in the tech sector were born there. “Bangalore is getting a bit like Silicon Valley in an Indian context which means there are more engineers, more talent, more startups and more investment coming in,” Legg says.

One of the main reasons for the tech rise has been the digital transformation in the country. “Mobility is another big lever, India has completely leapfrogged from the stage of no phones to mobile phones with 4G and soon 5G so suddenly there’s a very robust infrastructure for a lot of data companies to flourish,” Tiwary says. “There’s so many such things happening across the tech ecosystem that we’re seeing a flurry of activity in e-commerce.”

Along with technology, Bangalore has an abundance of ideas. A major advantage of being an entrepreneur in the Karnataka capital is that the ecosystem is still maturing. This means new ideas can be trialled and tested and there is plenty of room for innovation. “It has so many either unsolved problems or ways that things could be run better,” Legg says. 

And given India ranks 58th in the Global Competitiveness report – up five places from 2017 – it seems the country is set to move up in the coming years. The rankings were based on factors like human capital, agility, resilience, openness and innovation. “There are people who are trying to improve the way electricity is distributed, the way cooling happens, just all sorts of things that will help Indians with their daily lives because it has a lot of chaos,” Legg adds. “And because there’s a lot of people saying ‘I can solve that chaos,’ there are unique problem-solving ideas being born.”

While the infrastructure is improving, it’s imperative to have the best employees when starting up. But despite more than eight million people living in the city and it being home to some of the most coveted universities in India, finding great engineers is challenging. “It’s a war for talent in Bangalore – it’s intense,” Legg argues. “You either work for a startup, which is great learning and very exciting – and yes, you don’t have as much money but either way you’ll have a fun ride – or people start their own companies because they’ve got a vision of something they want to build. And startups are where the coolest people work. So big companies are finding it much harder to attract talent.” 

In fact, even professionals who have a wealth of experience prefer to work with startups. “Most of my friends in India worked for companies like Coca-Cola or Google at some stage in the past and probably half of them now work in their own company or companies that are only five to ten years old,” Legg reveals. This explains how 94% of Bengaluru founders have a background in tech, which is the highest rate in the world, according to the Startup Genome 2018 report.

While there is a dearth of good quality talent, staff aren’t heavy on the budget once recruited. Bengaluru’s annual salary for an engineer is about $8,600 a year, which is nearly 13 times lower than Silicon Valley’s average and one-eighth of the global average. This makes it easier for entrepreneurs when hiring employees in terms of capital. “If the primary need is money and engineers, it seems to me as an outsider, Bangalore is the best place to do that,” Legg says.

All these factors have made Bangalore the ideal place for every Indian mogul. “It’s a bit of a chicken and egg situation since a lot of startups are from here, all the talent moved here and then all of the talent is here so most startups come here – it’s the traditional way you form an ecosystem,” Tiwary explains. “It’s reached that velocity so if you’re a startup the first place you think of is Bangalore and if you’re a VC you can’t survive if you don’t have an office in Bangalore. So it’s really become your go-to place if you have anything to do with entrepreneurship.”

Apart from ideas, talent, investments and emerging unicorns, Bangalore is rife with accelerators and incubators to aid entrepreneurs in their startup’s infancy stages. Initiatives like Microsoft Accelerator, 10,000 startups by Nasscomm, TLabs, Walmart Labs and partnerships with corporates like Yes Bank, Tata Group and Mahindra & Mahindra have ensured that Bengaluru’s ecosystem remains conducive to business development.  Additionally, startups don’t have to worry about unnecessary costs due to a plethora of co-working spaces available. Along with global co-working space provider WeWork, the lanes of Bangalore are buzzing with spaces like BHIVE and Jaagarnaut to name a few. “There are more than five already under construction on just one street,” says Tiwary. 

However, Bangalore entrepreneurs face many challenges when going global despite this impressive startup ecosystem. “One big difference is the level of sophistication or consumer expectations in the market,” Legg says. For instance, while Ola had the winning recipe in India, it had to make many changes when entering the UK. 

One of these changes revolved around the wording used in its terms and conditions. “There was a phrase in it that said ‘If a woman is getting into a car she should use her prudence,’ which if you spent enough time in India, you’d know that’s not particularly upsetting to anyone,” Legg says. “But in the UK when that was discovered, it was like, ‘Whoa, that’s a bit sexist. Women should use their prudence in case they get raped? Why can’t men control themselves?’ So there’s lots of words and phrases that need to change otherwise you can come across as not fitting in or understanding the local culture.”

While Bangalore and India have come a long way since the inception as an IT hub, the question is if the country will be able to become a startup paradise equal to Asian competitors like Singapore and China? “Not in the next five or ten years,” Legg opines, adding that while Singapore has all the advantages for a business to boom, its high costs are an obstacle. As for China, the excessive government control makes it harder for a global company to operate. “But India is much more trusted by the rest of the world,” he continues. “There is a massive home market, plus there’s a good English language standard which is an advantage over China.” 

The challenge is the scarcity of enough investors, engineers and unicorns which Legg thinks “is still tiny compared to places like Beijing or Singapore.” “But if Bangalore can have a great track record of more companies getting billion-dollar evaluations, investors and startup founders making money and reinvesting in other startups, if you have that for another five or ten years, it’s not impossible,” he says. 

However, even with its fair share of challenges, Bangalore is definitely starting to grab the attention of the rest of the world. “If you could get the infrastructure of Singapore with the talent of Beijing with a great track record of places like Silicon Valley in terms of churning out winners, that would be an awesome combination which could well make Bangalore the tech hub of Asia,” Legg concludes.