Access to capital has always been a critical demand for all startups across sectors, and entrepreneurs believe that a new administration should provide a significant boost to the ecosystem’s growth.
Bengaluru-based businesses are caught in a fundraising winter that shows no signs of abating, layoffs, infra issues, bureaucratic red tape, and unanticipated policy moves. They anticipate the new government to give the business a boost and address their rising infrastructure-related grievances ahead of the Karnataka state Assembly elections.
The industry has been heavily hurt by the financial shortage. According to independent researchers, investment for city-based startups would fall by more than 45% year on year between 2021 and 2022. They are concerned that the trend would continue, jeopardising their viability. Startup founders who have been left high and dry are appealing for government assistance in a variety of manners.
This fall contradicts the Karnataka government’s own forecasts for the sector’s growth. In December 2022, the state released a Startup Policy for the following five years, projecting 9.9% annual real GDP growth from 2020 to 2024. It highlighted Bengaluru’s outstanding performance to substantiate this – Bengaluru received 62% of the USD 41.7 billion in funding raised by Indian companies in 2021. Then there was the huge crash.
The industry has been heavily hurt by the financial constraint. According to independent researchers, financing for city-based startups fell by more than 45% year on year between 2021 and 2022. They are concerned that the current trend will continue, jeopardising their long-term viability. Startup founders are appealing for government assistance in various forms after being left high and dry.
This fall contradicts the Karnataka government’s stated growth projections for the sector. The state published a Startup Policy for the following five years in December 2022, projecting 9.9% average annual real Gross Domestic Product (GDP) growth from 2020 to 2024. It has highlighted Bengaluru’s outstanding performance to explain this – Bengaluru accounted for 62% of the USD 41.7 billion funding obtained by Indian companies in 2021. Then there was the great fall.
According to Uma Reddy, a seasoned woman entrepreneur and vice-president of the Ubuntu Consortium, access to funding has always been a critical necessity for all startups across industries, and a new government should give a strong push to fuel the ecosystem’s growth. “We do have success stories in startups and unicorns,” she adds, “but now is the time for the government to facilitate money flow through banks, state financial institutions, or private sector venture capital (VC) funding.” This is not the time to relax.
“Most startup founders want better governance or a different government,” Shakti says. “Bengaluru, once the country’s startup capital, is now in ruins.” The most difficult challenge is the infrastructure. People can’t even get to work because of the rain. People cannot work if there is a power outage. So, in the previous three years, a lot of things have gone down the drain,” he observes.
Will startup policies continue?
With lots of promise, the Karnataka Startup Policy aims to promote 25,000 entrepreneurs over the following five years. A Rs startup’s establishment during the following five years was also emphasised in the policy. The Policy also emphasised the creation of a venture capital fund of Rs 100 crore to help deep-tech entrepreneurs working in robots, drones, electric vehicles, and disruptive technologies across many industries. Additionally, startups were promised a one-time grant-in-aid of up to Rs 50 lakh.
Are these implementable? Will a change in leadership necessitate a change in policy? Are the financial responsibilities realistic? There are no simple solutions to these issues.
Shakti asserts that if the administrative barriers are not removed, nothing can function. “Due of the unusual business strategy, deep-tech entrepreneurs find it to be even more difficult. It’s difficult only to acquire the initial curiosity of a VC. They require the help. There were many promises made, but few were actually kept. One, since the top ministers played musical chairs. Obviously, the picture changes when the chief minister does because the advisors do. Consistency is important, he emphasises.
Need for a bipartisan approach
In order to support startups, a nonpartisan strategy must be used. “It shouldn’t be the case that the Congress will implement ABC, and the BJP will undo ABC and implement EFG,” Shakti argues. Every time there is a change in government, it will simply send us back.
The stakes are very high for any government. Bengaluru, the only city in India to make the top 10, was ranked eighth in Startup Blink’s Global Startup Ecosystem Index for 2022. Additionally, it received a ranking of 22nd worldwide in the Genome Startup Ecosystem Report 2022. Bengaluru is home to the majority of 40 of India’s 104 unicorns, worth USD 340 billion.
Political parties are well aware of this fact. The main reform that the BJP has pledged in its platform is a Rs 5,000 crore Fund of Funds (FoF) to encourage investment in startups operating in sunrise industries. Green energy, electric vehicles, and healthtech are all covered.
Eliminate regulatory obstacles
Grants, loans, and tax advantages are only one type of funding on the businesses’ wish list. Regulatory backing is another important concern, as Venu Kondur, chief executive officer (CEO) of the Bengaluru-based lorry fleet aggregator Lobb Logistics, points out. According to him, the government could assist in streamlining regulations and reducing bureaucracy because startups must overcome numerous regulatory obstacles.
Venu discusses the need for more incubation facilities, subsidised co-working spaces, and credits on significant cloud platforms like AWS, Google, and Azure in regards to infrastructure. Startups are also considering a greater involvement for the government in skill development, internship sponsorship, and courses taught by industry professionals that are industry-ready. Another request is for access to expand outside of India. The government might exert more pressure to promote local startups internationally.
additional testing facilities
Uma Reddy highlights the critical requirement for industrial infrastructure to encourage innovation among startups. We require more industrial parks, incubation facilities, and plug-and-play solutions.
But make sure connection extends beyond Bengaluru
The state government aimed to encourage startups that established bases beyond the city as part of its “Beyond Bengaluru” campaign. But as Venu notes, much of this hinges on having access to talent as well as having better roads, trains, and internet infrastructure. “Extending operations outside Bengaluru will also incur higher costs. He asserts that the government ought to offer incentives.
The infrastructure is currently Karnataka’s largest challenge from the perspective of a company creator, agrees Shakti. What can you expect from a Mysuru or a Belagavi if Bengaluru, the most technologically advanced and connected city, has such a poor infrastructure? If they wish to start a business, people in tier-2 cities move to Bengaluru unless their business model and supply chain are dependent on the local area. The following administration will need to hold numerous investor meetings in Tier 2 cities as well in order to decentralise.
Another issue is ecosystem maturity, according to Mohit Jain, CEO and co-founder of the business-to-business human resources firm FloCareer.
A vibrant startup ecosystem with a concentration of talent, investors, mentors, and support services, he claims, has developed in Bengaluru. Finding an ecosystem with a similar level of maturity, including access to mentors, networking opportunities, and industry-specific infrastructure, may be difficult for startups considering establishing themselves outside of Bengaluru.
Furthermore, non-metro cities might not have the latest technological and physical infrastructure. Outside of Bengaluru, he observes, “accessibility of quality office spaces, strong internet connectivity, and other support services can be comparatively limited.”
The government must employ a multifaceted strategy to solve these issues. This may entail funding the construction of infrastructure, creating a welcoming ecosystem, facilitating access to financing, encouraging skill development, and encouraging interaction between entrepreneurs, academic institutions, and industry organisations. The government may encourage entrepreneurs to establish bases outside of Bengaluru and boost inclusive growth throughout the state by concentrating on these factors.
The takeaway is clear: In order to win over the enormous startup ecosystem, political parties headed for elections must first comprehend the issues facing the sector and implement procedures and policies that encourage growth. Infrastructure, funding, innovation hubs… It’s a lengthy list.
