Bengaluru has been a progressive start-up ecosystem with several blessings. The country’s start-up capital has also been ranked fifth in the world for technology venture capital investments in 2022. Bengaluru was the top Asian city in terms of investments received and it is the number one destination for venture capital funding in the country. The city attracted VC funds of $ 7.5 billion in the first half of 2022.
Funding is critical to start-ups, and Bengaluru is home to the top 115+ venture funds and several of angel investors supported by a matured mentor network that has been supporting the ecosystem. The technology and innovation ecosystem attracts talent due to the early lead of the IT Industry which began with Infosys, Wipro, Mindtree and many other tech firms. These companies have created many angel investors and start-up mentors. A Start-up Vision Group was created to provide insights on strengthening the start-up ecosystem in the State and involve stakeholders from industry and academia.
Karnataka is the first state to come up with a dedicated start-up policy and which ensures specific financial incentives and support schemes for start-ups. Start-ups in Karnataka employ over six lakh people and generated a revenue of over $4 billion in the year 2021-22, despite being a pandemic year.
Under Karnataka Start-up Policy 2015-2020, the State provides early stage/ proof of concept stage funding as Idea2PoC grant. The funding support offered by the government under this scheme is in the form of grant‐in‐aid up to ₹50 lakh for each start-up. The funds are disbursed in instalments based on the achievement of project milestones.
“Elevate” is an initiative of the Department of Information Technology and Biotechnology to provide a comprehensive entrepreneurship platform for start-ups. The top technology-based start-ups are chosen from across the State and so far over 700 start-ups have been funded with a commitment of ₹165 crore under this scheme.
Bengaluru has the most mature ecosystem globally and as a result, all start-ups want to be here and therefore deny growth opportunities for secondary cities. A special entity, Karnataka Digital Economy Mission (KDEM), was created to foster a Bengaluru-like start-up economy in emerging tech clusters like Mysuru, Mangaluru and Hubli-Dharwad-Belgaum, Shivamogga, Tumakuru and Kalaburagi. To start with, a total of ₹75 crore has been laid out by the State government for the development of three clusters: Hubli-Belgaum-Dharwad, Mangaluru and Mysuru.
It is estimated that by the year 2030, the cities in the Beyond Bengaluru clusters would be contributing $10 billion towards the IT industry, having employment potential of over 10 lakh people and establishment of over 10,000 start-ups. KDEM also is taking steps to solve issues like start-up funding and talent pool availability here.
However, despite support from the government and ecosystem players, some of the critical challenges start-ups currently face include the rising cost of talent, the inability to attract the best talent and lack of a proper go-to-market strategy.
Going forward, the biggest challenge is going to be around fund availability and fund raising as global macro-economic pressures are going to bring a long winter scenario in the investment market. Schemes such as Elevate, Samrudh and Start-up Seed Fund of the Centre etc are here to provide seed funds, but banks in the country should get ready to offer collateral-free loans up to ₹2 crore per startup under CGTSMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises), an initiative jointly set up by Ministry of Micro, Small & Medium Enterprises (MSME). State Bank of India is already active in this space and it is planning to open the country’s first start-up dedicated branch in Bengaluru.
(B.V Naidu is chairman of Karnataka Digital Economy Mission. He was formerly director of Software Technology Parks of India.)