Infrastructure, industry, policy: Challenges facing Bengaluru startups

Startups in Bengaluru are currently confronting several challenges. The ongoing funding winter due to macroeconomic headwinds has left many cash-strapped.

The drop in investment in the city's startups has had a significant impact on the industry, with funding estimated to have fallen by 48%—from $20.8 billion to $10.8 billion between CY 2021 and 2022, according to Traxcn data.

However, other than capital constraints, startups in 'India's Silicon Valley' also have to deal with infrastructure issues, bureaucratic roadblocks, and industrial bottlenecks. The city's startup ecosystem is not averse to these problems, however, many companies see them as an impediment to growth.

With Karnataka assembly elections around the corner, Bengaluru's startups are hoping for a push from the new government to address severe infrastructure issues.

Infrastructure woes

In September last year, heavy overnight rains plunged Bengaluru into crisis, flooding many tech parks and companies along the Outer Ring Road. The city receives an average annual rainfall of 970mm, which often puts the city to a halt.

The city also suffers from regular power outages, with a Bangalore Electricity Supply Company (BESCOM) report showing power cuts of 134 hours in 2020-21. There's also a need to upgrade software and implement the Distribution Automated System project which first took off in 2019.

Bengaluru is one of the world's most congested cities, with Tom Tom Traffic Index showing drivers spend 134 out of 260 hours a year covering a 10 km distance. The city's municipal body received 40,000 complaints within a week of the launch of its 'Fix My Street' app earlier this year.

Karnataka has also not yet adopted the Model Tenancy Act, requiring landlords to only keep a security deposit of two months.

Industrial challenges

The startup ecosystem also faces a lot of industrial bottlenecks. The absence of suitable infrastructure, including housing and transport options, is one of the main impediments. Due to rising traffic congestion and a lack of affordable housing alternatives brought on by the city's rapid population development, it may be challenging for startups to recruit and retain top personnel.

The lack of qualified talent, particularly in specialised fields like cybersecurity, data analytics, and artificial intelligence, is another impediment. Bengaluru is home to a sizable pool of engineering expertise, but there is a dearth of qualified specialists in new disciplines, which can make it challenging for startups to find and retain the personnel they need to expand their company.

Startup policy

In December 2022, the state unveiled a startup policy for the next five years, anticipating an average annual real GDP growth of 9.9% between 2020 and 2024. This growth forecast is based on Bengaluru's exceptional performance since the city has been topping the list in attracting funding for quite a few years. However, the funding cut has considerably dimmed these expectations.

The Karnataka Startup Policy focuses on stimulating 25,000 startups over the next five years and setting up a Rs 100-crore venture capital fund to support deep tech startups engaged in various disruptive technologies. Additionally, startups are promised a one-time grant-in-aid of up to Rs 50 lakh.

However, whether these promises can be fulfilled and if a change in government would lead to a policy shift are difficult questions to answer.