In highly competitive environments that are quite the norm these days, ecosystems need to be at their very best to enable startups to thrive
The 2017 Startup Ecosystem report by Startup Genome evokes a good sense of surprise for a multitude of reasons. First, the report saw two new Asian cities figure in the top 20 – Beijing and Shanghai. Second, the two Asian cities that previously held positions #10 and #15 in the 2015 survey — Singapore and Bangalore — are now placed 12th and 20th respectively.
The Startup Ecosystem Report assesses the investment climate, access to funding, market reach, growth potential, model structure, talent, performance (early stage success, mid-term success, easy exits) and resource availability in a particular region and ranks the region based on how effectively these parameters hold out. The more the parameters met, better the startup ecosystem.
The rise of Beijing and Shanghai in the ranking comes as quite a breather for Asian cities, and it is indicative of a potential trend that might see several more Asian cities feature at the top of the Startup Ecosystem rankings. In fact, the reasonably strong Asian presence comes even against the backdrop of Asian cities receiving 10 per cent lesser than Western and European counterparts in Accelerator funding.
Singapore and Bangalore, the two ecosystems that were the pride of the Asian representation, couldn’t do much in outperforming other prominent ecosystems in crucial parameters over the last two years — a reason why they slipped slightly in the rankings.
Why exactly have Bangalore and Singapore dropped in the rankings?
Well, in highly competitive environments that are quite the norm these days, ecosystems need to be at their very best to enable startups to thrive. The higher the number of successful startups, the bigger the potential for significant economic growth and employment opportunities. These two parameters further go on to influence per capita income and standard of living.
A reason why Beijing and Shanghai were ranked at the top (Beijing at 4th and Shanghai at 8th) is because of easy access to funding and strong indicators with respect to early stage success and easy investor exits. With companies experiencing success at earlier stages, investors are being able to recover investments faster leading to early and easy exits.
Also, mid-term growth, usually considered over a 3-5 year period, and hiring industry ready and experienced talent have been essential contributors to ensuring their ascent in the ecosystem rankings. Unfortunately, as far as early stage success and mid-term growth prospects are concerned, both Singapore and Bangalore lost out.
Bangalore has no doubt been a good environment for startup funding, but the extent of access to funds after the initial funding rounds isn’t quite enough to enable it to be in the top 10 startup destinations. Singapore faces a similar problem, although not very pronounced as in the case of Bangalore, with a handful of startups facing funding blues.
Bangalore and Singapore lost out even in market reach — a crucial factor that investors see before pulling out or continuing to invest. Many startups in Bangalore and Singapore have lost out due to abrupt investor exits and not receiving further rounds of funding, mostly because prospective growth figures aren’t in tandem with investor expectations.
Why Bangalore and Singapore remain preferred destinations for startups
Singapore’s outlook has been commendable, ever since the inception of the Startup Ecosystem report. The island nation ranked high in overall startup experience, availability of funding, and market scope, precisely why it was ranked No. 10 in the 2015 report. Bangalore too performed excellently in access to funding, investor confidence and performance.
In the case of Singapore, a rather crucial point to consider while arguing about the island state continuing to be a preferred startup destination is that Singapore ranks No. 1 in talent, outperforming prominent ecosystems including Silicon Valley and New York.
The right talent translates to hiring the right human resources and the right human resource creates an enabling environment for medium term and long term growth prospects. There are a host of reasons that have allowed Singapore to rank no. 1 in talent.
First, almost 80 per cent of engineers who join top startups in Singapore already have prior startup experience of a minimum of 2 years. This is applicable to 74 per cent of startup growth teams as well. The global average on these parameters is 72 per cent for engineers and 60 per cent for growth teams.
Singapore also attracts students from across the globe to study at its prestigious institutions, and of late, students from several developing countries have replaced their choices — from Western Institutions to Institutions in Singapore and South East Asian countries. Increased costs and dwindling opportunities are some of the reasons why students have started moving to Southeast Asia countries to pursue academics and careers.
The percentage of startup owners who are immigrants stands at 35 per cent — the highest in the world. Singapore has also become the preferred destination for many Indian startups for many a reason including favourable environments, business scope and straightforward compliance procedures.
Another strong parameter is that the average age among startup founders in Singapore is the youngest in the world at 28 years. This is a highly encouraging figure, as young startup founders often gain experience quickly, having being exposed to arduous situations at a very early stage, and often convert hiccups and difficulties into measurable success.
The startup ecosystem in Bangalore, according to the report, grew four times, with more startups gaining momentum and several new startups receiving seed funding rounds. As a matter of fact, Bangalore witnessed phenomenal growth in seed funding, posting a whopping 53 per cent growth — a clear and tenable reason why the Indian city is still one of the global startup ecosystem hotspots.
It comes as no surprise that funding is perhaps the most important factor that propels startup growth. But as much as funding does its might bit in giving startups the much needed fillip to make an impact, a viable business model that is focused on constant evolution and adaptation to market dynamics cannot be more crucial.
There have been some rough patches, however — several startups in Bangalore are either downsizing their workforce, contemplating mergers, since mergers are a good thing for a startups survival, or shutting shop because of mid-term funding issues and lack of aggressiveness in evolving and adapting to market dynamics.
Our company, BankBazaar, plans to hire 400 industry ready professionals in order to add more value to the financial marketplace model and revolutionise the world of online finance. As a matter of fact, many Indian startups are exploring foreign ground to give their footprint a significant boost.
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