Bengaluru fast leaving other cities behind

It’s the pensioners’ paradise that turned into a global hi-tech city. But now Bengaluru’s forging even further ahead and, in many ways, leaving bigger Indian megalopolises like Delhi-NCR and Greater Mumbai in the dust.

Take a look at where venture capital money’s heading. From January till now, Bengaluru-based companies amassed $405 million in VC investments from 100 deals, according to deal-tracker Venture Intelligence. During the same time, Delhi NCR got $239 million from 67 deals, while Mumbai received $208 million from 48 deals.

Was this a flash in the pan? Nope. The same pattern’s been repeating over the last five years with Bengaluru pulling ahead each year. In 2018, Bengaluru firms raked in $581 million from 176 deals while Delhi-NCR got $415 million from 110 deals and Mumbai trailed with $373 million from 101 deals, Chennai-based Venture Intelligence says. In fact, says Arun Natarajan, Venture Capital’s founder-and-managing director: “If you use VC as a filter, Bengaluru’s head-and-shoulders above any other city. Every quarter, almost boringly, it’s Bengaluru in front, NCR-Delhi and Mumbai a far-behind number two and three.”

Start-up hub

What’s made traffic-clogged Bengaluru, a city bursting at the seams with nearly 12 million people (its population was four million in the mid-1980s when the first tech companies like Texas Instruments arrived), a haven for industries of the future? Bengaluru’s long been India’s hi-tech hub, but it’s grown way beyond software services.

Today, it’s a magnet for start-ups of all kinds thanks to its wide talent pool. Nasscom estimates there are 7,700 start-ups India-wide and it’s reckoned over 30 per cent are Bengaluru-based.

One industry far from software services is electric vehicles. Bengaluru’s got a fleet of automakers targeting that market like scooter-maker Ather Energy, EV-motorbike manufacturer Emflux and Altigreen, which made the electric Tata Ace and the Piaggio Ape. And, crucially, there’s Micelio, a fund floated by former Infosys CEO SD Shibulal’s family office investing exclusively in electric mobility.

It’s reckoned almost 100 firms are making EVs or EV-components in and around Bengaluru. Other city-based firms, like Ola, also have big e-mobility plans. “Bengaluru’s now a start-up and tech-innovation hotbed especially for e-mobility which is the industry’s future,” says industry consultant Deepesh Rathore, who shifted to Bengaluru because of the EV cluster.

Bengaluru’s also drawn international automotive firms, which are including increasing amounts of technology-driven parts in their vehicles. Daimler-Benz, BMW, Bosch and Volvo have engineering support-services centres in the city. Retail chains like Sears, Tesco, Target have centres here, as do liquor firms like InBev and Diageo Business Services.

Even banking and fast-growing fintech firms have made Bengaluru home, bypassing financial capital Mumbai. These include financial-services giants like Axa, Morgan Stanley and Goldman Sachs.

There are many fintech companies still in Mumbai, but the city’s lost momentum after failures of firms like Housing.com. In fact, Bengaluru’s tech pull’s so strong, that companies in more traditional business lines, like Arvind Mills, have moved here to launch hi-tech businesses.

Says Biocon chairperson Kiran Mazumdar Shaw: “Bengaluru’s got an ecosystem combining the soft-and-hard infrastructure in technology. There’s also engineering talent.”

People power

Bengaluru’s older institutions are also drawing industries of the future. Bengaluru, headquarters of companies like Hindustan Aeronautics, has an aviation-focused SEZ in Devanahalli, not far from the airport that’s attracted companies like Boeing, Pratt & Whitney, Sikorsky and UTC and also start-up drone-makers. There’s also a space city aiming to attract firms in India’s nascent space-exploration sector.

“Over the last 25 years, Bengaluru’s attracted the best IT talent. It leads in cutting-edge industries. The best people come here and best companies follow,” says 3One4 Capital founder Pranav Pai. He points to Bengaluru’s sheer amount of IT talent. It’s reckoned Bengaluru has 1.9 million tech workers, a figure seen hitting over two million by 2021, overtaking Silicon Valley in raw numbers.

But it’s not only talent giving Bengaluru pulling power. The city is home to most tech billionaires and millionaires in India. One estimate is there are over 200 family offices in Bengaluru, of which probably 50 have large sums at their disposal, and they’re all hunting for the Next Big Thing. Says Mazumdar Shaw: “A lot of family offices are investing and because they’re mostly tech entrepreneurs, they invest in tech. Every family office’s investing some amount in start-ups.” Mazumdar Shaw’s invested in 5-10 start-ups. She points to UELifeSciences, a company she’s backed that created a device for early breast-cancer detection and has already made its mark abroad.

She reckons there are 1,800 start-ups in India across life sciences, digital healthcare and predictive diagnostics, of which 400-500 call Bengaluru home.

Next-gen culture

What’s working for Bengaluru is clearly the cluster effect. Look at companies like Ola, which relocated from Mumbai to Bengaluru because it needed large-scale software talent unavailable in the bigger city. Beyond that, companies need to be in Bengaluru in an era when, “the concept of industry verticals doesn’t exist anymore,” says Shalini Pillay, KPMG Bengaluru Office Managing Partner.

She notes companies like Ola have created Ola Money and Ola Eats and handset-maker Xiaomi which is getting into fintech to finance its phones. To move across sectors requires sophisticated mastery of technology, she notes.

Mazumdar Shaw says Bengaluru’s out-of-office culture has played a huge role in making it a next-gen entrepreneurial hub. Tech workers head to pubs and microbreweries to meet and party, resulting in idea exchanges that don’t happen in other Indian cities. “People who work in software companies come together in pubs like they do in Silicon Valley. There’s a soft-infrastructure that creates a great network for young people to brainstorm,” she says. Bengaluru has around 50 microbreweries where techies hang out and some have plug-points at each table and meeting rooms to the extent they’re “almost a workplace.”

Bengaluru’s also headquarters for global co-working office giant WeWork. The arrival of co-working also helped to keep Bengaluru far ahead of Delhi and Mumbai in office-space absorption in the first three quarters of 2018, Anarock Property Consultants says.

Despite the Karnataka State administration’s patchy quality, Bengaluru entrepreneurs credit the government for propelling business growth. Now the government has a start-up policy to push fledgling firms and aggressively promote a host of sectors, says KPMG’s Pillay.

Nobody denies Bengaluru’s traffic tie-ups are horrendous. But they insist the city’s better than others, starting with temperatures hovering in the mid-20s much of the year. Says Pillay: “It’s an easy cosmopolitan city. There are so many people from all over the world who come and settle.”

But there are question marks, like whether Bengaluru’s graduated sufficiently from doing high-tech grunt-work. Also hanging over the start-up sector is the gloomy statistic that nine out of 10 firms may not outlive the embryo stage, so while it’s not exactly Tulipmania, there are lots of tulips out there.

Are there challengers? Hyderabad’s light-years behind, but coming up fast. Facebook, Amazon and Microsoft have larger centres in Hyderabad than in Bengaluru. Other companies are looking at a dual-city policy to hedge risk, says Pillay.

Still, for now, Bengaluru’s the city where the action’s happening and, as one techie points out, it’s also where they sell the best beer.

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