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Why Bay Area Is Hot And Bengaluru Is Not?

Why Bay Area Is Hot And Bengaluru Is Not?
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You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

What’s the worry?

Recently, Bengaluru-based firm Tracxn technologies compiled and published a list of nearly 800 ‘fading
or dead’ start-ups in almost every segment of technology, known as the Deadpool List. Going by its opinion, the times surely look ominous ahead.

Bangalore: A start-up hub on the verge of saturation?

San Francisco-based research firm, Compass, recently published the latest Global Start-up Ecosystem
Ranking, which places Bengaluru on #15 in the list of Top 20 start-up destinations, the only other Asian city apart from Singapore City. While this may swell the average Bengaluru techie’s heart with pride, deep inside they know that all is not well. The report evaluates the start-up destinations on different parameters and gives a cumulative rank based on the individual points achieved.
While there are a lot of positives for Bengaluru to take home from the report, but the report also mentions a few glaring inadequacies, which the Indian start-up hub needs to rectify in order to sustain in times when business analysts are sharpening their tongues to burst the start-up bubble. After all, the statistics speak for themselves. Compared to H1 2015, there has been a 23 per cent drop in funding till the half yearly report of 2016, with a $2.4 billion disclosed funding.

What’s causing the fall

One of the major reasons for Bengaluru to not rank in the Top 10, is the fact that it is yet to develop a mature, longterm outlook. The flow of venture capital has been steadily growing, except for the first quarter of the current year, but the numbers of mergers and acquisitions (M&A) have still been very few. M&As have a significant positive impact on the startup environment as it means quicker exits of entities, which keep the investors happy and the profit machines chugging. Furthermore, any merger results in a boost to the skill and technological acumen of a business, which enhances its value proposition, resulting in robust growth. The average size of an M&A deal in India is a measly $11 million. 
Any investment cycle is incomplete without a business reaching an exit and weak exits, if at all, are hampering the health of the start-up ecosphere in Bengaluru. Furthermore, Bengaluru’s start-up ecosphere has always suffered from weak market reach from local to global customers. The start-ups, although aggressive in their specific product or service campaigns, follow a semi-passive approach when it comes to client building.

Brain drain is a major concern

One of the major concerns which has plagued the Indian business ecosystem and continues to gnaw at its growth is the brain drain. Approximately, 1/3rd of the population of Silicon Valley, California, comprises of Indian and Asian nationalities.A significant part of their strength lies in being able to attract the cream talent of programmers, engineers, analysts etc. combined with personnel possessing managerial and executive skills. On the other hand, most students graduating from tier-II and III institutions in India are being employed in start-up hubs in Bengaluru. Unfortunately, they are not as much industry-ready as those that get absorbed in the Bay Area.Another major concern is that start-ups from Bengaluru fail to bring anything unique to the table. You can’t be the 53rd e-maintenance company and expect profits and success.Start-ups in Bengaluru, and more specifically India, need to get out of a herd mentality and find new areas of consumer needs to create a niche for themselves rather than saturating a particular segment.

Furthermore

At present, Bengaluru is facing stiff competition from Delhi-NCR and Mumbai as the epicenter of Indian start-ups. The first quarter of 2016 even saw the number of start-ups spawning in Delhi exceeding those in Bengaluru.

Edition: December 2016

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