Bangalore Is World's 2nd Fastest Growing Startup Ecosystem, Has Youngest Entrepreneurs, Says Study

29/07/2015 5:07 PM IST | Updated 15/07/2016 8:25 AM IST
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International Tech Park, Bangalore (view from the forecourt of the Taj Vivanta Hotel, where we were staying)

Bangalore has risen four places in the latest Global Startup Ecosystem Ranking by San Francisco-based Compass, a research firm that provides global benchmarking tools.

Their first such report on worldwide startup ecosystem was in 2012. The current rankings have new entrants, cities that improved their score way higher than the last instance, and those that slipped. The data collection this time around is more comprehensive, so findings might not be directly comparable. But still, cities that have improved can take pride in their performance.

Like Bangalore, which at rank 15 is the only Asian city apart from Singapore to figure in the top 20. The city scores big time on exit valuations. Bangalore witnessed five times more exit value last year than it did in 2012. Across twenty startup cities, the average value was up 78 percent, so Bangalore outstripped them handily. But Berlin did even better, thanks to the IPOs of Rocket Internet and Zalando: exit value grew by a factor of as much as 20. That is by far the highest of all cities surveyed.

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Venture capital funds also favoured Bangalore over most other cities, with a 4x rise in the amount of funding, which is an indicator of a thriving startup scene. A total of $2.256 billion (Rs. 14,428 crores) of venture investment was made in Bangalore last year, which made it the 7th biggest investment destination in the report. Clearly the huge amounts raised by India's e-commerce players such as Flipkart and Snapdeal made a difference.

Berlin, with a robust ecosystem, saw the highest rise in venture dollars at 12x. Bangalore did better than cities such as Boston (3.7x rise), Amsterdam and Seattle (both 2x). Overall, across top 20 cities, venture funding rose by a whopping 95 percent between 2013 and 2014.

As a result of high exit values and sharp growth in venture funding, Bangalore was ranked second only to Berlin in the Global Startup Ecosystem Growth Index. Bangalore also had the youngest entrepreneurs, with an average age of 28.5 years, compared with Silicon Valley's 36.2 years.

Hiring software engineers is much cheaper in Bangalore, with an average annual salary of $23,500 (Rs 15 lakh), compared with $118,000 in the Valley. Employees in Bangalore also get much less equity at just 7 percent. That compares with an average of 23 percent for the region.

Cities in the top 20 also had a more international workforce, with foreign employees representing 29 percent of the companies' workforce. Silicon Valley startups had a much higher percentage of expat employees at 45 percent. That's on expected lines - the region has long attracted the best tech talent from around the world. Sixteen of the top 20 rankings were taken by cities in the United States and Europe.

The number of foreign employees employed by startups. On average, foreign employees working at startups within the top 20 ecosystems represent 29 percent of those companies’ workforces. In Silicon Valley, the average is 45 percent.

Silicon Valley still ranks as the best ecosystem and has the highest density of startups. Despite Berlin's growth in exit value and venture funding, it ranks ninth. New York City, where former mayor Michael Bloomberg put in policies to attract more startups, ranks 2nd, a rise of three ranks. “We see Silicon Valley growing at a 47 percent rate over the last two years [but] many other ecosystems are growing at a much faster pace," said Compass CEO Bjoern Herrmann.

The startup ecosystems which made the biggest falls are Vancouver, Toronto, Sydney, and Seattle. "All of these ecosystems did grow in the past three years, but not as fast as other environments, which puts them at risk of eventually being left behind," the report said.

The full rankings can be seen on the Compass blog.

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