In the run up to the Global Investors Meet to be held on January 23 and 24, Tamil Nadu has sent a strong signal to investors by making back-to-back announcements last week — first on setting up a FinTech centre in the city followed by the start up and innovation policy to provide an enabling and innovative ecosystem in the State.

This may be a late effort when compared to neighbouring Telangana but focussing on the State’s strength in sectors like SaaS (Software as a Service) and fintech could help Tamil Nadu score over other States.

Last Monday, the State government announced that the Ministry of Electronics & Information Technology plans to set up a Centre of Excellence for FinTech at Software Technology Parks of India STPI-Chennai, in association with the Electronics Corporation of Tamil Nadu. An outlay of ₹23 crore has been earmarked for the centre.

On Saturday came another announcement with the start-up and innovation policy. The State has studied all other States’ start-up policies and taken what is appropriate for it, sums up Mahesh Ramachandran, Governing Council Member - TiE Chennai, FinTech Centre of Excellence. It is good to note social entrepreneurship, global accessibility and partnership are given adequate priority. The fund of funds of ₹250 crore may not be adequate but is a good starting point. “We look forward to supporting the start-up ecosystem through this conducive policy,” he said on the new policy. The State government’s dream is to create at least 5,000 technology start-ups of which 10 global high-growth start-ups in social impact sectors; infrastructure support to strengthen existing mechanism in various sectors, including SaaS, in which software can be procured on monthly rental than an outright purchase that could be expensive.

Zoho and Freshworks — both Unicorns — have already put Chennai in the global SaaS map and there are hundred others in the State who want to emulate their phenomenal success in a short span of time to tap over $1.5-trillion global business opportunities.

It is heartening to see the Chief Minister recognising the SaaS industry and calling out Chennai as the SaaS capital of India. It will be great if the government can work with a set of industry leaders to execute the plan effectively in a way that can provide a real platform for the next set of SaaS start-ups to scale from Tamil Nadu. “We should take a leaf out of Telangana’s books and set up a SaaS Hub with world class infrastructure for start-ups,” said Girish Mathrubootham, CEO, Freshworks, an SaaS company.

Scope for SaaS

India is the second largest hub for SaaS companies after the Silicon Valley and is growing almost twice every year. Chennai alone has about 15,000 of the total 30,000-50,000 employees in the sector, said Suresh Sambandam, Founder- OrangeScape, which is also in the SaaS space.

Tamil Nadu should create an SaaS accelerator coupled with a venture fund of ₹100 crore headed by a panel of SaaS founders, instead of government officials. This will accelerate the number of SaaS companies in Chennai and put the State on the global map, he said. Following the example of the Central Government, the idea to use a professionally managed fund-of-funds to deploy taxpayer money is a good approach versus government agencies directly investing in start-ups. This indirect form of investing (where SIDBI or other institution will allocate the government’s money across many VC funds, who in turn, will invest in start-ups) avoids potential charges of favouritism/ corruption, said Arun Natarajan of Venture Intelligence, which tracks venture capital and private equity investment.

The State plans to set up start-up hubs not only in Chennai but also in Coimbatore, Salem-Erode, Madurai, Tiruchi-Thanjavur and Tirunelveli. However, considering that IT sector is still Chennai-centric, it will be a challenge in taking start-ups across the State.

Another major challenge would be creation of a minimum of one lakh high skilled jobs, direct and indirect, in the start-up ecosystem. A strong academia-industry-government collaboration is critical for this, say industry experts. But Xpheno’s Kamal Karanth sees no challenges there.

The State has great educational ecosystem and good supply of engineering talent, better physical infrastructure than Bengaluru. Some of the major Unicorn start-ups like Zoho, Freshworks are there for inspiration and guidance, said the co-founder of the recruitment firm. Tamil Nadu is also home to large MNCs like Ford, Nissan, Hyundai, BMW and Saint Gobain having great talent who can supplement the growth of start-up eco-system.