Cover of “Bangalore Startups: A Quick Guide.”

@Siliconeer #Siliconeer #India #Startup #BookRelease #BangaloreStartups #BalaMuraliKrishna #StartupIndia – Overall, it might be reasonable to believe Bangalore is losing ground within the country and in global rankings as well. For those familiar with the city, it might be easy to guess why – the city’s growing infrastructure woes. But let’s keep it a guess for now. Siliconeer presents excerpts from a new book by Bala Murali Krishna.

Bangalore is India’s original startup city, and has been its biggest for many years now. But just how big is it?

The city, located in southern India atop the Deccan Plateau, is home to five startups that have been at some point in time valued at $1 billion or more. These so-called unicorns include Flipkart, Ola Cabs, Mu Sigma, InMobi and Quikr. This much is known, but the rest of the data are less clear.

According to the IT industry group Nasscom and Zinnov Consulting, Bangalore has 1,300+ startups. But AngelList India lists over 5,300 startups, and the Karnataka government counts over 2,000 registered with its Startup Cell.

In funding, most estimates suggest Bangalore startups account for a third of India’s total. In 2016, that came to about $1.3 billion, out of a total $4 billion for the country’s startups.

However, Bangalore might be in decline. In 2016, funding was down 35% from the previous year, steeper than the global 24% fall. It might also be losing market share to rival Indian cities. The combined National Capital Region – consisting of New Delhi and the neighboring cities of Gurugram in the state of Haryana, and Noida in the state of Uttar Pradesh – had an estimated 1,175+ startups in 2016. Data from YourStory.com, a media startup that covers startups, suggest the NCR has already inched ahead of Bangalore in funding; and data from the angel investing platform LetsVenture indicates the NCR has overtaken Bangalore in total seed investment.

Overall, it might be reasonable to believe Bangalore is losing ground within the country and in global rankings as well. For those familiar with the city, it might be easy to guess why – the city’s growing infrastructure woes. But let’s keep it a guess for now.

Bala Murali Krishna, author of “Bangalore Startups: A Quick Guide.”

Just How Good Is Bangalore

In early 2017, the global real estate consulting firm Jones Lang LaSalle called Bangalore the “most dynamic” urban economy in the world. The city earned the top ranking in JLL’s Cities Momentum Index, displacing the Silicon Valley region, because it adapts “most rapidly to…technological and infrastructural transformation.”

Still, Bangalore never appears among the world’s top 10 startup hubs in the most popular global rankings. In 2016, it was ranked 20th in the Startup Genome/Compass rankings, down five places from the previous year, and did not figure in Spark Labs’ Top 10 rankings. The Global Entrepreneurship Development Institute, or GEDI, which ranks countries and not cities, placed India at 69th, up from 98th in 2015. So Bangalore couldn’t have ranked too high.

Even though it is a favored exercise in India, it is too early to compare Bangalore with a far more mature startup hub like the Silicon Valley. In 2016, for example, Silicon Valley startups attracted $25 billion in venture capital, despite a 26% decline from the previous year. Bangalore startups attracted a mere 5.2% of that amount.

Bangalore doesn’t compare favorably even with London ($3.1 billion) in funding, or with the likes of Berlin and Stockholm on other benchmarks. A more meaningful comparison is with Asian cities such as Beijing, Shanghai, Seoul, Singapore and Tel Aviv, the highest-ranked Asian city.

Beijing and Shanghai are in the top 10 in Startup Genome rankings, while Singapore is at 12th. The Israeli city of Tel Aviv, currently ranked 6th, routinely figures in global top 10 rankings, and offers a particularly good comparison with Bangalore. Notwithstanding its desert landscape and decades-long conflicts, the tiny nation has taken giant strides in startups, notably in security software, and easily beats Bangalore.

Israel is a nation of 8.6 million, roughly the size of Bangalore’s population. But Tel Aviv, the real startup hub, has fewer than half a million residents, and is about one-tenth the size of Bangalore. Yet in 2016, Israel pulled in $1.6 billion in venture capital, compared to Bangalore’s $1.3 billion. The “startup nation,” as it is sometimes called, also had three startups in the top 100 on Startupranking.com, which ranks the world’s startups based on “impact.” Bangalore had none. Myntra, an online fashion seller acquired by Flipkart, was the highest ranked, coming in at 116.

On the positive side, Bangalore might well be on its way to overtaking Silicon Valley in head count of IT engineers. The consulting firm McKinsey expects Bangalore to become the world’s single largest IT cluster in 2020, employing two million IT professionals, overtaking the world’s most famous technology hub.

Hitting the Pause Button

Reflecting a global trend, startup activity has hit a slowdown, bringing varied challenges. Many startups have fallen in the last year, and several have laid off staff. Veteran Indian American investor Kanwal Rekhi, quite the headline-grabber, has called it a forest fire, but only time will tell if it’s that bad.

Many startups are learning hard survival lessons. Bangalore’s biggest startups face grim challenges, among them the unicorns Flipkart and Ola Cabs, as investors run out of money and patience, and seek at least a path to profits.

Flipkart, an ecommerce pioneer in the country, assumed it would be the Amazon of India. Then Amazon itself showed up, and the game changed. The global ecommerce leader is giving Flipkart a run for its money. It has been less than three years since Jeffrey Bezos rode a truck in Bangalore, wearing a sherwani, and signed off on an initial $2 billion investment. Amazon has caught up with Flipkart in many departments. It even overtook the Indian company briefly in gross merchandize value in some months of 2016. Given the quick success here, and the lack of it in China, Amazon has focused even more intensely on India, its largest market outside the United States, and has ordered another $3 billion investment for its operations here.

Amazon’s rise has set off alarms at Flipkart. The Indian startup has faced intense competition and a price war, and consequently lost market share. In the circumstances, Flipkart’s valuation has been driven lower by as much as a third, from a high of $15 billion. Many investors – Fidelity, Morgan Stanley and T. Rowe Price, to name a few – have written down the value of their stakes in Flipkart because Amazon’s entry has tempered Flipkart’s projected growth and market share, besides directly impacting revenues and surely delaying its profitability.

In the crisis situation, Flipkart’s largest and earliest investor, Tiger Global Management, has taken control of the company, sidelining its founders. It first replaced Sachin Bansal with the other founder, Binny Bansal. But with little to show for the change, Tiger inducted its own nominee, Kalyan Krishnamurthy, in 2017. It has been a big moment of truth not only for the Bansals, but also for the entire startup community, which is coming to terms with the fact that founders don’t enjoy a permanent right to run their startups.

Flipkart’s founders have been criticized for squandering investor money by handing out liberal stock options and fat salaries to top executives, while doing little to fight off Amazon or refine its business model and place the company on a path to profitability. Also in question is Flipkart’s readiness to dance with anybody in its bid to battle Amazon, examples being a rumored partnership with Wal-Mart or its proposed acquisition of failing rival Snapdeal.

The other big fish facing a similar predicament is Ola Cabs. The Indian version of Uber has raised $1.6 billion ($1.9 billion when money raised by Taxi for Sure is included) with unflattering operational results. Last available figures show that in the fiscal year 2014-15, Ola posted a loss of nearly $2 for every dollar earned. When the cab aggregator is not battling Uber, it is battling regulators and taxi drivers seeking better pay. After a big outcry over pay, a new third front – a cabbie-owned cooperative – is being formed in Karnataka that will rival both Ola and Uber.

Like Flipkart’s investors, Ola’s backers have steadily written down its valuation. Its latest valuation, derived from a funding round in February 2017, suggests the cab aggregator might be worth $3.5 billion, down 30% from a peak of nearly $5 billion.

(Excerpted from “Bangalore Startups: A Quick Guide,” by Bala Murali Krishna. The ebook is available on Amazon Kindle and Apple’s iBooks.)