Sitting in a cafe in suburban Powai, I overhear two young people at the table next to me discussing a startup idea to tackle India’s urban transport problems. Names like Sequoia Capital and Seedfund are thrown around.
Powai, a suburb of India’s financial capital Mumbai, has become a hot startup hub in the last three to four years. Entrepreneurship has become the talk of the town with startups like real estate portal Housing, skill development startup PurpleSquirrel, food delivery app TinyOwl, and test prep website Toppr calling it home, and money flowing in from investors like Matrix Partners, SoftBank, and Nexus Venture Partners.
The attractions of Powai
The Indian Institute of Technology (IIT) Bombay, one of India’s top tech universities, is located in Powai. It has had a series of entrepreneurial alumni, including the founders of ride hailing app Ola, Housing, Toppr, and TinyOwl. The inspiration has convinced others to startup in the town, which is relatively better organized compared to adjacent Mumbai.
With decent office complexes, abundant talent from nearby colleges, and relatively good roads compared to India’s other cities, IIT Bombay graduates turning entrepreneurs have been making it their base, at least until their startups begin to scale.
“I have seen a shift in inclination of my class from going after ‘fat salary’ jobs to entrepreneurship,” says Prof Milind Atrey, professor-in-charge of SINE (Society for Innovation and Entrepreneurship), IIT Bombay, which has incubated 78 companies till now.
IIT Bombay will also become the first amongst its ilk to offer a course in entrepreneurship along with an undergraduate degree in engineering.
“After graduation, students don’t wish to move out of this town which has led to its becoming a startup hub,” says Milind.
The SoftBank-funded real estate classifieds portal Housing was founded by a group of 12 IIT Bombay graduates, most of whom were living and working out of the same flat.
Amit Golani, an IIT Bombay graduate and director of TVF Pitchers, a web play inspired by American TV series Silicon Valley, explains the lengths to which young entrepreneurs go to remain in Powai.
“Two of my college mates deliberately flunked a year, just because they did not wish to move out of the college and its hostel,” says Amit.
Everything is more expensive here
Powai is expensive. That’s one of the reasons why so many young entrepreneurs would share a small flat or even try to stick on in college.
The average rent of residency is almost three times that of India’s two other big startup cities, Bangalore and Gurgaon. This has a cascading effect.
“From transport, to groceries, to rentals, everything here is expensive, which forces startups to pay more salaries to employees than they would in Bangalore or Gurgaon,” says Aditya Gandhi, cofounder of Purple Squirrel, a Powai based startup that acts as a marketplace for workshops and learning tours for students who want to expand their skills.
Commercial rentals are almost twice the rates of Bangalore or Gurgaon.
In adjacent downtown Mumbai, the commercial rental rates are four times compared to Bangalore, making it impossible for startups to move to the city.
And if you want to save on home rentals by living in the more outlying suburbs of Mumbai, the commute gets time-consuming and expensive. Taxi fares from Malad or Andheri to Powai cost over INR 200 (US$ 3) one way, expensive for fresh graduates in India who earn about US$400 per month.
Even startup CEOs find it difficult to afford a house in Powai with the average price of a 1,000 sq ft apartment at about US$1.1 million.
High burn rates of Powai startups
Not surprisingly, startups in Powai – Housing and TinyOwl, in particular – were the ones that kicked off the spate of layoffs in the Indian startup ecosystem this year.
At Housing, an upheaval in top management followed unprecedented hiring. Finally, after the departure of its founder CEO Rahul Yadav, the company let go of about 600 staffers to control its burn rate.
TinyOwl let go of about 300 staffers. Its base has shrunk to just two cities of Mumbai and Bangalore.
When a cash crunch hits, will Powai startups be the worst impacted? They certainly have the highest burn rate in terms of salaries and business expenses. “High fixed costs and business expenses have a double impact, burning cash from both sides,” Aditya adds.
There has been a realization of the need to cut costs, especially in areas like marketing. Billboards of Housing which burnt an estimated US$16 million in its LookUp outdoor campaign are now absent from India’s arterial roads.
TinyOwl has cut back on cashback offers and is doing online campaigns this festive season. Through its mobile app, it promises to fulfill the childhood wishes of its users when they order a meal. “We are getting wishes such as pastries and chocolates from our users. They don’t cost as much [as cashback or other offers],” says a TinyOwl spokesperson.
The uncertainty among employees of Powai’s prime startups with regard to their jobs is palpable, even if fundamentals of the Indian economy remain strong. And yet, entrepreneurs who have made this upscale Mumbai suburb and its crown jewel of IIT their base are reluctant to shift.
“We are not looking to move out as we will not scale our workforce beyond a certain limit since we are into the tech product space,” says Aditya of Purple Squirrel, who employs about 100 people now.
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