In spite of economic headwinds and a global funding freeze, Bengaluru remained the country’s topmost startup hub in 2023, recording 249 funding deals and raising $4.2 Bn. Delhi NCR emerged a close second, securing $2.7 Bn from 241 deals.
The slowdown took its toll, though. According to an Inc42 report, this marks the lowest funding Bengaluru startups have seen since 2017. The highest was recorded in 2021 at $22 Bn, followed by $11 Bn in 2022.
Karnataka has now adopted a support-and-collaboration approach so that startups across the state can hit their stride and bottlenecks can be removed.
In an exclusive interaction with Inc42, Karnataka IT & BT, Rural Development and Panchayati Raj minister Priyank Kharge underlined the government’s efforts beyond funding, such as providing plug-and-play infrastructure, enabling access to global markets and supporting emerging technologies.
“In the last six months, we disbursed more than INR 50 Cr as grants and supported 208 startups,” he added.
Not the one to shy away from tough talks, Kharge delved deep into several concerns, including the water scarcity in Bengaluru, startup brain drain and more.
Here are the edited excerpts from the interview.
Inc42: You initiated many startup programmes, such as Elevate and Grand Challenges, during 2016-18. So, what’s different now?
Priyank Kharge: The challenges we face now are bigger and tougher due to significant shifts in the startup landscape. New technologies have come in various sectors, fostering innovation, and the ecosystem has matured substantially. Also, last year [2023] was challenging for the VC fraternity and we felt the lingering effects of the Covid-19 pandemic.
Nevertheless, we see a resurgence in entrepreneurial spirit and the government must provide support. With the China narrative declining, attention is increasingly turning towards India. As a result, we have repositioned ourselves not only as an innovation and invention hub but also as a major player specialising in scaling, incubating and nurturing leadership.
Innovation is vital, but we are also focussing on building a robust entrepreneurial foundation through comprehensive skill development initiatives.
Inc42: How would you meet funding requirements across startup stages?
Priyank Kharge: For the first time, the government is engaging directly with VCs to discuss seed capital, later-stage funding, exits and more. We already had two meetings with them and the most recent one took place a couple of months ago. During these interactions, we asked VCs what steps we should take to ensure better collaboration and support for startups. It may require bringing them together on a single platform for assessing ideas or providing mentorship and networking opportunities beyond just funding.
We are actively working on solidifying this collaboration and expect to announce a new framework within the next few months after the Lok Sabha polls are over. Of course, we can’t compel VCs to fund our startups, but we can present these ventures, thus reducing the time it takes to gain recognition and support.
However, our support is extended beyond funding. We offer access to overseas markets through initiatives like the Global Innovation Alliance-Market Access Programme (GIA-MAP), provide opportunities for pilot projects and have a public procurement policy in place for sourcing from startups. We view startups as partners and aim to provide a comprehensive ecosystem to support their growth and success instead of merely facilitating transactions.
Inc42: With artificial intelligence emerging as the fastest-growing technology, how would you strengthen the AI ecosystem in Bengaluru?
Priyank Kharge: Several measures are crucial for success when we consider investing in emerging technologies like AI. First, we must ensure that people are adequately reskilled and upskilled to understand AI and become employable. Second, we must set up incubation centres or centres of excellence for widespread AI utilisation and leverage the existing infrastructure wherever possible. Third, we have to look at the broader policy framework to determine where the technology is headed, what actions are being taken and whether fresh regulation is required.
Collaboration with industry leaders and policymakers is essential here. In addition, we have partnered with the World Economic Forum to establish its only AI Centre of Excellence (CoE) in India, underscoring our commitment to industry excellence. We aim to achieve the highest standards in AI implementation by focussing on vertical-based strategies. Another example is the GIA-MAP, which helps our startups enter the global market.
Inc42: What about the competition from other startup hubs like Delhi NCR or Hyderabad? Will that hinder Bengaluru’s growth?
Priyank Kharge: Yes, other ecosystems are emerging, but Bengaluru has consistently held the top position, pioneering innovation and continuing to do so. Our agility sets us apart – no other ecosystem in India matches our pace. It is not just about the number of startups [roughly, 13K DPIIT-registered in Karnataka]. It is also about the value they bring.
Think of the funding the startups from this state have secured. Out of the total funding raised by Indian startups, Karnataka startups account for approximately 60%. These are impressive numbers, indicating their value. Also, consider what contributions we are making to the job market and the overall valuation of the startup ecosystem. These are the metrics that truly matter.
Inc42: Bengaluru has been grappling with challenges like traffic, floods and groundwater depletion. How would you fix these and how can startups help?
Priyank Kharge: Our primary responsibility is to address these problems, but every growing city faces these issues. Doesn’t Mumbai face traffic congestion or commuting problems? Again, Delhi grapples with pollution, high crime rates and safety concerns for women. Globally speaking, Paris, Los Angeles, Silicon Valley and others have their challenges, from flooding to homelessness and rising crime.
The aspirational allure of cities like London and Berlin leads to rapid growth, often outpacing government efforts. However, we proactively build new infrastructure to tackle these issues, a marked improvement compared to previous administrations.
Today, Bengaluru benefits from dedicated leadership, with the deputy chief minister DK Shivakumar overseeing its development. Although challenges will persist and rise again in the future, we will remain prepared.
Initiatives like Grand Challenges and innovation at the grassroots will nurture greater engagement with nimble startups, often outpacing the government in terms of experimentation and agility. We also welcome innovative solutions from startups for addressing pressing societal issues.
Our public procurement policy prioritises startups registered with the government or involved in various government programmes. 10% of the procurement is reserved for startups with no prior experience, turnover requirements so that we can support entrepreneurial endeavours. We pride ourselves as problem-solvers and startup customers, demonstrating a level of government engagement uncommon elsewhere.
Inc42: Amid semiconductor, AI, EV and other fast-emerging sectors, is there a specific area under focus?
Priyank Kharge: We cannot afford to look at a particular sector, as our primary focus encompasses all. Owing to the state’s overall development, the government has this broad appetite for growth across industries.
Our numbers also justify this. Karnataka accounts for 60% of biotech production and exports in India, and we have a 40% share in electronics design, 52% in tool manufacturing and 65% in aerospace and defence manufacturing. Currently, we export $4.52 Bn worth of electronic components. Bengaluru is home to one-third of the country’s tech talent and around 43 unicorns, with 47 more in the pipeline.
Given our substantial presence and massive potential across sectors, focussing solely on one area won’t be practical. Consider this. Bengaluru is the fifth largest city in AI skill availability globally and we also dominate in aerospace with 65% of India’s market share. Therefore, the government’s focus extends to every sector, supported by dedicated working groups, to ensure we capitalise on growth opportunities across the board.
Whether AI, space technology or manufacturing for SMEs/MSMEs, we are committed to enabling growth in all areas. Our leadership history in ITeS, KPO and BPO further highlights our strong alignment with global capability centres (GCCs). Ultimately, we aim to leverage Bengaluru’s strengths across diverse sectors to drive comprehensive growth and development.
Inc42: Tell us more about Beyond Bengaluru. How have you progressed so far?
Priyank Kharge: A programme called Beyond Bengaluru has been there for quite some time. It aims to attract investments outside the state capital, do away with congestion and create value-added opportunities by setting up mini tech hubs across the state.
Unlike previous programmes, Beyond Bengaluru provides additional incentives and subsidies to encourage investment beyond the Karnataka capital. We are actively developing ecosystems and fostering specific sectors outside Bengaluru.
For instance, in Mangaluru, we are focussing on attracting GCCs, ITeS, fintech and animation companies. In Hubbali/Dharwad/Belagavi (Belgaum), we emphasise manufacturing electronic components, ML and AI and providing incubation support. Similarly, in Kalaburagi (Gulbarga), we are prioritising skill development in sectors requiring technical skills. In Mysuru, plans are underway to set up a semiconductor industry hub.
This sector-oriented approach allows us to delve deeper into each region’s potential, hone relevant skills and attract investments. Additionally, we are committed to building the necessary infrastructure to facilitate seamless business entry and ensure a plug-and-play environment conducive to growth.
Inc42: You have been vocal about ride-hailing platforms like Ola and Uber not complying with regulatory requirements. Where are we falling short?
Priyank Kharge: The issue lies in outdated policies that must catch up with tech advancements. I am not saying that services like Ola and Uber are illegal. It is the inadequacy of existing policies to address modern technologies.
For instance, our transport regulations date back to the 1960s, ’70s or even the ’80s, long before concepts like surge pricing, ride-sharing and aggregators emerged. The rapid evolution of technology often outpaces regulatory frameworks, leaving policies to play catch-up.
Take AI, for example. Many countries discuss AI policies, but AI has already advanced beyond regulatory frameworks. This highlights the need for policies developed in consultation with industry experts to understand where technology is headed, determine if regulation is necessary and establish appropriate frameworks. Creating sandboxes could be essential to foster innovation while policymakers work on effective policies.
Inc42: Are you planning to create a sandbox for certain emerging technologies?
Priyank Kharge: I think we can take a more focused approach after the Lok Sabha polls.
Inc42: Unlike PhonePe and Razorpay which relocated their headquarters to Bengaluru, many founders still register their parent companies overseas and stay there. How do you perceive this trend?
Priyank Kharge: Startups are taxed more heavily in India than anywhere else in the world. This is a critical issue that the central government must address, especially if it is serious about positioning India as an innovation hub.
It is also essential to reconsider the entire tech stack and avoid burdening any particular industry or sector. Even VCs, seed capital providers and startup founders are not advocating for zero taxation. They understand the need for regulation and taxation. However, it is crucial to recognise that startups also create jobs. Therefore, imposing excessive taxes without considering the impact could drive them away, eventually harming the innovation ecosystem. Unfortunately, this issue has not received sufficient attention.
