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Tier 1 Cities Dominate the Start-Up Landscape, But For How Long?

Valuation & Fundraising for High-potential Start-ups

As part of its workshop on “Valuation & Fundraising for High-potential Start-ups”, TechSci examines how location can be the difference between a struggling start-up and a start-up riding the gravy train

India is considered globally as the 3rd largest start-up system in the world. It is home to nearly 5000 tech start-ups employing around 100 thousand people, with 1400 new tech start-ups entering the $4 billion market every year. It is big, it is highly competitive, and it is fascinating. People compete and coexist side by side as they pitch ideas to attract investors, tinker with management styles, try and attract top talent, all for the sake of become the next big thing on the Indian horizon.

Entrepreneurship and creativity in India seems to be reaching a new zenith every year. To salute our entrepreneurs, both young and old, TechSci is hosting an event “Valuation & Fundraising for High-potential Start-ups”. As part of the unfolding series culminating in the event, TechSci has decided to get together some experts to discuss the value of a good location and what role it plays in taking your start-up story from now to next.

India Start-Up Scene: A Vignette

Names such as HealthifyMe, DocsApp, UrbanClap, EPS etc. have become household names at this point. There footprint has been expanding at an impressive rate, given that India’s youthful, internet oriented and relatively prosperous populace doesn’t mind shelling out money for services or gadgetry, the two major sectors where start-ups are really starting to make a difference.

Growing awareness, increasing number of start-up incubators, renewed focus on ease of doing business are just some of the reasons that play a major role in entrepreneurial inflection point that we witness in the country today.

In terms of number of start-ups, India lags behind the US (52 thousand-53 thousand) and UK (4900-5200). Israel, with around 4500 and China with around 4200 fall slightly behind India and round up the top 5.

At the rate at which start-ups are growing in India, we are set to play host to over 10000 of them over the next 3 years, if the trend holds. Total talent employed may rise to 250 thousand people during the same time period.

Why Location Matters

Start-up geographical clusters can be divided into three distinct categories: the leaders, the emergent and the aspirants. Let’s today talk about the leaders in start-up geographical clusters – Bangalore, New Delhi and Mumbai.

As of today, around 70% of total start-ups are housed within these ‘leader’ hubs. There are a wide variety of reasons for this. Better infrastructure, better access to investors, who mostly reside in these cities, access to top talent from institutions such as IITs and IIMs form a quantum of the reasons why these cities are popular.

It is also interesting to see how the culture and flavour residing in each city has influenced the way the entrepreneurs of that particular city behave. Bangalore, for example, has been a tech hub and has been called the ‘Silicon Valley of India’ and has been the home for quite some tech start-ups that are taking the country by storm.

Similarly, Mumbai, home to Asia’s oldest stock exchange, is specializing in FinTech. Delhi, which has since olden times served as a freight corridor is emerging as an eCommerce hub.   Over 30% FinTech start-ups and 30% eCommerce start-ups are based in Mumbai and Delhi, respectively.

The geographical leaders serve as a home to over 3300 of the total start-ups in India, Bangalore with 1300+, Delhi with 1175+ and Mumbai with 800+. Moreover, the leaders also dominate funding, with Bangalore ($1.2-$1.4 billion) leading Delhi ($0.95-$1.05 billion) and Mumbai ($0.65-$0.75 billion).

Thus, a good geographical location doesn’t just come about by accident. It is important for potential entrepreneurs to locate themselves at the right place to get the right kind of reaction from the markets. A start-up location can potentially be the difference between a run of the mill start-up and a bona fide gamechanger.

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