How Karnataka’s New Startup Policy Plans To Foster 25K Startups By 2027

Earlier this week, the Karnataka Government approved the Karnataka Startup Policy for the next five years, from 2022 to 2027. The startup policy proposes sweeping changes for startups in arguably the biggest startup hubs in India, fostering the growth of thousands of startups in the process.

Ranked the ‘Best Performing’ state by the DPIIT in the State Startup Ranking 2021, Karnataka is looking to consolidate its position at the top of the startup hub food chain in India with the new policy.

From stimulating 25,000 startups in the next five years to establishing new-age innovation network (NAIN) centres to set up an INR 100 Cr venture capital fund to back deeptech startups, the Karnataka Startup Policy 2022-27 looks to make the state the most lucrative place in India to do a startup.

“The new policy framed by the Department of Electronics and IT/BT has the aim of positioning Karnataka as the ‘Champion State’ for startups and further increasing the number of high-growth startups by 2027,” said the minister for Higher Education, Electronics and IT/BT, Dr CN Ashwath Narayan while launching the new policy on Thursday (December 22).

The Karnataka Startup Policy 2022-27 is based on nine pillars and has seven objectives. Some of the key objectives of the policy include:

• Strengthening of infrastructure set up in government institutions
• Supporting the startup ecosystem, with an increased focus on startup hubs ‘Beyond Bengaluru’
• Inculcating innovation and entrepreneurial skills in students
• Facilitating innovative technology solutions in social governance sectors
• Supporting the creation and development of incubation
• Acceleration infrastructure as key enabler
• Facilitating funding avenues for institutional investors and angel investors

While the state government has yet to make the document public, here’s all that we know so far.

Increased Support For Early-Stage Startups

One of the most important initiatives proposed in the policy is the increased support for early-stage startups in the state. 

The Karnataka government is looking to add 10,000 additional startups in the next five years, which is a challenging task even by the standards of the top startup ecosystem in the country. To enable the growth of startups, the new policy includes programmes to support new-age businesses throughout the business life cycle.

The government has included funding provisions for startups at various stages – from seed to growth stage. The state will also look to ease angel and venture capital funding in startups, and the policy also features provisions for several key sectors.

Apart from funding support, the new policy will also include provisions to provide incubation support, mentorship support, coworking spaces and a dedicated Startup Cell to help early-stage startups grow.

Lastly, the Karnataka Startup Policy 2022-27 will see the establishment of an INR 100 Cr venture capital fund to invest in emerging startups in artificial intelligence (AI), machine learning (ML), electric vehicles (EVs), med-tech, robotics, drones and other emerging technologies across all sectors.

Bringing Startup Culture To Educational Institutions

The startup policy will also look to foster student entrepreneurship within the state, as the Karnataka Startup Policy 2022-27 proposes establishing 50 new-age innovation network (NAIN) centres outside the Bengaluru urban district. 

Thirty-five of the NAIN centres would be established in IT/electronics and 15 in biotechnology institutions of higher learning. 

Karnataka state government will provide annual financial support of up to INR 12 lakh towards operational expenditure for each NAIN centre. Further, the policy proposes to offer financial support of 25% of the total cost, up to a maximum of INR 45 Lakh, for three years, with the rest coming from the college/university.

Simultaneously, the state has also stepped up funding support for student projects, taking the support to INR 5 Lakh per student project, for a maximum of 10 projects per year, for three years.

Applying The Bengaluru Magic To Other Emerging Hubs In Karnataka

The Karnataka Startup Policy 2022-27 has an increased focus on promoting startups in emerging startup hubs. While Bengaluru remains a highly popular choice for entrepreneurs to do a startup, the new policy proposes a conducive environment and an ideal ecosystem for growth ‘Beyond Bengaluru’.

The ‘Beyond Bengaluru’ programme includes multiple financial incentives for startups to set up shop outside the state’s capital.

One of the key measures to make it worthwhile for startups to be outside Bengaluru is the plan for the Beyond Bengaluru Cluster Seed Fund, which will fund early-stage startups in Mysuru, Hubballi and Mangaluru.

Further, the startup policy includes a 100% reimbursement of State GST for Beyond Bengaluru startups, which would be incubated in government-supported incubators and have a maximum annual turnover of INR 1 Cr within the first three years of being incubated.

The government will also reimburse up to 30% of the marketing costs incurred by the startups, or up to INR 5 Lakh of the actual cost. The government will also reimburse the patent filing cost of INR 2 Lakh per Indian patent and up to INR 10 Lakh per foreign patent awarded for startups outside Bengaluru.

The Karnataka government will also reimburse 50% of the cost of quality certification up to an actual cost of INR 6 Lakh and a maximum of three industry-standard quality certifications outside the Bengaluru Urban district.

Outside of the other startup hubs, the policy also includes provisions to identify, support and nurture startups from the Kalyan Karnataka region. The policy proposes the establishment of a Rural Innovation Centre with a funding of INR 15 Cr at a government college/university set up outside Bengaluru.

Further, the policy will provide a subsidy of up to INR 1 Lakh as an internship fee per startup for hiring a maximum of three interns from beyond Bengaluru for a period of six months, for about 50 startups each year.

Fostering Women Entrepreneurship

A quarter of the INR 100 Cr venture capital fund mentioned earlier will be dedicated to back women-led startups in the state, according to the Karnataka Startup Policy 2022-27.

The policy has also proposed the Elevate Women Acceleration and Incubation Programme, which would see 20% of seats reserved for women-led startups in government-supported incubators. 

The programme will also provide a direct loan of up to INR 10 Lakh through the Karnataka State Women Development Corporation to women-led startups.

Bengaluru: Leading India’s Startup Growth Story

The state’s capital, Bengaluru, leads the charts in every metric imaginable to measure a startup ecosystem. The city plays host to more than 11,000 startups, of which 1,710 startups are funded, according to Inc42 data.

These funded startups have raised $62.93 Bn in funding between 2014 and November 30, 2022, according to Inc42 data. In other words, nearly half of the total startup funding in India has gone to startups based in Bengaluru.

Bengaluru’s startup success story is also reflected in the fact that the city has 40 of India’s 108 unicorns and 43 of India’s 100 soonicorns, the most in both the categories. Some of the biggest names in India’s startup ecosystem, such as Flipkart, BYJU’S, Swiggy, Paytm, Razorpay and others are based in Bengaluru.

The Rise Of State-Specific Startup Policies

The year 2022 has seen many states launch new startup policies. Over the last few years, almost all of the states have introduced a state-focused startup policy, aimed at solving state-specific problems and boost the local ecosystem.

For instance, the startup policy for many agrarian states such as Uttar Pradesh, Bihar, Maharashtra, Madhya Pradesh and others include provisions to boost agritech startups in the respective states, while also focusing on the usual suspects of fintech, enterprisetech and others.

In terms of Karantaka’s policy, the state’s intent to become the top startup hub in the country and foster as many startups as possible is clear. The incubation, funding, mentorship and policy support from the government reflects the position of Karnataka as the most attractive place to do a startup in India.

With the early-stage support proposed and the support for women-led and rural startups, it is hard to imagine Karnataka not hitting the 25,000 startups target come 2027.