Investors Crown Hyderabad As India’s Next Startup Powerhouse

Indian startups secured an impressive $141 Bn in funding through more than 1,900 deals between January 2014 and August 2023. Investors primarily concentrated on top-tier cities such as Delhi NCR, Mumbai and Bengaluru in the initial years. But of late, there has been a significant shift in focus as newly emerging startup hubs are capturing substantial investor interest and gaining prominence. Of these, Hyderabad, the capital of Telangana and a major economic hub of India, has grabbed significant investor attention in recent times.

But Hyderabad had its fair share of ups and downs on the investor radar, especially compared to other emerging hubs like Pune and Chennai. It is also important to note that in 2015, when other Indian states surged ahead, thanks to Startup India and Make In India initiatives, the city grappled with the aftermath of Andhra Pradesh bifurcation in 2014.

However, over the past three years, Hyderabad has emerged as a major startup destination. The city has more than 240 funded startups, supported by 550+ domestic and international investors, resulting in a total funding of $2.6 Bn between January 2014 and August 2023, according to Inc42 data. Additionally, it is home to several incubators, accelerators and venture capital (VC) firms. Among these are T-Angel, T-Hub, We-Hub, DLabs (by Indian School of Business), IIT-Hyderabad Foundation, and prominent investors like Hyderabad Angels, Anthill Ventures, Endiya Partners, SucSEED, Splice Capital among others.

“From 2014 to 2023, Hyderabad has emerged as a powerhouse in the Indian startup landscape. Its startup ecosystem now proudly boasts 4,369 tech startups. At T-Hub, we have nurtured over 3,500 startups, 150 mentors and 350 corporate partners. T-Hub 2.0, the world’s largest innovation hub, further cements T-Hub’s commitment to putting Telangana on the global innovation map,” said Mahankali Srinivas Rao, CEO of T-Hub.

An Inc42 analysis of deal count reveals that in 2022, the city secured 59 funding deals, falling slightly behind Chennai with 62 deals but surpassing Pune, which managed 51 deals. Several startups based in Hyderabad have secured more than $100 Mn in funding since 2014, including Greenko Group ($355 Mn), Zenoti ($331 Mn), Spandana Sphoorty ($251Mn), Smartron ($225 Mn),   Zenwork ($163 Mn), Lauras Labs ($148 Mn), HighRadius ($125 Mn), Darwinbox ($115.9 Mn) among others. Also, the city’s fintech startup Zaggle will soon be listed on public markets, as its IPO open on September 14.

“Basically, Hyderabad has a lot of family office money, while Bengaluru has more VC money. The city has substantial wealth in real estate, infrastructure and other areas. If you look at the wealth index, Hyderabad is way above Bengaluru (Knight Frank’s Wealth Report 2022),” said Kiran Raju, founder of Grene Robotics, a local deeptech startup that recently commenced the demonstration of Indrajaal, an autonomous wide area anti-drone/counter-unmanned aircraft system (C-UAS).

Key Factors Fuelling Hyderabad’s Startup Growth

The capital of Telangana has attracted substantial foreign investment, infusing energy and dynamism into local startups, enabling those to scale and expand their operations. Also, the blend of advanced amenities and cost-effectiveness has positioned Hyderabad as a prime destination for founders and investors. Its rise as a thriving startup hub is driven by its superior infrastructure (at times, even better than Bengaluru), affordable real estate and competitive cost of living.

“Hyderabad’s state-of-the-art infrastructure and office spaces have made it an attractive business destination. The city surpassed Bengaluru in adding new office space, amounting to 8.2 Mn sq. ft in the first half of FY23, accounting for 34% of the total new office supply across the top seven cities,” added Rao of T-Hub.

The presence of premier institutions such as IIT-Hyderabad, IIIT-H (International Institute of Information Technology) and ISB provides a rich and diversified talent pool. Again, partnerships between startups and prestigious institutions like the ISB have facilitated knowledge exchange and talent acquisition. Organisations like Research and Innovation Circle of Hyderabad (RICH), Telangana Academy For Skill and Knowledge (TASK), Telangana State Innovation Cell (TSIC) and T-Works have fostered innovation by providing invaluable support, resources and opportunities for research-driven startups.

The city’s reputation as a tech hub has been further boosted by the presence of global tech giants like Google and Amazon, according to Susheel Agarwal, founder and CEO of Ethika Insurance, a six-year-old bootstrapped insurance broking company claiming to be profitable from day 1 and growing organically at the rate of 30% YOY.

Hyderabad’s central location and proactive government policies make it an attractive destination, in line with Telangana’s ambition to grow as a new and developing state.

“How much a government supports you via its policies always defines a thriving startup ecosystem in a particular state, and the Telangana state government is one of the most stable governments,” said Raju of Grene Robotics.

Here is a quick look at the key factors, policies and initiatives contributing to the growth of Hyderabad’s startup ecosystem.

Key Sectors Gaining Prominence

According to Inc42’s latest report titled The State of Indian Startup Ecosystem, 2023, Hyderabad has emerged as one of the top five startup hubs for leading sectors, including ecommerce, healthtech, edtech and media & entertainment.

Furthermore, it is increasingly becoming a popular location for B2B SaaS, manufacturing, fintech and IT sectors, partially due to the presence of T-Hub. As the city offers a potent combination of affordable yet skilled workforce from top institutions like IIT-Hyderabad, it is an undeniable advantage for these sectors as they scale up.

“We have been bullish on Hyderabad’s potential and invested in startups like NowFloats (later acquired by Reliance Industries Ltd) and The Roll Number, operating in the blockchain space,” said Artha India Ventures’ managing partner and director, Anirudh Damani.

Hyderabad is also a prime location for KPO and BPO operations due to the city’s superior infrastructure and high demand for talent. In brief, its unique fusion of affordability and infrastructural prowess has propelled it among India’s top three emerging startup hubs.

Opportunity For Emerging Hubs In New Bharat

The emerging hubs of India have always been the driving force behind the country’s growth, as that is where the heart of Bharat beats. As Damani of Artha India Ventures emphasised, there was great wisdom in Wayne Gretzky’s adage when he said: I skate to where the puck is going to be, not where it has been. This approach resonates well with the rapid rise of startup hubs like Hyderabad, chosen by several unicorns due to their advantages. In the future, even more businesses will likely enter these emerging hubs and cater to their vast population.

Thanks to a vast and affordable talent pool and lower capital requirements, it is strategically advantageous for founders to kickstart their ventures in these cities. More importantly, the purchasing power will remain at the core of a thriving Bharat with more disposable income instead of a handful of metros where growth has already reached a saturation point. As young companies scale up, the allure of larger cities may wear off, as a new set of eager consumers from Tier II and beyond will help drive their businesses.

So, it is not surprising that many unicorns have chosen to stay rooted to their non-metro origins, and many more are starting away from the metros. After all, there are unique opportunities (and challenges) in these areas compared to Tier I, and the growth playbook is rapidly changing. A seismic shift in the entrepreneurial landscape is visible due to the widespread acceptance that these cities have significant consumption potential.

As Anil Joshi, managing partner of Unicorn India Ventures, highlighted, both central and state governments have been able to evangelise the startup ecosystem across the country, especially beyond metros and mini-metros. These initiatives have started showing results, and some high-potential startups are now emerging from Tier II cities and beyond.

“We expect this to strengthen further due to digitalisation and the availability of capital for good companies. As for tech companies, work-from-home has certainly helped them get started from anywhere. And it has benefited all Tier II cities and beyond,” Joshi added.

But unless a company goes fully remote, emerging startup hubs like Hyderabad are goldmines full of untapped opportunities. Besides, investors today are looking beyond the saturated metros like Delhi, Mumbai and Bengaluru. Venturing into emerging ecosystems across Chennai, Pune, or Hyderabad will help them strengthen their presence and gain a first-to-market advantage away from the overcrowded mainstream VC territories. And in a new Bharat, looking for better opportunities everywhere will be a smart strategy that can spur growth and bring enormous rewards.

[Edited by Sanghamitra Mandal]