With the collapse of Tinyowl, Housing, Purple Squirrel and Doormint over the past year, many seem to have a pessimistic view of the Mumbai and the Powai startup ecosystem, but is that really the case?
“They say it is jinxed,” said one startup founder to another sitting at the next table at a cafe in Mumbai’s Powai, or Powai Valley, as the IIT Bombay startup enthusiasts like to call it.
What could possibly be jinxed in a resilient city like Mumbai?
It transpired that they were talking about Supreme Business Park that stands tall and robust against rugged peaks, which is rumoured to be cursed. But doesn't Supreme Business Park also house many successful brands? So what is fanning this whisper?
Those of us who have been associated with the startup ecosystem know that Supreme Business Park has also been home to startups like TinyOwl, Purple Squirrel, Doormint, and of course, Housing.
In 2015, these startups were the poster boys of the Mumbai startup ecosystem. They were answers to Bengaluru startups like Swiggy.
“Tinyowl actually had a better UI/UX and the experience was much better. You never know who wins the bets in the startup ecosystem. It all boils down to execution,” says an IIT Bombay startup enthusiast, and someone who has watched the Mumbai startup space grow.
Yet the truth remains that the land of several first-generation business houses and entrepreneurs doesn’t seem to have become a startup hub like Bengaluru or even Delhi NCR for that matter.
Since the downward spiral seen by a few startups, many cannot but wonder if new-age tech startups can even survive in the city. However, Kashyap Deborah, Founder of HyperTrack and author of the book, The Golden Tap, believes otherwise. A supporter of the Mumbai startup ecosystem, he says,
“I have built tech companies out of Powai and New Delhi. I have seen success in achieving our goals in both instances. To start with, a tech startup really needs a few great people with a common purpose, and not a whole army of people. Mumbai has enough depth of talent and economic viability that it is possible to put this together.”
According to YourStory Research Data, in 2015 a total of 150 startups in Mumbai were funded across different stages amounting to a whopping $1 billion. Of these, 77 were early stage or pre-Series A startups, which were funded $81 million.
There were 23 startups in Mumbai that were Series A funded a total of $96 million. Over 19 startups raised Series B funding totalling $212 million, five startups raised Series C funding amounting to $230 million, and three received Series D funding worth $166 million.
In 2016, the total number of startups funded in Mumbai was 85, which received a total of $851 million. Of these, 63 were early stage or Pre-series A funded startups, which attracted $44 million. Over 14 startups raised Series A funding of $80 million, and nine startups raised Series B funding of $60 million. Two startups raised Series C funding amounting to $20 million and five raised Series D funding amounting to $193 million.
In the first quarter of this year, 11 startups have already raised Pre-Series A funding of $5.6 million seven have raised Series A funding of $23 million, six have raised Series B funding amounting to $51 million and one Series D funding of $21 million has taken place.
To this question Kashyap says,
“Let me give you other examples: Cleartrip, Ebay, JustDial, Billdesk, DirectI, BrowserStack have done phenomenally well at good scale. Due to the inherent business culture, Mumbai has an advantage over Delhi and Bengaluru in my opinion.”
Indeed, there are several thriving startups. For example, there’s BookMyShow, a company run by a Mumbai advertising professional, Ashish Hemarajani. He has been able to build a monopoly of sorts in the ticket booking space.
There is Nykaa, which has raised significant growth capital and, according to its founder Falguni Nayar, it is all set to crack an IPO in 2018. There are second-generation entrepreneurs like Ronnie Screwvala, who even co-founded an edtech startup out of Mumbai, UpGrad.
And not to forget Freecharge, one of 2014’s and the startup ecosystem’s biggest exit, had started up in Mumbai, and so did Ola. However, the latter shifted base to Benglauru.
The figures state that while the early stage rounds are few and far from one another, the number of later stage rounds haven’t stopped per say. Also, when it comes to understanding whether a startup can thrive and survive, funding isn’t the only parameter.
Between 2016 and 2017, over 16 startups have seen exits in the form of acquisitions. While these might include Housing, Tinyowl, and Doormint, it nevertheless does show an exit. And seven startups have shut down.
Ajeet Khurana, the former director of IIT Bombay’s Incubator SINE who is now an angel investor, and a known mentor in the Mumbai startup ecosystem, believes that in many of the gloom and doom cases, the fault wasn’t with Mumbai or the ecosystem in Mumbai. He says,
“It is the function of any business and startup cycle, when new-age tech startups are born there are many who follow similar business models. Then it becomes a function of who can change consumer behaviour the quickest and execute the fastest. The remaining get consolidated or die.”
This just isn’t restricted to a geography or a location. There are several startups across the country that haven’t been able to stand the test of time.
Ajeet adds that most of these startups were started by 20-year-old founders with no domain expertise in areas where there was no competitive advantage. The driver for all of these startups was funding.
When funding became scarce, many startups started floundering. Thus, most startups shutting down, according to Ajeet, was a function of business models and lack of proper execution. Food delivery, grocery delivery, hyperlocal, e-commerce and handyman services, need a new consumption pattern that didn’t exist earlier. He says,
“When that is the case you cannot have 10 different players in the market and have all of them surviving. The first ones to get funded in this lot are those who have a strong pedigree or who have already raised some money and more money is chasing them. These aren’t advantages for a business, these are proxies used. The problem I think has been poor investment decision making in choosing the wrong sector, putting in more money than required and not waiting for the business model to evolve.”
But then, that is the function of any new technology. When the internet became a part of our everyday lives, everyone assumed that it would disrupt everything. Similarly, with a new channel like mobile today, everyone assumes that technology to be disruptive and ends up pumping money in it. This is now happening in the case of AI. Magic leap, the US-based AI startup has already raised a whopping $1 billion. In cases like these it is a winner take all market.
In the case of consumer internet companies, there is a clear need for capital to build a brand and to create a certain consumer behavioural pattern.
The reason Bengaluru trumps Mumbai is because it is easier to find talent in Bengaluru. Mayank Kumar, Co-founder of UpGrad, believes that the residual IT services market gives tech startups in the city an advantage. “The IT companies give you a massive talent pool to pick from. In Mumbai, that talent pool is lacking,” adds Mayank.
“We possibly are one of the best examples of tech companies surviving in Mumbai,” says Bhavin Turakia, Co-founder, Directi. And while there are other examples of fintech startups like Mswipe that are now growing and thriving in the city, one, however, cannot argue that the tech talent in Mumbai is substantially lower than the tech talent in Bengaluru and Hyderabad.
But while the tech talent is lower, Sanjay Nath, Managing Partner, Blume Ventures believes that this leads to lesser tech distractions. It is easier to retain talent.
“There is no arguing that for deep tech skillsets there are five times more candidates in the southern part of India than in Mumbai, but then in Mumbai the competition is lower. There are fewer tech startups here, so there is lesser competition in finding that talent,” confirms Bhavin.
Bengaluru and Hyderabad have had the biggest advantage of an existing IT services ecosystem. Over the past couple of years there has been a significant focus on mobile. Sahil Sheth, who heads B2B at Byju’s, after his Mumbai-based edtec startup InfiniteStudent was acquired by Byju’s, believes,
“The kind of people who are willing to try and experiment with newer technologies would generally be those who have had some exposure in working with developing new products. And because of the existing IT background, many Bengaluru-based techies would have had some exposure with that. They have experience and are more qualified to teach themselves newer technologies.”
Also Bengaluru has tech companies that are willing to experiment with newer technologies, it helps startups thrive here. This allows more mixing of tech talent in the city. InMobi, Ola, Flipkart, now even Quikr, and Practo all strong tech-driven companies are in Bengaluru, so people tend to gravitate there.
With tech talent gravitating to Bengaluru, more startups are born, which leads to more investors entering the market. It is how ecosystems are built. While they have strong presence in Mumbai, most VC firms have gravitated to Bengaluru.
“It is like in the US, where most engineers want to go to San Francisco. It isn’t like there aren’t great engineering jobs across the US, it is a mindset and the existence of an ecosystem. Bengaluru is going to just become stronger, the talent is going to move towards the city because they think there are cooler jobs there. It’s like a self-fulfilling prophecy,” adds Sahil.
It is a no-brainer. There is IIT Bombay in Powai and the students at IIT Bombay are willing to learn new skills while they are in college. But it also means that a group mentality forms in. Sanjay adds,
“When you have like-minded people in one area, you end up getting similar ideas, and end up working together. This forms a hub. Many of the initial startups out of IIT Bombay had similar ideas because the founders and the teams had similar thoughts and ideas. They all seemed to be in consumer internet space.”
But then every business needs to aspire to become number one or atleast number two in order to survive. With several different players in the market, that contention becomes difficult. Sanjay adds that many people felt that the market size was so big that they told themselves, ‘Let’s just get into the space and get atleast one percent of the market.’
“But in B2C businesses you need to keep raising capital and to raise capital you need to show consistent traction,” adds Sanjay. However, since IIT Bombay is located in Powai, it also becomes the hub for people to learn and experiment with newer technologies.
E-commerce and content companies are found in Lower Parel area. Therefore unlike Bengaluru where areas like HSR, Koramangala, and Indiranagar are one stretch, Mumbai has pockets of startups. But there are a whole host of Mumbai based companies who are building quietly in areas from Goregaon to Andheri to Navi Mumbai.
Apart from the availability of tech talent, one of the biggest shortcomings for Mumbai today is the fact that it is counted as one of the most expensive cities in the world.
“Few people would move to Mumbai to just startup. Most likely these people are from Mumbai and are returning or they went to IIT Bombay and the Powai background makes it easier for them to startup or are founders who come from corporates that are based out of Mumbai,” adds Sanjay.
Also, as the city is expensive, early stage startups find it difficult to set their base. “It is given that in Mumbai, you will have to pay a higher compensation package than in any other city,” adds Mayank. This, therefore, makes it imperative for startups to have enough funds in place to manage the day-to-day expenses.
However, Mumbai has always been a cosmopolitan city. Many people have made Mumbai their home. And since the city is expensive, Sanjay believes that it has made people professional, tenacious, and street-smart.
“The city itself has a lot of resilience. While tech talent might be difficult to find in Mumbai, it is where all the marketing and sales talent is,” adds Sanjay. Apart from content and media, where Blume has invested in Glamrs, and in fintech companies like Turtlemint and Chillr, Sanjay also sees great potential in renewable and clean tech.
"Carbon Clean Solutions, which has now become UK-based company, started in Mumbai as well. Aniruddha and Prateek picked Mumbai for its base as India's commercial capital, largest port, and other unique advantages when we wrote their first institutional cheque way back in 2011," says Sanjay.
Sahil adds that every startup has a sales head office in Mumbai. That is because most of the MNCs are in the city and decision makers are in Mumbai.
“Mumbai can very well become a parallel startup hub, it just needs two or three super successful new-age tech startups to come out of there for that to happen,” adds Sahil. There are several sectors, however, that can naturally thrive in Mumbai–fintech (TurtleMint, Rubique, and Mswipe), content, media and entertainment. This is because they already have the support systems in place.
Believing that Mumbai will be the next fintech hub isn't that difficult considering most banks are headquartered there. The talent then becomes easier to pick from. One aspiring fintech startup founder believes that the main offices for most fintech companies will be in Mumbai, but they will have smaller tech offices in Bengaluru. Thus running a parallel system. Ajeet adds,
“If you look globally, London is a fintech hub. While the city is one of the most expensive cities in the world, fintech startups thrive there because of the inherent finance talent and ecosystem. The world’s best and biggest financial institutions are in London, so starting a company in the financial services space is easier in London. It is going to be the same case with Mumbai.”