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Bengaluru Drops To Number 20 in Global Startup Ecosystem Index – Is India’s Startup Favourite Losing Its Edge?

Bengaluru Drops To Number 20 in Global Startup Ecosystem Index – Is India’s Startup Favourite Losing Its Edge?

“I was in Bangalore (Bengaluru), the Silicon Valley of India, when I realised that the world was flat.” – Thomas Friedman.

Indeed, Silicon Valley, US and Bengaluru, India stand on the same road, but on opposite ends.

Although, there are a lot of similarities between the Valley and Bengaluru, both are miles apart when it comes to the availability of an attractive startup ecosystem, market reach, funding atmosphere and a lot more factors, as per a recent study conducted by Startup Genome.

The study reveals that Bengaluru now lies on the last position in the Top 20 Global Startup Ecosystems index, with Silicon Valley grabbing the top position.

The analysis, titled“Global Startup Ecosystem Report 2017”,  has been done in conjunction with organisations such as Global Entrepreneurship Network (GEN), Crunchbase, and Orb Intelligence. The findings are based on a survey of 10,000 founders across more than 100 cities. As mentioned in the report, 50 countries and 55 startup ecosystems has been assessed across 28 countries to rank the top 20.

The top 20 ranking of startup ecosystems are primarily based on the below factors:

  • Performance (startup output, exits, valuations, early-stage success, growth-stage success, and overall ecosystem value).
  • Funding (access through metrics of total and per startup early-stage investments: growth in early-stage investments; and funding quality through the presence of experienced VC firms).
  • Market Reach (global connectedness and global and local reach).
  • Talent (access, cost, and quality)
  • Startup Experience (team experience and ecosystem experience).
  • Resource Attraction

Factors Which Led To The Drop Down In Ranking

Last year, Bengaluru held the 15th position and has been pushed downwards with the emergence of three new rapidly evolving ecosystems – Beijing, Shanghai, and Stockholm. Those who maintained their positions included Silicon Valley, New York City, Paris, and Amsterdam.

As stated, “Bengaluru is ranked #11 in Performance, where it is ranked #7 overall based on valuations, but has a very low exit sub-factor. This indicates either that Bengaluru has a very bright future as these startups mature, or there is trouble at the top of the market with acquisitions.”

Key Success Factors In Maintaining Ranking

  • The city has, on average, the youngest tech workers among all startup ecosystems.
  • It showcase an impressive set of companies including the ecommerce unicorn Flipkart, which recently grabbed $1 Bn funding and is valued at  $5.37 billion as of March 2017.
  • Other companies which have grabbed major investments are SigTuple ($5.8 Mn), Big Basket ($150 Mn).
  • It is the headquarters for world majors such as Amazon, Microsoft Accelerator, Qualcomm, Cisco.
  • Houses closer tie-ups between startups and big companies.
  • Almost 45% of Bengaluru’s startup founders have gained at least two years of prior work experience in a startup, placing the ecosystem in the upper thirds, globally, close to Silicon Valley at 49% and Tel Aviv at 55%.
  • 94% of the city’s founders have a technical background, the highest in the world.
  • Bengaluru has the cheapest annual salary of for an engineer in the top 20, about $8,600 a year. This is nearly 13 times cheaper than in Silicon Valley and 4 times cheaper than the average value for Asia-Pacific.
  • The primary reason startups move to Bengaluru is because it is easier to find good technical employees. However, there are difficulties around access and quality.

Silicon Valley v/s Bengaluru

  • Bengaluru has 1,800-2,300 active tech startups, as compared to the Valley’s 12,700-15,600 active startups and 2 Mn tech workers in the Bay Area.
  • 28% of the global investments into early-stage startups are captured by Silicon Valley companies. Its top contenders are NYC and Beijing, which capture about 11% each. The Valley also has the highest Global Resource Attraction score, at 21%.
  • Silicon Valley startups employ the highest percentage of engineers with prior startup experience of two or more years.
  • In Silicon Valley, 6% of founding teams are composed of founders who were all part of hypergrowth companies, six times bigger than anywhere else.
  • Silicon Valley has the highest percentage of immigrant founders -46%.

Other cities in India which closely competed for the top 20 are Delhi and Mumbai, and have been placed in top 10 runner-ups. In past few years Delhi/NCR has emerged as the new startup hub. As per an Inc42 analysis for November 2016, the city received over two times higher funding than Bengaluru.

The report also talks about economical challenges created by rapid technological changes, lifecycle phases in an startup ecosystem, the challenges an ecosystem faces and what policies and practices its leaders ought to focus on.

The Global Startup Ecosystem: Key Findings

“People are mobile, ideas fly around the world, and capital moves rapidly across borders.” – Jonathan Ortmans, President, GEN.

As cited in the report, technology is generating wealth and innovation at an exponential pace and is growing twice as fast as the economy, but only a handful of places in the world are capturing most of that value creation. Here are some stats derived from the report:

  • The average market cap per employee—a rough measure of productivity—at top tech companies is 2.5 times higher than companies in other sectors.
  • Five ecosystems – Silicon Valley, New York City, Beijing, Seattle, and Shanghai – account for 49% of the market value of these dominant public companies.
  • Silicon Valley has emerged as the global startup hub in Global Connectedness metrics.
  • One out of every three startups located outside the United States report having multiple connections to Silicon Valley. When we include US startups, that figure rises to 47 percent.
  • Silicon Valley, together with London and New York City, form the top tier of startup ecosystems. (Check out more on London Startup Hubs here.)
  • One-quarter of the startups around the world have multiple connections to London. For New York City, it’s one in five (but 30% when including US startups).
  • Silicon Valley, New York City, London, Tel Aviv, Singapore, Berlin, and Shanghai – report to have the highest number of significant connections to six of the top ecosystems.
  • Technology companies account for 46% of the foreign earnings of American multinationals, a rise from the 17% reported ten years ago.
  • The speed at which large tech companies create wealth (as measured by their market capitalisation growth rate) has been nearly three times higher than for non-tech companies since 2012.
  • 47%of occupations in the United States are susceptible to automation, while 60%-80% of jobs in China, Thailand, Argentina, and South Africa, among others, are threatened by the same.
  • For startups in Europe, 20.7% of their customers come from outside of the continent, whereas the average for all other regions is 12.8%.
  • Among American ecosystems, 42% of startups offer stock option plans to all their employees, compared to an average of 22% in the rest of the world. (This is likely related to differences in tax law.)
  • Startups in the Asia-Pacific region have 48% more advisors with equity than the rest of the world.

As projected in the report, the information and communications technology sector, which is roughly 4.5 % of current $100 Tn global gross domestic product (GDP), is expected to be at 8% of the global GDP within the next 15 to 20 years. Also, global growth is projected to be about 2.6%, which means that the tech sector is growing twice as fast as the global economy.

“Over the next 15 years, global economic value from technological change will double. But, because it takes roughly 20 years for thriving startup ecosystems to develop, aggressive investments are needed urgently, or else more places will miss out on that wealth creation. “