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What does an ideal entrepreneurial ecosystem look like? How do Indian startup hotspots Bengaluru and Hyderabad fare in this regard, and what can be done to bridge the gaps?
A scholarly treatment of these questions are provided in the book Entrepreneurial Ecosystems for Tech Start-ups in India: Evolution, Structure, and Role by IISc professor MH Bala Subrahmanya. Here are my takeaways from this 165-page book, summarised as well in the table below.
See also my reviews of the related books The Startup Community Way and Startup Communities, and the Startup Guide book series, featuring entrepreneurship ecosystems in cities like Barcelona, New York, Johannesburg, Cairo, and Singapore.
Entrepreneurship support organisation, The Indus Entrepreneurs has 64 chapters in 14 countries; see our profiles of TiE Global and the city chapters of Bengaluru, Hyderabad, Mumbai, New Delhi-NCR, Silicon Valley, Pune, Kerala, Ahmedabad, and Kolkata. See also our write-ups on TiE Bangalore’s programmes for young entrepreneurs (TYE) and women entrepreneurs (TiE Women).
The author begins with the importance of entrepreneurship for economic growth, as several countries reposition from low value-added manufacturing and services to innovation-based economies. The startup movement is finding successes not just in Silicon Valley and Israel but elsewhere as well.
“A tech startup is one which has neither a pre-defined product nor a pre-defined market, at the outset,” the author defines. In the state of Karnataka, a tech startup in terms of incorporation is defined as less than four years (IT) or seven years (BT).
A tech startup is a young firm in search of a “repeatable and scalable” business model. It eventually develops tech products and services, leveraging scientific and technical knowledge; these can be applied to sectors like engineering, agriculture, and logistics.
Because of their small scale and limited resources in the early stages, tech startups can benefit from external ecosystem support to improve chances of survival and scale. Founder success comes from absorptive capacity, personality, motivation, and enabling conditions for creating value.
The author conducts extensive literature reviews and primary research to chart out the architecture of entrepreneurship ecosystems.
For example, MNCs can play multiple roles as customers, talent pools, mentors, tech providers, international connectors, hackathon organisers, financiers, accelerators, investors, acquirers, and even source of future founders. Some MNCs promote entrepreneurial thinking and even sabbaticals for employees, with the option of rejoining if the startup venture fails.
National and state governments have come out with a range of policies, funding schemes, regulations, industry parks, incubator support, portals, and competitions. “Hard” infrastructure includes transportation, logistics, energy, and telecommunications, while “soft” infrastructure consists of professional services support.
As of 2018, India had 14,600 startups registered under the Startup India initiative, the author shows.
A vibrant ecosystem is a good breeding ground and catalyst for entrepreneurs, and a “network of entrepreneurial peers” helps learning and capability building. Vibrancy is measured in terms of “density, fluidity, connectivity, and diversity,” and successful ‘champions’ serve as role models and strengthen local histories of entrepreneurship.
“Local culture has to be supportive in the form of risk tolerance, appreciation of failure as a stepping stone for success, support for innovation, creativity, drive and hunger for achievements, respect for risk-taking, and wealth creation,” the author describes.
The author uses the Delphi methodology to find out what experts believe are the components of ideal entrepreneurial ecosystems, how Bengaluru and Hyderabad fare in this regard, what the gaps are, and how to fill these gaps.
Over 15 months in 2015-2016, the author conducted four rounds of interviews with 51 experts from the ecosystem in Bengaluru and 38 experts in Hyderabad (though the number dropped to 34 and 14, respectively, after the third round). The appendix provides six pages of references and 20 pages of survey questions used in the research.
Bengaluru and Hyderabad
“In the global startup landscape, India is recognised as one of the potential sources of tech startups, and it is currently ranked third globally, both in terms of the number of startups and successful startup exits,” the author says.
Bengaluru is regarded as “one of the global hotspots” and Hyderabad as a “fast-emerging hub” for tech startups. Startup Genome (2019) ranks Bengaluru as 18th in the top 20 startup hubs in the world; the city has a culture of ‘optimism and openness,’ and its salubrious climate is a strong point as well.
Hyderabad’s T-Hub is the result of a unique partnership, and the city benefits from its central location in the country and assimilation of diverse cultures. It is home to some of the top pharma and biotech companies in India, including Bharat Biotech.
An informative chapter charts the rise of the tech sectors and policies in Bengaluru and Hyderabad. More profiles of notable tech startups, investors, and tech accelerators would have been a welcome addition to this chapter.
Both cities evolved through phases of state support for public sector industries and educational institutes, the spontaneous emergence of industry clusters, and the rise of MNC R&D clusters. Bengaluru is seen as having a lead in terms of R&D clusters, the number of unicorns, and the vibrancy of the startup ecosystem.
“Both the systems are only moderately matured and may take at least a decade more to attain maturity,” the author explains. Gaps exist in a supportive culture, effective interactions, education/research institute roles, and market maturity.
These gaps particularly affect the growth prospects of startups in terms of IPOs, acquisitions and unicorn status. In mature ecosystems, for example, big exits of larger startups release capital and talent for the next wave of players.
As compared to ‘ideal’ ecosystems, the surveyed experts feel the culture in both cities still has elements of risk aversion and preference for “secured” jobs. The education system is geared more towards such job security, though the startup mindset is increasing gradually.
Factors that apply across India are the preferences for some startups to list or register overseas to improve brand perception or get around bureaucratic hurdles with respect to fundraising.
The concluding chapter provides a range of recommendations to strengthen the ecosystem, including inculcation of curiosity, creativity, and entrepreneurial thinking among students at a much younger age.
Policies on angel investing, inclusive innovation, tax holidays, and ease of doing business should be effectively executed. Open-source technology should be incentivised, and PSUs should be better connected to startups, the author advises.
The road ahead
The author effectively shows how “the helping hand” of the state and the “invisible hand” of the market blend in ecosystem evolution. The book opens the door to analysis of startup ecosystems in other large and smaller cities in India, longitudinal studies, and comparative studies between other cities of the world.
For example, Silicon Valley has a network culture, skilled immigrants, quality of life, and an attitude of “no idea is considered crazy.”
Israel’s startup ecosystem is embedded in a culture of flatter hierarchies, individualism combined with collectivism, risk-taking, focus on quality, and a spirit of argument.
In sum, this is a valuable book for policymakers and researchers in entrepreneurship, and broader stakeholders like corporates and support organisations. A mature and sustainable startup community benefits founders and the wider economy and society, which is particularly relevant in times of the pandemic crisis and beyond.