Entrepreneurial Ecosystems for Tech Start-ups in India: Evolution, Structure and Role 9783110679359, 9783110679298

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M H Bala Subrahmanya Entrepreneurial Ecosystems for Tech Start-ups in India

De Gruyter Studies in Knowledge Management and Entrepreneurial Ecosystems

Series Editor João J. Ferreira

Volume 1

M H Bala Subrahmanya

Entrepreneurial Ecosystems for Tech Start-ups in India Evolution, Structure and Role

ISBN 978-3-11-067929-8 E-ISBN (PDF) 978-3-11-067935-9 E-ISBN (EPUB) 978-3-11-067943-4 ISSN 2698-4806 Library of Congress Control Number: 2020944119 Bibliographic information published by the Deutsche Nationalbibliothek The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available on the internet at http://dnb.dnb.de. © 2021 Walter de Gruyter GmbH, Berlin/Boston Cover image: Ajwad Creative/DigitalVision Vectors/Getty Images Plus Typesetting: Integra Software Services Pvt. Ltd. Printing and binding: CPI books GmbH, Leck www.degruyter.com

Foreword We have been waiting for quite some time for an incisive study on the ecosystem for tech start-ups in India, and more specifically about the two leading players in this space: Bangalore and Hyderabad. The wait has just ended. Professor M H Bala Subrahmanya’s book on the ecosystem for technology start-ups in Bangalore and Hyderabad is a lucid and a thoughtful guide that will be important for policy makers, corporates and prospective start-ups. Technologies create new opportunities. Start-ups take advantage of such new opportunities, creating incremental value over and above mature businesses. It is this disruption that helps the economy to take advantage of the opportunities, secure a competitive advantage and create greater value for every stakeholder. Needless to say, start-ups are a critical component in every economy. They can quickly and effectively feel the pulse of consumer demand and optimize their products to satisfy unmet needs. Because start-ups are nimble, they provide economic and technical flexibility and the required dynamism for thriving and sustainable economic growth. The benchmark for the most preferred ecosystem for start-ups is undoubtedly Silicon Valley in the US. Attempts to replicate it at the same level around the world have met with little success. In fact, there is no comprehensive empirically proofed compendium elucidating the different components which have made Silicon Valley the exemplar for every start-up-policymaker. It is this critical information-knowledge gap which has been professionally addressed by the author of this book through his study of the two start-up magnets in India. This book is the best available source to help serve the dual purposes of enlightening the ingredients of success and benefiting a new generation of entrepreneurs. The author takes us through a time-tested methodology of comparing the ideal ecosystem with the current ecosystem in these two cities. The focus is on tech startups in the manufacturing and services sectors. After breaking the ecosystem into eight buckets, Delphi experts in Bangalore and Hyderabad were identified and four rounds of interactions were meticulously carried out eliciting responses on ecosystem related questions. Spread over several painstaking months, thoughtful interactions were conducted with Delphi experts. Professor M H Bala Subrahmanya, already with a strong track record in the entrepreneurial ecosystem space and with undisputed credentials, takes his cue from the Delphi experts’ inputs, and cherry-picks nine core issues that should be components of an ideal ecosystem for tech start-ups. These core issues are also directly related to the role and importance of the three institutional pillars of GovernmentIndustry-Academia – the triple helix model. Each one of these three players have a significant and game-changing role in promoting an ideal ecosystem. The author then takes us further analysing the context and extent of the ground covered by these two cities in their march to create the ideal start-up ecosystem. https://doi.org/10.1515/9783110679359-202

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Foreword

The role of the State until the mid-1980s ushered in the first phase in the evolution of the entrepreneurial ecosystems in both cities. The mid-1980s to the 1990s marked the transition to the second phase, spontaneously in the case of Bangalore, with the growth of IT/BT hubs and the preeminent role of MNCs/TNCs and a relatively diminished role for the State. The State continued to play an important role in Hyderabad’s transition to phase two of developing the required ecosystem, with industry-academia also playing a complementary role. Bangalore’s transition to the third phase in the evolution was ably guided by MNCs, with the setting up of global R&D centres. The City has the unique distinction of having the largest number of R&D centres in the Country. Hyderabad, meanwhile, with a less mature ecosystem, is now in the process of catching up with Bangalore. The sum and substance of this ingeniously structured study, with masterful exploration, is that the triple helix model is equally seen in the both cities, to varying degrees. Professor Subrahmanya persuasively argues, as he knows this terrain insideout, that there is a gap between the globally perceived ideal ecosystem and what we see in these Indian cities. This gap is explained by factors such as education and research institutions; markets; culture; and the level of interaction between the ecosystem components. The author offers fresh insights into the evolution of startup ecosystems and categorises the transition into four successive stages: nascent; evolving; mature and self-sustainable. Using this as a benchmark we see that the two cities are still evolving and only moderately matured. The real meat of the book lies in the empirical study and the detailed prescription for policy makers to undertake “gap-filling-initiatives”. Professor M H Bala Subrahmanya has been an inspiration to many young executives and entrepreneurs and this book will benefit a new generation of entrepreneurs across India. His prose glitters and will relentlessly hold the reader. With an eye for detail and a razor-sharp focus on every variable in the start-up ecosystem, the author highlights the challenges and opportunities that start-ups must engage with and harness. Be it government, business, academia or the start-up players themselves, each has to understand the ingredients needed to create the ideal entrepreneurial ecosystem for start-ups to rival and compete with Silicon Valley in delivering innovative products and services. I am yet to come across a book that offers such a clear and tested roadmap in the start-up ecosystem space. This is a must-read book for every policymaker, ideator, academician and corporate manager.

Foreword

VII

Superb, elegant, refreshing and original, Professor M H Bala Subrahmanya is a rare combination of a virtuoso management guru, a public intellectual and a celebrated academician. M N Vidyashankar IAS (Retd.) Former Additional Chief Secretary to the Government of Karnataka. Chairman, DERBI Advisory Board Bangalore, India

Preface Of late, technology entrepreneurship and technology-based tech start-ups are gaining increasing attention of the policy makers the world over. They have an immense potential to contribute to the economic development of nations in terms of promotion of innovation, introduction of new products and services, and generation of employment, among others. India is considered one of the “hotspots” of technology entrepreneurship and technology start-ups in the global landscape currently. Accordingly, “Start-up India Action Plan” has been launched by the Government of India recently, to provide an exclusive push to start-ups in the country. Many State governments have announced start-up promotion policies, one-by-one, in the last couple of years. This augurs well for Indian economy. However, if tech start-ups have to be promoted adequately, it is essential to understand its basic requirements. A start-up has a higher chance of early emergence, achieve stability and success if it is inserted in a fertile entrepreneurial ecosystem. This is because, a start-up has to face innumerable hurdles in different stages of its lifecycle, more so in its initial phase. That is why, it is observed globally that startups have a high rate of failure, particularly in the initial years after their birth. Given this, it is imperative to explore and define an ideal entrepreneurial ecosystem for tech start-ups in an economy. Further, it is equally essential to ascertain the structure and characteristics of currently prevailing entrepreneurial ecosystems for tech start-ups in an economy to understand whether there exists a gap between what is ideal in the context of an economic system and what currently prevails, and if yes, measure the nature and extent of the gap to propose policy initiatives for filling up the gap. An entrepreneurial ecosystem is invariably regional in character since there are differences between regions in terms of policies, culture, concentration of firms, markets and human resources, and availability of finance, among others. In India, Bangalore occupies a unique position due to its vibrancy in terms of concentration of Central Public Sector Undertakings (CPSUs), R&D institutions, premier educational institutions, MNCs – manufacturing, IT, BT and R&D firms, new sources of finance like Venture Capital Funds, Incubators, etc. Further, Bangalore attracted international attention when it was considered one of the 46 “Global Hubs of Technological Innovation” as far back as in 2001. Since then, Bangalore has grown into further prominence for various reasons. More recently, it is considered one of the global hubs of tech start-ups. Hyderabad is a close competitor to Bangalore in many respects, the most important being its exclusive promotion by the State Government as an IT/BT cluster followed by the growing concentration of R&D centres of MNCs. Given this, it is appropriate to examine these two start-up hubs to explore their entrepreneurial ecosystems for tech start-ups and compare them to an ideal ecosystem feasible in the Indian context. The present study has been carried out precisely with these https://doi.org/10.1515/9783110679359-203

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Preface

research objectives. I fondly hope that empirical researchers, policy makers, entrepreneurs, start-up funders, and mentors, among others, would find this book a valuable reference material. M H Bala Subrahmanya Professor Department of Management Studies Indian Institute of Science Bangalore-560012 INDIA

Acknowledgement At the outset, I would like to express my deep sense of gratitude to De Gruyter, Berlin, Germany for bringing out my original research project report in the form of a monograph to enable a wider dissemination of the knowledge generated, across the world. Start-ups have been emerging rapidly all across the globe and so are their entrepreneurial ecosystems. However, hardly a few researchers have attempted to explore its evolution, structure and role in the promotion of start-ups. India, being a rapidly emerging economy comprising multiple start-up hubs and ecosystems, is an appropriate context for an in-depth study and the present monograph aptly fills up the gap. However, the monograph would not have seen the light of the day without the continuous persuasion and constant support of Mr John Stuart from John Stuart Editorial. He has continuously kept in touch with me and prodded me (for more than a year) to: (i) submit a detailed book proposal to De Gruyter and get their approval for publication, and (ii) see that necessary permissions are obtained from the original sponsor of the research project and the final manuscript was submitted to De Gruyter in time. I am immensely grateful to him. It has been a very pleasant experience for me to interact with Mr Steven Hardman, Acquisitions Editor, De Gruyter, and Ms Lucy Jarman, Content Editor – Books, Social Sciences, De Gruyter, right from the beginning (when I submitted my book proposal and draft manuscript) till the end (of publishing this monograph). Their constant support and encouragement have played an important role in the timely publication of this monograph. I am thankful to both of them. The original research project was sponsored by National Science and Technology Management Information System (NSTMIS), Department of Science and Technology (DST), Government of India, New Delhi. But for their support, I would not have carried out the research project in its original form. Particularly, Dr Parveen Arora, Advisor, NSTMIS, DST and Dr A N Rai, Director, NSTMIS, DST were extremely supportive and a constant source of encouragement throughout the implementation of the research project. Dr Parveen Arora was instrumental in obtaining and communicating the necessary permission for the publication of the research project as a monograph. I am grateful to both of them. I am greatly indebted to my Institute, namely, Indian Institute of Science (IISc), Bangalore for enabling me to carry out the original research project and publish it as a monograph. The IISc environment has always been a source of inspiration for my research activities in the field of Industrial Economics, with a focus on start-ups and their ecosystems, for more than a decade now. Mr Muralidharan Loganathan, Senior Research Fellow, Department of Management Studies, IISc, was extremely helpful by providing me all the necessary figures in an editable form for the monograph. My heartfelt thanks to him.

https://doi.org/10.1515/9783110679359-204

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Acknowledgement

Finally, I would like to express my gratitude to all the stakeholders of entrepreneurial ecosystems of Bangalore and Hyderabad who have greatly contributed to the original research project and therefore, to the current monograph. But for their cooperation and contribution, this monograph would not have emerged in the current form. M H Bala Subrahmanya Professor Department of Management Studies Indian Institute of Science BANGALORE-560012 INDIA

Contents Foreword Preface

V IX

Acknowledgement

XI

Chapter 1 Introduction 1 1.1 Backdrop 1 1.2 Technology entrepreneurship, technology start-ups, hightechnology start-ups and entrepreneurial ecosystem 2 1.3 Government policy for start-ups 9 1.4 A profile of start-ups in India 12 1.5 Objectives, scope and methodology of the study 14 1.6 Chapter scheme 16 Chapter 2 Entrepreneurial ecosystems for start-ups: A global perspective 18 2.1 Introduction 18 2.2 Entrepreneurial ecosystem for start-ups: Role and importance 18 2.3 Structure and components of entrepreneurial ecosystems 19 Chapter 3 Research questions and methods 3.1 Introduction 38 3.2 Research questions 3.3 Scope 39 3.4 Methodology 39

38 38

Chapter 4 An ideal entrepreneurial ecosystem for tech start-ups: Characteristics, structure and role 51 4.1 Introduction 51 4.2 An ideal entrepreneurial ecosystem: Structure and components 51 4.3 Growth accelerators and challenges for tech start-ups: Pre-emergence to emergence stage 58

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Contents

4.4 4.5 4.6 4.7

Growth accelerators and challenges for tech start-ups: Setting-up and operations stage 59 Growth accelerators and challenges for tech start-ups: Success and growth stage 60 Structure and components of an ideal ecosystem, and tech start-up lifecycle stages 60 Summary 67

Chapter 5 Entrepreneurial ecosystems for tech start-ups in Bangalore and Hyderabad: An exploration of evolution 68 5.1 Introduction 68 5.2 The emergence of entrepreneurial ecosystem in Bangalore: Phases of evolution 68 5.3 The emergence of entrepreneurial ecosystem in Hyderabad: Phases of evolution 73 5.4 The emergence of entrepreneurial ecosystems for tech start-ups in Bangalore and Hyderabad: A comparative perspective 78 Chapter 6 Entrepreneurial ecosystems for tech start-ups in Bangalore and Hyderabad: Structure and role 82 6.1 Introduction 82 6.2 Structure and components of entrepreneurial ecosystem in Bangalore 82 6.3 Structure and components of entrepreneurial ecosystem in Hyderabad 88 6.4 Role of ecosystem components in the lifecycle of tech start-ups in Bangalore and Hyderabad: A comparative perspective 93 6.5 Summary 99 Chapter 7 Ideal entrepreneurial ecosystem and ecosystems of Bangalore and Hyderabad: A gap analysis 100 7.1 Introduction 100 7.2 The ideal ecosystem and the ecosystems of Bangalore and Hyderabad: A comparative perspective 100 7.3 Analysis of factors contributing to the ecosystem gap 107 7.4 Summary 114

Contents

Chapter 8 Summary and conclusions 115 8.1 Backdrop 115 8.2 Entrepreneurial ecosystem: Global trends 116 8.3 Entrepreneurial ecosystem – Method of empirical investigation and results 118 8.4 Inferences and conclusions 122 8.5 Policy recommendations 123 8.6 Major contributions 128 8.7 Limitations and scope for future work 129 List of figures

131

List of tables

133

Appendix 1

135

Appendix 2

137

Appendix 3

149

References

155

Index

161

XV

Chapter 1 Introduction 1.1 Backdrop Of late, technology entrepreneurship contributing to high growth technology start-ups has been assuming growing importance all over the world, as a key to economic development (Bala Subrahmanya, 2015; Korreck, 2019). This is primarily attributed to the spread of information and communication technologies (ICT), and transformation of the organization of production throughout the world, where firms increasingly work in networks. Such high growth technology start-ups can contribute to structural change by introducing new knowledge intensive products and services, help sustain innovation, drive productivity growth and create productive employment opportunities. They can help to sustain innovations, as they can be the means as well as the outcome of innovations. They can boost productivity growth through innovated products/processes and create additional employment opportunities through more and more innovative technology start-ups. Thus, technology start-ups can make a decisive difference to an economy in terms of their contributions to GDP, industrial production and employment (OECD, 2013). But what is needed is an appropriate entrepreneurial ecosystem for their generation, survival and sustenance, and growth over a period of time (Arruda, et al., 2013). Historically, emergence of technology start-ups has been primarily confined to a couple of start-up ecosystems, particularly Silicon Valley and Boston in the United States, but no more. Along with a world-wide explosion of entrepreneurship, there has been an explosion of new start-up ecosystems around the world (Start-up Genome, 2012). As a result, start-up ecosystems around the world have witnessed an increased burst of entrepreneurship that has seen new ones founded and existing ones experiencing maturity (Aleisa, 2013). This assumes special significance in the context of emerging economies such as China, India, Mexico and Brazil, which are transforming their economies from low value-added manufacturing and services to innovation-based economies. Although the majority of the IT and software industry in these countries delivers low valueadded services, there is a push to create technology start-ups that build innovative products with a global impact (Cervantes and Nardi, 2010). In the current global start-up landscape, India is recognized as one of the potential sources of tech startups (Gai and Joffe, 2013), and it currently ranks third globally, in terms of existing start-ups (NASSCOM, 2019; Live mint, 2019). Given this, how an emerging economy like India would be able to generate technology start-ups in a big way and whether these start-ups will be able to sustain and succeed in the globalized competitive landscape would depend on the nature and https://doi.org/10.1515/9783110679359-001

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Chapter 1 Introduction

quality of entrepreneurial ecosystems that it can encourage, support and realize. However, major differences in the entrepreneurial ecosystems exist from one region to another even within a country due to regional government policy, local culture, concentration of firms of varying sizes, education and research institutions, weather, etc., among others. It is against this backdrop that this research work is proposed to explore and understand the entrepreneurial ecosystems for tech start-ups in Bangalore and Hyderabad and ascertain the existence of any gap that might remain with respect to an ideal ecosystem for tech start-ups feasible in the Indian context.

1.2 Technology entrepreneurship, technology start-ups, hightechnology start-ups and entrepreneurial ecosystem There are some important concepts relevant to the present study, which need to be defined at the outset, namely, technology entrepreneurship, technology and hightechnology start-ups and entrepreneurial ecosystem.

1.2.1 Technology entrepreneurship The base for technology and high-technology start-ups lies in technology entrepreneurship. The concept “technology entrepreneurship” is defined in different ways by different researchers. Nichols and Armstrong (2003) defined technology entrepreneurship in terms of ‘organization, management and risk bearing of a technology-based-business’. For Jones-Evans (1995) technology entrepreneurship involves establishment of a new technology venture. Liu, et al (2005) define technology entrepreneurship as ways in which entrepreneurs draw on resources and structures to exploit emerging technology opportunities. According to Bialetti (2012, p. 9), “technology entrepreneurship is an investment in a project that assembles and deploys specialized individuals and heterogeneous assets that are intricately related to advances in scientific and technological knowledge for the purpose of creating and capturing value for a firm”. Overall, technology entrepreneurship can be defined to comprise the following: – operating small businesses owned by engineers or scientists; – finding problems or applications for a particular technology; – launching new ventures, introducing new applications, or exploiting opportunities that rely on scientific and technical knowledge; and – working with others to produce technology change (Bialetti, 2012).

1.2 Technology entrepreneurship, technology start-ups, high-technology start-ups

3

1.2.2 Start-ups, technology startups and high-technology start-ups A start-up, in general, is defined as a new venture with no previous history of operations (Bala Subrahmanya, 2015). As a result, such new ventures suffer from the liability of newness since they are unfamiliar and without any precedence (Certo, 2003). In terms of age, they are age-zero firms or infants (less than a year old) (Kane, 2010). Start-ups do not include existing enterprises which are acquired by new ownership, or those inherited by younger generations from the older ones, or “industry spin-offs” where a large firm has a control, directly or remotely, or franchises of any form (Bala Subrahmanya, 2015). Start-ups are new businesses. The kinds of new start-ups that offer opportunity for growth and employment generation are generally considered to be those that are innovating, driven and looking to scale up (CII, 2015). A start-up is a young firm which could be an entrepreneurial venture or a new business, a partnership or temporary business organization to search for a repeatable and scalable business model (Grant Thornton, 2015). A start-up is a company that is in the first stage of its operations; it is often initially funded by its entrepreneurial founders as they attempt to capitalize on developing a product or service for which they believe there is a demand. A start-up is a new organization designed to search for a repeatable and scalable business model (Sanghi and Srija, 2016). A “technology start-up” may be defined as a new venture which owes its origin to science/technology-based entrepreneurship, and therefore, the entrepreneur who promoted such a start-up may be qualified with a science/technology degree. Further, the product/service emerging from such a start-up must have technology content in it. However, it would be next to impossible to clearly specify and define a technology product/service in terms of technology content. In the US context, start-ups emerging from high-technology industries are defined as technology start-ups. Two alternative definitions given for technology start-ups by Hathway (2013) and Liu, et al., (2014), respectively are relevant in this context. Hathway has identified 14 high-tech industries under two broad groups: (i) Information and Communication Technologies (ICT) industries, and (ii) Miscellaneous industries, covering manufacturing as well as service industries (Table 1.1). The former includes 10 sub-sectors whereas the latter comprises four. Another classification (adopted by Liu, et al., 2014) is made based on the definition developed by Milken’s High-Technology Economy Report (DeVol, et al., 2009), which classifies high-tech firms as per the North American Industry Classification System (NAICS) codes, as given in Table 1.2. This classification clearly distinguishes the high-tech manufacturing industries from the high-tech service industries. Both overlap to a large extent. Therefore, for the present study, technology start-ups would cover all the start-ups emerging from any of the manufacturing or service industries listed in Table 1.2. Thus, broadly, technology start-ups would comprise both product start-ups and service start-ups.

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Chapter 1 Introduction

Table 1.1: High-technology industries. Sl. No.

Industry

A

Information and communication technology (ICT) high-tech



Computer and peripheral manufacturing



Communications equipment manufacturing



Semiconductor and other electronic component manufacturing



Navigational/measuring/electro-medical/control instruments manufacturing



Software publishers



Internet publishing and broadcasting



Other telecommunications



Internet service providers and Web search portals



Data processing, hosting, and related services



Computer systems design and related services

B

Miscellaneous high-tech Industries



Pharmaceutical and medicine manufacturing



Aerospace product and parts manufacturing



Architectural, engineering, and related services



Scientific R&D services

Source: Hathway, 2013

Government of Karnataka (Department of IT, BT and S&T, 2015) defined a technology-based start-up as one that creates a technology-based service or product or uses technology for enhancing functionality or reach of an existing product or service. It must have been registered/incorporated for not more than four years (for IT start-ups) and not more than seven years (for BT start-ups) from the date of an application for any incentive applied under the policy. At least, 50% of its workforce (excluding contract employees) must be located within the state of Karnataka. A start-up will cease to receive any benefit under the policy once its revenue reaches Rs.50 Crore. These start-ups must not be a subsidiary or a franchisee or directly or indirectly promoted by a large firm, or derive more than 50% of its income from investments and loans. According to Government of India (Start-up India, 2020a), start-up means an entity, incorporated or registered in India not prior to 10 years, with an annual turnover

1.2 Technology entrepreneurship, technology start-ups, high-technology start-ups

5

Table 1.2: List of NAICS codes for high-tech Industries. NAICS Codes

High-tech manufacturing industries



Pharmaceutical and medicine manufacturing



Commercial and service Industry machinery manufacturing



Computer and peripheral equipment manufacturing



Communications equipment manufacturing



Audio and video equipment manufacturing



Semiconductor and other electronic component manufacturing



Navigation/measuring/medical/control instruments manufacturing

 

Manufacturing and reproducing magnetic and optical media Aerospace products and parts manufacturing



Medical equipment and supplies manufacturing High-tech services industries



Software publishers



Motion picture and video industries



Telecommunications



Internet service providers, web search portals, and data processing services



Other information services



Architectural, engineering, and related services



Computer systems design and related services



Scientific R&D services



Medical and diagnostic laboratories

Source: Liu, et al., 2014

not exceeding Rs.100 Crore in any preceding financial year, working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property, provided such an entity: – Is not formed by splitting up, or reconstruction, of a business already in existence. – Shall cease to be a start-up if its turnover for the previous financial years has exceeded INR 100 crore or it has completed 10 years from the date of incorporation/registration. – Shall be eligible for tax benefits only after it has obtained certification from the Inter-Ministerial Board, setup for such purpose.

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Chapter 1 Introduction

The first formal attempt to define high-technology start-ups can be traced to the US Department of Labor (DOL) documents (Hecker, 1999; Hecker, 2005) that note that “high-technology start-ups typically use state-of-the-art technology and, devote a “high” proportion of expenditures to research and development (R&D) and employ a ‘high’ proportion of scientific, technical and engineering personnel.” (Hecker, 1999; Hecker, 2005). According to this classification, tech industry is defined at three levels. At level I, it included 14 industries in which the scientific, technical and engineering occupations contributed to more than 24.7% of the jobs of that sector. At level II, 12 industries that employed between 14.8% to 24.7% jobs from these occupations are classified. At level III, 20 industries that employed between 9.8% to 14.7% jobs from these occupations are covered. The European Union (EU) and countries allied to EU Free Trade Agreements defined high-technology industry and high-technology start-ups using one of the three approaches based on (i) sector, or (ii) product or (iii) patent (Eurostat, 2007; Eurostat, 2009). The sector approach is the grouping together of manufacturing industries, according to their technological intensity (R&D spending/value added). The product approach is devised to complement the sector approach. The product list is based on the measurement of R&D intensity by product groups (R&D spending/total sales). The patent approach classifies a firm as a high-tech firm based on whether or not a patent owned by the firm is high-tech. The International Patent Classification (WIPO, 2007) is used as the basis to classify, if a patent is high-tech or not. As of now, India does not have a formal definition or classification of technology industries. However, from an Indian context, to begin with, the National Industrial Classification (NIC) 2008 classification would serve as the base to identify the industries that can be classified as technology based. The EU and the US DOL definitions can be mapped to identify a sub set of industry types that can be classified as technology based. Mani (2009) has previously used the NIC 1998 classification to identify knowledge intensive manufacturing and services based on Central Statistical Office (CSO) 2008 data. Building on the definition used by Mani, and augmenting the presence of newer classifications in the NIC 2008, the tech industries and services in India may be classified as those given in Tables 1.3 and 1.4, respectively. Accordingly, any start-up that emerges in these industries/services constitutes a technology start-up in India. This definition holds good for the present study.

1.2 Technology entrepreneurship, technology start-ups, high-technology start-ups

7

Table 1.3: Classification of high technology manufacturing industries in India. NIC  industry code

Description of the industry



Manufacture of basic pharmaceutical products and pharmaceutical preparations



Manufacture of computer, electronic and optical products

.

Manufacture of air and spacecraft and related machinery

Source: NIC, 2008

Table 1.4: Classification of high technology services in India. NIC  industry code

Description of the industry

 to 

Motion picture, video and television program production, sound recording and music publishing activities, Programming and broadcasting activities, Telecommunications, Computer programming, consultancy and related activities, Information service activities



Scientific research and development

Source: NIC, 2008

1.2.3 Entrepreneurial ecosystem In general, an ecosystem in the context of start-ups may be defined as a system comprising prospective as well as currently operating start-up entrepreneurs, their mentors, financiers, trainers, organizations (universities, institutions, etc.) and government policy which support and promote start-ups, and their interrelationships and interactions. According to Isenberg (2011), the domains of entrepreneurial ecosystem comprises (i) policy, (ii) finance, (iii) culture, (iv) support services, and (v) markets. A start-up ecosystem is formed by people, start-ups in their various stages and various types of organizations in a location (physical or virtual), interacting as a system to create new start-up ventures. Accordingly, the start-up ecosystem would broadly comprise the following: – Ideas, inventions and researches – Start-ups at various stages – Entrepreneurs – Start-up team members – Angel investors – Start-up mentors

8

Chapter 1 Introduction

– Start-up advisors – Other entrepreneurial minded people – Third people from other organizations with start-up activities Based on a synthesis of definitions found in the literature, Mason and Brown (2014, p. 5) define an entrepreneurial ecosystem as a set of interconnected entrepreneurial actors (both potential and existing), entrepreneurial organizations (e.g. firms, venture capitalists, business angels, banks), institutions (universities, public sector agencies, financial bodies) and entrepreneurial processes (e.g. business birth rate, numbers of high growth firms, levels of ‘blockbuster entrepreneurship’, number of serial entrepreneurs, degree of sell out mentality within firms and levels of entrepreneurial ambition) which formally and informally coalesce to connect, mediate and govern the performance within the local entrepreneurial environment.

Sean (2015) has identified six elements in the context of start-up ecosystem of Singapore, namely, culture, market, human capital, policy regulations, finance, and support from government agencies for start-ups. Krajcik and Formanek (2015) define the structural components of a start-up ecosystem (in the context of Czech Republic) to comprise entrepreneurial start-ups, different policy agencies, incubators/accelerators, and actors providing risk capital. A start-up ecosystem comprises big companies, universities, research organizations, support organizations, service providers and funding organizations (Grant Thornton, 2016). Start-up ecosystem comprises entrepreneurs, different kinds of financial and non-financial support such as debt finance, equity investments and grants, and non-financial support including incubation, acceleration support, mentoring and technical experts. It also includes the government policies and programmes relevant to start-ups, academia and other organizations and firms that in different ways interact with or support start-ups (CII, 2015). Overall, all the above referred empirical studies have indicated more or less the same ingredients or components for the ecosystem for start-ups including tech start-ups: (i) entrepreneurs and sources of entrepreneurship, (ii) Investors or financiers, comprising Angel Investors (AIs)/Private Equities (PEs)/Venture Capital Funds (VCFs), (iii) government driven polices and institutions, (iv) private support agencies in the form of business incubators and/or accelerators, apart from mentors, (v) educational and research institutions, (vi) large domestic/foreign companies, which can provide direct or indirect support to new ventures, (vii) service providers of various kinds, and (viii) cultural aspects. For the present study, we would define tech start-up ecosystem to broadly comprise the eight components.

1.3 Government policy for start-ups

9

1.3 Government policy for start-ups Start-ups as a whole have attracted the attention of Policy Makers in India only recently. The first ever policy document which made reference to start-ups and proposed policy support was the recommendations of the Inter-Ministerial Committee for Accelerating Manufacturing in Micro, Small and Medium Enterprises Sector in 2013 (Ministry of MSMEs, 2013). The initiative came in response to the World Bank’s 2013 report on ‘Ease of Doing Business’ which emphasized on the need to ease regulations for start-ups in India. First and foremost, the Inter-Ministerial Committee (Ministry of MSMEs, 2013) proposed several measures to strengthen financial support for start-ups in the form of: – Angel investors (who also provide mentoring and network access to entrepreneurs), – Removal of policy and fiscal impediments for enhancing the flow of angel and early venture capital funding for start-ups, – Creation of India Opportunities Venture Fund by Small Industries Development Bank of India (SIDBI) with a corpus of Rs.5000 Crore, – Proposal for creating an India Inclusive Innovation Fund (with a corpus of Rs.5500 crore), – Framework for public funding of Early Stage Venture Capital, among others. In addition to the above, the Inter-Ministerial Committee proposed the following: – Promotion of Open Hub Systems to bring all the ecosystem stakeholders under one single umbrella, by defining their responsibilities, privacy issues and future benefits for them, – Increasing the number of Incubators considerably through local, state and central governments in partnership with relevant public institutions as well as the private sector, – Funding of incubators by the private sector through Corporate Social Responsibility (CSR) budget, – Promotion of Technology Business Incubators (TBIs) through IITs, NITs and private engineering institutions, – Tax exemption for start-ups in the initial three years, and – Encouraging credit flow to start-ups through employment generation schemes. Subsequently, Government of India launched an exclusive Start-up India Action Plan in January 2016 (Department of Industrial Policy and Promotion, 2016). The new start-up policy primarily focused on (i) regulatory issues, (ii) funding support and incentives, and (iii) promotion of industry-academia partnerships and (iv) incubation centres. Under regulatory issues, the policy insisted on valuing self-certification by startups for ensuring their compliance with various laws, promotion of start-up India

10

Chapter 1 Introduction

hub to ensure the various key components for start-ups under a single umbrella, simplification of registration of start-ups, legal and intellectual property examination support at a low cost, relaxation of “prior experience” and “prior turnover” rule for start-ups to enable them to avail public procurement schemes (meant for SMEs) of Central Government, State Governments and Public Sector Undertakings, and swift and simple exit process for winding up unsuccessful start-ups. To provide financial support, a Fund of funds with a corpus of Rs.10000 Crore has been proposed. In addition, a credit guarantee fun for start-ups is proposed to facilitate the flow of venture debt form the banking system. Tax exemption for capital gains is proposed, if investments are made in the Fund of funds recognized by the government, apart from tax exemption for start-ups in the initial three years. Further, to encourage seed investments in start-ups, tax exemption is proposed for investments in the form of shares whose value is above the Fair Market Value (which would in normal circumstances attract tax as per the Indian Income Tax Act). To promote industry-academia partnerships for encouraging start-ups, the policy proposed Innovation Centres at National Institutes; seven Research Parks (on the line of Research Park of IIT Madras) at IIT Guwahati, IIT Hyderabad, IIT Kanpur, IIT Kharagpur, IISc Bangalore, IIT Gandhinagar and IIT Delhi; and launching of innovation focused programs for science and technology students. To promote incubation of start-ups, the policy proposed setting up of incubation centres in public-private partnership mode, bio-clusters and bio-incubators, and an annual “incubator grand challenge” to promote world-class incubators in India. Since then, several policy initiatives to promote start-ups across the country have been taken. An exclusive StartupIndia website (Start-up India, 2020a) has been created which provides access to a variety of information of sources for resources. It contains description on the schemes/policies and programs meant for startups, networks of incubators, corporates/accelerators, mentors, investors, market research reports, patent/trademark facilitators, etc. One can access even State specific start-up policies. It even provides start-up guidebook and market access guides to start-ups to go global through what is known as “International Bridges” (Start-up India, 2020a). Overall, India’s recognition of the growing importance of start-ups is of recent origin and its policy for start-up promotion is at its infancy. However, many State governments have either preceded or followed the footsteps of Government of India in extending policy support either exclusively or as part of their Information Technology and Bio-Technology industrial policies. As of now, 23 of the 28 states and three of the eight Union Territories have exclusive start-up promotion policies in India (Start-up India, 2020a). Among the states, Government of Karnataka was one of the earliest to launch an exclusive policy for start-ups in 2015 (Department of IT, BT and S&T, 2015). The vision of Karnataka Start-up Policy (2015–2020) is to create a world-class start-up ecosystem in the state through strategic investments and policy interventions

1.3 Government policy for start-ups

11

leveraging the robust innovation climate prevailing in Bangalore. This is proposed through multiple means. The important ones are: (i) encouraging entrepreneurship in education through implementing new age incubation scheme not only in engineering institutions but also in all professional and post-graduate institutions in tier II cities in the state, (ii) fostering strong partnerships between R&D institutions and industry by setting up TBIs in institutions of higher learning, (iii) providing early stage, i.e., idea to proof of concept funding, (iv) creating incubation infrastructure through public-private partnership mode, and networking and aggregation of common instrumentation facilities, (v) start-up funding through Fund of funds, (vi) incentives and concessions, (vii) facilitating start-up emergence through setting-up of a start-up cell, start-up portal and hotline, a start-up council, apart from publicizing operational guidelines, which will be reviewed annually (Department of IT, BT and S&T, 2015). The Government of Telangana’s policy on start-ups formed a part of its newly introduced ICT Policy Framework 2016 and Innovation Policy 2016 (Department of Information Technology, Electronics and Communications, 2016a; 2016b). The state aims to build a booming start-up ecosystem that will unleash the entrepreneurial spirit amongst the youth and in turn aid in job creation and wealth creation. The government aims to achieve this by bringing the entire start-up community in the state under one umbrella – the T-Hub. T-Hub is designed for technology related start-ups, and its mission is to catalyse the creation of one of the vibrant entrepreneur communities in the world to encourage start-up success stories to emerge from India (Department of Information Technology, Electronics and Communications, 2016a). Its Innovation Policy is more comprehensive covering the wider aspects of start-up promotion. It proposed the setting up of a start-up cell and a start-up council, lending government purchase support for start-up products, launching of a T-Fund (early stage investing vehicle), T-SEED Fund of funds, a Phoenix Fund (to attract entrepreneurs who have previously attempted to set-up a start-up and earned key learnings), promoting entrepreneurship through Schools and Colleges, apart from through university research and academic centres, provision of incentives, fiscal as well as non-fiscal, for incubators and start-ups, among others (Department of Information Technology, Electronics and Communications, 2016b). Recently, Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India has started States Start-up Ranking. DIPP conducted the first ever States’ Start-up Ranking exercise in 2018 with the key objective to encourage States and Union Territories to take proactive steps towards strengthening the Start-up Ecosystems within their jurisdictions. The Ranking exercise identified Gujarat state as the “Best Performer”, whereas Karnataka state (State Capital is Bangalore), was identified as one of the four “Top Performers”, and Telangana state (State Capital is Hyderabad) was identified as one of the five leaders in the country (Department of Industrial Policy and Promotion, 2018).

12

Chapter 1 Introduction

However, given that policy support has started emerging only recently, it is unlikely to have made any impact on the entrepreneurial ecosystem or the growth of start-ups in India yet, either at the national level or at the regional level. But, some of the ecosystem components have emerged in different cities in India (which are also clusters of modern manufacturing industries, educational and research institutions, and regional governments), prior to the introduction of start-up policies in the country. Further, it is the rapid spring-up of start-ups in different cities of the country for more than a decade now, which has prompted the national and regional level policy makers to introduce and lend policy support to start-ups in different forms as discussed earlier, gradually and steadily. Therefore, it is appropriate to understand the profile and distribution of start-ups in India between different sectors and between different start-up hubs.

1.4 A profile of start-ups in India There is no systematic and exhaustive database of start-ups available in India till recently. However, national level industry promoted associations such as Associated Chambers of Commerce and Industry (Assocham), and National Association of Software and Service Companies (NASSCOM) have recently come out with exclusive reports on Start-ups and Start-up ecosystems, which present an approximate picture of start-ups operating in different sectors and regions of the country. Broadly, startups in India are heterogeneous ranging from highly visible high-tech ICT start-ups in Bangalore and Mumbai, to non-tech start-ups and social start-ups across both urban and rural areas (CII, 2015). One of the earliest reports on Start-ups emerged from NASSCOM in 2014. According to NASSCOM (2014) estimates, India was the fourth largest start-up location globally with more than 3100 technology start-ups operating in the country, with an addition of more than 800 start-ups in 2014 alone. The focus areas of these start-ups comprised primarily B2C (59%), followed by B2B (37%) and B2C/B2B (4%). The start-up founders’ profile indicated that 73% of the founders were less than 36 years of age, 48% had MNC work experience, and 36% were solely engineers. It is interesting to note that 43% of the product/digital start-ups had a focus on the global market. However, the key drivers were (i) large domestic market, (ii) evolving ecosystem comprising investors and mentors, (iii) increasing exit opportunities for investors in the form of Mergers and Acquisitions (M&A), among others. Geographically, 28% of the start-ups were concentrated in Delhi-NCR and Bangalore. A year later, according to NASSCOM (2015), India emerged as the third largest start-up location globally with more than 4200 technology start-ups operating in the country. The start-up verticals comprised Internet of Things (IOT), Analytics, Health-tech and Hyperlocal E-Commerce. Bangalore, Delhi-NCR and Mumbai together accounted for nearly 65% of the total Indian start-ups. Hyderabad, Chennai,

1.4 A profile of start-ups in India

13

Table 1.5: Sector-wise composition of tech and non-tech start-ups in India. Technology based start-ups (No. = ) Sector

Non-technology start-ups (No. = )

Share (%)

Sector

Share (%)

E-Commerce

.

Engineering

.

BB

.

Construction

.

Internet

.

Agriculture products

.

Mobile Apps

.

Textile

.

.

Printing and packaging

.

.

Transport and logistics

.

Outsourcing and support

.

SaaS Others Total

.

Others Total

. .

Source: Grant Thornton, 2015

Pune, Jaipur and Ahmedabad are identified as the major up-coming start-up locations. B2C start-ups followed by B2B start-ups accounted for the majority, like in the previous year. Successful start-ups, growing ecosystem of investors and mentors, technology driven large domestic market, encouraging entrepreneurial environment were the prime driving factors. About 72% of the founders were less than 35 years of age, and about 39% of the founders were engineering graduates/postgraduates. A subsequent report on Start-ups in India, by Assocham (Grant Thornton, 2016) reveals that there are currently about 10000 start-ups operating in the country, of which 4300 are technology-based start-ups whereas the remaining 5700 are nontech start-ups. The sector-wise compositions of tech start-ups and non-tech startups are given in Table 1.5. While tech start-ups comprise E-Commerce, B2B, Internet, Mobile apps, SaaS and others, non-tech start-ups consist of engineering, construction, agricultural products, textile, printing and packaging, transport and logistics, outsourcing and support, and others. Assocham report (Grant Thornton, 2015) also noted the gradual improvements that have taken place in the ecosystem parameters such as increase in the number of incubators as well as funders, i.e., Venture Capitalists (VCs) and Private Equities (PEs). Further, there has been a steady increase in the number of annual tech startup emergence, majority being from entrepreneurs who are less than 30 years of age. Against this backdrop, it is important to understand how to provide a big fillip to the emergence and growth of start-ups in general, and tech start-ups in particular, so

14

Chapter 1 Introduction

that they will be able to increasingly contribute to employment generation, wealth creation and economic prosperity of Indian economy. As of 2018, there were 14600 start-ups recognized under Start-up India that are spread across 479 districts covering the entire country (Department of Industrial Policy and Promotion, 2018). According to the Department for Promotion of Industry and International Trade (DPIIT), (earlier, i.e., prior to January 27, 2019, it was known as Department of Industrial Policy and Promotion or in short, DIPP), recognized start-ups during 2011–2019 accounted for 23978 in the country (Start-up India, 2020b). However, this database just contained the name of start-ups but not their location or sector or stage of lifecycle. But in the Network resources for start-ups, database contained a list of 79783 start-ups, with names of start-ups, industry/sector, and location (Start-up India, 2020c). Overall, it is appropriate to conclude that India has been witnessing a rapid emergence of start-ups including tech start-ups all across the country since the last decade.

1.5 Objectives, scope and methodology of the study If the rate of start-ups, particularly tech start-ups – in terms of their emergence, survival and stability, success and growth – has to be accelerated, it is imperative to understand and develop a conducive entrepreneurial ecosystem. If a conducive entrepreneurial ecosystem has to be promoted, it is important to examine the following three key research questions: – What is an ideal entrepreneurial ecosystem for tech start-ups feasible in the Indian context? – What is the structure and components of existing entrepreneurial ecosystems for tech start-ups in India? – How adequate or inadequate are the existing ecosystems for tech start-ups in India relative to an ideal ecosystem feasible in the Indian context, for the promotion of tech start-ups? It is these three research issues which have formed the basis of formulation of research objectives of the present study. Given the leading position of Bangalore among the start-hubs of India, in terms of concentration of tech start-ups, and notable ecosystem components such as funders, human resources and market support, among others, Bangalore becomes the obvious choice for the study. Further, it is always advantageous to compare two ecosystems within the same macroeconomic environment, to examine the similarities and dissimilarities, and ascertain the gaps, if any, between the prevailing ecosystems and the ideal ecosystem, that is feasible in the overall country’s context. Based on the gap analysis, recommendations can be made for appropriate policy initiatives to bridge the gap. Accordingly, Hyderabad has been chosen as the other ecosystem for the study, it being one of

1.5 Objectives, scope and methodology of the study

15

INDIA

Telangana Hyderabad

Karnataka

Bangalore

Figure 1.1: Location of start-up hubs in India (Source: http://www.mapsofindia.com/).

the up-coming start-up locations in India. Thus, the scope of the study is confined to Bangalore and Hyderabad in India (Figure 1.1). If an ideal ecosystem and the prevailing ecosystems in terms of their structure and components have to be understood, it is essential to interact with the ecosystem stakeholders rather than anybody else. A consensual opinion of the stakeholders can form the basis not only for analysing the structure and components of an ideal ecosystem as well as currently prevailing ecosystems but also for ascertaining

16

Chapter 1 Introduction

the gap between the two, if any, and derive policy prescriptions to bridge the gap. Accordingly, we have proposed to adopt Delphi technique as the methodology for analysing the research objectives of the study. Delphi technique is a way of obtaining a collective view from individuals about issues where there is no or little definitive evidence and where opinion is important. It involves the collection and aggregation of expert opinion. Its original purpose was to obtain the most reliable consensus of opinion of a group of experts by a series of intensive questionnaires interspersed with controlled opinion feedback (Thangaratinam and Redman, 2005). For the present study, we propose to apply Delphi technique after identifying about 35 stakeholders each in Bangalore and Hyderabad, through interactions in four sequential rounds, by means of semi-structured/structured questionnaires. It is based on the consensus arrived at by the Delphi experts in the two cities that both ideal ecosystem and the prevailing ecosystems will be defined, analysed and used for ascertaining the gap, if any, between the two. Finally, appropriate policy interventions will be suggested to bridge the gap, to accelerate the growth of tech start-ups in the two ecosystems.

1.6 Chapter scheme This book comprises eight chapters. A detailed literature review covering the role and importance of entrepreneurial ecosystem for start-ups, and its structure and components leading to the identification of key research issues and gaps is presented in Chapter 2. The research process adopted for the study, research objectives, scope, and research methodology in detail including the Delphi technique implementation process and Delphi experts covered for the study in Bangalore and Hyderabad are described in Chapter 3. The subsequent four chapters, namely, chapters 4, 5, 6, and 7 present various dimensions of entrepreneurial ecosystems. The characteristics, structure and components of an ideal entrepreneurial ecosystem and the role of ecosystem components in the different lifecycle stages of tech start-ups, based on the consensus arrived at by the Delphi experts, are discussed in Chapter 4. A detailed illustration of the evolution of currently prevailing entrepreneurial ecosystems in Bangalore and Hyderabad in terms of critical phases since India’s independence in 1947, and a comparative perspective of the two ecosystems is given in Chapter 5. The structure and components of entrepreneurial ecosystems as they prevail currently in Bangalore and Hyderabad, the role of the identified components in the different lifecycle stages of tech start-ups are analysed in Chapter 6. A detailed statistical analysis comparing the ideal ecosystem and the prevailing ecosystems in Bangalore and Hyderabad, to ascertain the similarities and dissimilarities to estimate the gap, and the factors contributing to the gap is carried out, and the analysis and inferences are presented in Chapter 7.

1.6 Chapter scheme

17

The final chapter presents summary and conclusions of the study, covering overall summary of the entire study, its findings, inferences and implications. In addition, it comprises a set of policy interventions to encourage the growth and maturity of entrepreneurial ecosystems in Bangalore and Hyderabad to accelerate the growth of tech start-ups to steadily increase their contribution to employment, wealth creation and national income.

Chapter 2 Entrepreneurial ecosystems for start-ups: A global perspective 2.1 Introduction This chapter will present a review of conceptual and empirical literature. It comprises the role and importance of entrepreneurial ecosystem for start-ups, the structure and major components of entrepreneurial ecosystems, the role played by each of these components and their interactions for nurturing and promoting start-ups, entrepreneurial ecosystem perspective in different economies, and culminate in identifying the key research gaps, to justify the need for undertaking the present study.

2.2 Entrepreneurial ecosystem for start-ups: Role and importance Though start-ups have, often, been identified with their significant positive effects on employment, and their potential to transform the structure of an economy through the introduction of new knowledge intensive products and services (OECD, 2013), they have a flip-side as well: Start-ups have been observed to have a limited survival rate (Song, et al., 2008). Start-ups, in general, suffer from the liability of newness as they (new ventures) are unfamiliar and without precedence (Stinchcombe 1965; Baum 1996; Certo 2003). Therefore, creating, sustaining and growing a start-up involve a considerable degree of uncertainty and challenge to its promoters regarding its future. More often, start-ups are created on a small scale with limited resources. They often face large and experienced competitors, powerful suppliers, sceptic customers and scarce resources (Bala Subrahmanya, 2015). Therefore, their ability to emerge smoothly, to achieve stability for sustenance, and subsequent scaling up and growth is limited. Therefore, start-ups have a high failure rate relative to established firms (Hannan and Freeman 1984; Hey, et al., 1993; Robinson, 1998). Given their limited internal resources and strength, start-ups are highly dependent on the local environment for critical resources which are essential to sustain their operations (Korreck, 2019). Start-ups which are nurtured in a structured and vibrant regional entrepreneurial ecosystem have a higher probability of success relative to those which are not so nurtured (Arruda, et al., 2015). This is because supportive entrepreneurial ecosystem is found to have a positive impact on start-up fertility, stability and growth (Cukier, et al., 2016). A vibrant entrepreneurial ecosystem will have the ability to innovate, build exceptional enterprises, and create jobs (Aleisa, 2013). A strong regional entrepreneurial ecosystem is an effective method https://doi.org/10.1515/9783110679359-002

2.3 Structure and components of entrepreneurial ecosystems

19

to promote regional innovations and the development of business environment along with securing the growth of gross domestic product and employment in the given country (Krajcik and Formanek, 2015). Precisely for this reason, the world’s most dynamic areas are focusing on supporting a pro start-up environment (Manzella, 2015). Given this, it is important to understand the structure and key components of an entrepreneurial ecosystem for start-ups, and the factors which determine or contribute its vibrancy.

2.3 Structure and components of entrepreneurial ecosystems The emergence of entrepreneurial ecosystems for star-ups in different parts of the world is a recent phenomenon, as it became visible only since the early 2000s (Malecki, 2018). The entrepreneurial ecosystem is a concept that is basically spatial, centrally local (Malecki, 2018). Specifically, entrepreneurial ecosystems are seen as a regional economic development strategy that is based around creating supportive environments that nurture innovative start‐ups (Spigel and Harrison, 2018). Thus, it is important to note that entrepreneurial ecosystems focus on specific areas/sectors and therefore present different characteristics and dynamics. There exist major differences in the entrepreneurial ecosystems from one region to another, due to government policies, among others (Foster and Shimizu, 2013). Therefore, each ecosystem has its own path of evolution over time (Cukier, et al., 2016). The two often cited benchmarks for a vibrant entrepreneurial ecosystem are: Silicon Valley and Israel, which are uniquely identified for their success in entrepreneurship development and for generating in one year, more successful start-ups than other nations could create in years or decades. Both Silicon Valley and Israel are not identical but distinct in their respective ambiances. However, they seem to contain a combination of variables in their ecosystem that encourages the entrepreneurial activity to blossom (Arruda, et al., 2013). This implies that though different nations can have different economic environments, it is possible to build their own entrepreneurial ecosystems that can encourage successful business concerns. There is no exact formula for creating an entrepreneurial economy, there are only practical, if imperfect, road maps (Isenberg, 2011). This brings out that it is not possible to replicate either a Silicon Valley or an Israel, by simply replicating the characteristics of their entrepreneurial ecosystems, rather what is more important is to identify the key benchmark elements of an entrepreneurial ecosystem and promote them. There are certain critical elements or components or stakeholders which are essential for a blossoming, healthy and structured entrepreneurship ecosystem, which need to be identified at the outset, if they have to be promoted appropriately. Isenberg (2011) identifies them as the domains of entrepreneurship ecosystem and according to him, entrepreneurship is at the core of the ecosystem and it would

20

Chapter 2 Entrepreneurial ecosystems for start-ups: A global perspective

comprise (i) policy, (ii) finance, (iii) culture, (iv) support systems, (v) human capital, and (vi) markets. The roles that these domains play in nurturing and promoting start-ups require to be elaborated. Firstly, policy support can come in the form of institutions, financial support, regulatory framework including tax incentives for start-ups, public funded research institutions, venture friendly legislation, and laws relating to bankruptcy, contract enforcement, property rights, and labour. Secondly, financial capital should be available in the form of or from angel investors, venture capital funds, private equities, public capital markets for IPO, and debt instruments for start-ups. Thirdly, cultural support can take different forms such as tolerance of risk, mistakes and failures, support for innovation, creativity, and experiments; encouragement for ambition, drive and hunger for higher achievements; higher social status for entrepreneurs; and respect for wealth creation. A favourable culture will also emerge when successful entrepreneurship in the form of wealth generation and gaining international reputation is publicized and made visible. Fourthly, an adequate support system for start-ups is crucial, and this is required in the form of availability of (i) soft infrastructure such as professionals, that is, lawyers, accountants, investment bankers, technical experts and advisors, and (ii) hard infrastructure such as telecommunications, transportation and logistics, energy, and incubation centres. Fifthly, human capital is another essential domain of the ecosystem. Human capital is in the form of labour and education institutions. The former would include skilled and unskilled labour, and serial entrepreneurs, and the latter would comprise educational institutions which generate professional and general graduates, and provide entrepreneurial training. Sixthly and finally, markets assume an important role as a domain of the ecosystem. It has two components, namely, early customers and networks. Early customers would include early product adopters, expertise in productizing, reference customer, first review of the product, and distribution channels. The networks would consist of entrepreneur’s personal networks, diaspora networks and Multinational Corporations. These six domains would broadly provide the much-needed support for the spring up and growth of start-ups (Isenberg, 2011). The entrepreneurial ecosystem for start-ups is dynamic in nature. From time to time, ecosystems change in terms of people, organizations and environments. The pool of people resources varies from year to year, building up during downturn for bigger companies and crashing as they gear up their recruiting. Longer term changes also shape ecosystem processes – where the larger start-up companies eventually make big exits releasing capital and talent to the start-up ecosystem. That is why, start-up ecosystems in similar environments but located in different parts of a country can end up doing things differently simply because they have a different entrepreneurial culture and resources pool. But the introduction of non-

2.3 Structure and components of entrepreneurial ecosystems

21

native people, knowledge and skills can cause substantial shifts in the ecosystem functions (Isenberg, 2011). This brings out two critical issues: 1. Even within a country where start-ups are subjected to the same macroeconomic policy environment, entrepreneurial ecosystems in two different regions are unlikely to be similar. This could be due to cultural differences as well as differences in the pool of human resources available. 2. However, with the influx of non-native people with knowledge and skills, resulting in cross-cultural migration, an entrepreneurial ecosystem might experience substantial improvements. Senor and Singer (2011) in their study on Israel brought out that there are some factors which led to the success of Israel as a start-up ecosystem: (i) the military service, which is a compulsory duty for all 18 year old Jews, which makes people get used to risk taking situations and develop strong networking and personal relationships, (ii) the culture of doubt and argument, where leadership can always be questioned if it is not reasonable, (iii) the historical background, where people want to improve and succeed, (iv) incentive system for employing immigrants, particularly highly-qualified scientists and knowledge workers, and (v) Israel’s small size which creates an opportunity to specialize in quality based creativity. Israel has one of the lowest “power distance” rankings, implying that hierarchies are very flat. Further, Israeli cultural characteristics are considered favourable for developing start-ups because they have high levels of cultural individualism which correlates positively with national innovation rates (Kon, et al., 2015). At the same time, some types of collectivism prevalent in Israel (e.g., patriotism and nationalism) also foster innovation at the national level. Due to these factors, Israel is considered the second-best start-up hub in the world, after the Silicon Valley (Kon, et al., 2015). Mariwala (2012) referred to three key elements in the entrepreneurial ecosystem for start-up emergence and growth in India, namely, (i) people, (ii) markets/exits, and (iii) environment. However, he observed the existence of gaps in the existing ecosystem as reflected in: – The education system: (i) engineering colleges and business schools are stand alone, (ii) limited synergy and exchange of thoughts at academic level, (iii) curriculum rigidness and inability to evolve, (iv) poor industry-academia relationship across sectors, (v) lacuna in skill development, and (vi) an education system which does not promote non-linear thinking. – Funding, market and other support systems: (i) limited funding options, (ii) early stage investing still far from “mainstream”, (iii) lack of early adopters of products and services, (iv) limited access to technology and talent, (v) few merger and acquisition opportunities, and (vi) few success stories and role models. The limitations of the Indian start-up ecosystem were identified by Le Blanc (2012) as well. One of the imperative components of an entrepreneurial ecosystem is

22

Chapter 2 Entrepreneurial ecosystems for start-ups: A global perspective

availability of adequate funding, particularly in the form of venture capital funds. But Indian venture capital market is found to be at a relatively nascent stage and it is an underdeveloped market. The inadequate development of early stage investment market was characterized by three barriers, namely, (i) a lack of “bankable” entrepreneurs, (ii) a shortage of “real” early stage capital, and (iii) a debilitating business environment. Feld (2012) claim that there are four essential characteristics in a successful start-up community, namely, (i) it must be led by entrepreneurs and not by other important players such as government, universities, service providers, large companies, which he calls “feeders”, (ii) the entrepreneurs must have a long term commitment to the community (to the order of, at least, 20 years), (iii) it has to be inclusive, which implies that everybody who wants to participate must be welcome, and (iv) it must have quality events to engage people, specially acceleration programs and mentoring sessions. Arruda, et al., (2013) studied the entrepreneurial ecosystem of Brazil and found out that there are six crucial factors which would determine an entrepreneurial ecosystem and its performance, namely, (i) regulatory framework of the government, (ii) market conditions, (iii) access to finance, (iv) creation and diffusion of knowledge from institutions and researchers, (v) entrepreneurial capability, and (vi) entrepreneurship culture. They felt that regulatory bodies in Brazil have not yet perceived the important role that they can play in the creation of start-ups, and therefore, considered it an obstacle. However, Brazilian market was considered promising for startups and the development of Brazilian economy has created potential investors as a means of finance for start-ups. The inadequate interaction between academia and enterprise was also considered a limitation. Entrepreneurship capability development could occur through (i) the presence of education veered towards entrepreneurship, and (ii) migration of qualified foreign professionals into Brazil. But both were not considered adequate. Finally, entrepreneurial culture is largely determined by the attitude towards risk taking and failure. They observed that Brazilians, by and large, offered resistance to failure and therefore, were risk averse. A start-up ecosystem is a society of founders with ideas and skills, young companies at early stages with talent, incubators with mentors and capital, early adopters and the media (Aleisa, 2013). The goal for any start-up ecosystem is to develop a self-sustaining network of talent and resources that seek to solve issues affecting the wider entrepreneurial community. To do that, ecosystems must have some critical components such as (i) entrepreneurs with technical skills, as it is a basic requirement in technology development, (ii) availability of a variety of sources of funding as it is an important element in a good start-up ecosystem for innovative ideas, and (iii) a favourable government regulation, as it is an important determinant of the success of up-coming and existing start-ups. Government regulations are in terms of taxation, support, funding, incentives, education and training. Thus, the presence of entrepreneurs, funding, investors and all the major stakeholders make an ecosystem

2.3 Structure and components of entrepreneurial ecosystems

23

for start-ups. If an ecosystem has to become effective, it is crucial for the government to address these needs adequately to promote such an ecosystem (Aleisa, 2013). There are three important stakeholders in an entrepreneurial ecosystem. The central focus of the start-up ecosystem is of course, on the entrepreneurs. Entrepreneurs view three areas of an entrepreneurial ecosystem as being of pivotal importance: (i) accessible markets, (ii) human capital/workforce, and (iii) funding and finance. But entrepreneurs themselves can play multiple important roles in the building-up of an entrepreneurial ecosystem such as mentorship, inspiration, investment, new founders and new employees. The second important stakeholder is large companies, who have the potential to provide important leverage for early-stage companies in their growth and development. The third important stakeholder is the government, which can influence the ecosystem through its regulatory policies, which are viewed by entrepreneurs as both potential growth accelerators and alternatively, potential growth inhibitors. If major differences exist in the entrepreneurial ecosystem from one region to another, it is primarily due to differences with respect to government policies as governments often adopt a strong regional focus in their entrepreneurial ecosystem promotion policies (Foster and Shimizu, 2013). Foster and Shimizu (2013) have identified eight components which are necessary in an entrepreneurial ecosystem. They are (1) accessible markets, (2) human capital workforce, (3) funding and finance, (4) mentors, advisors and support systems, (5) regulatory framework, and infrastructure, (6) education and training, (7) major universities as catalysts, and (8) cultural support. Piscione (2013) explored the characteristics of the first and most successful startup ecosystem of the world, Silicon Valley. She ascertained the presence of a shared set of attitudes, values, goals, and practices that turned the value into a unique place that is difficult to reproduce or emulate. At the same time, based on Silicon experience, she identified the characteristics of a healthy start-up ecosystem, which are: (i) the presence of a high ranked university (i.e., Stanford), (ii) the cultural mix of experienced and high-talented entrepreneurs, investors, and academics, (iii) a wellness mindset and quality of life with causal offices, healthy work culture, and disdain for hierarchical communication models, (iv) people who have migrated from many parts of the world, and the Immigration and National Act of 1990 which encouraged highly skilled immigrants to move to urban centres, (v) risk and failure being embraced as part of the entrepreneurial journey, (vi) authentic entrepreneurs with passion to make a difference in humanity, (vii) a well-established patent industry, (viii) passionate, authentic, driven by ideas, fearless in risk taking, trustworthy, and resilient people, (ix) no idea considered crazy, (x) the Venture Capital industry on virtuous cycle, where successful entrepreneurs take their exit earnings to invest in new start-ups, and (xi) network culture of freely exchanging ideas. Many of these characteristics are found to be present in the Israeli ecosystem as well, which in fact make the two ecosystems stand apart from the rest in the global economy.

24

Chapter 2 Entrepreneurial ecosystems for start-ups: A global perspective

Anjum (2014) contends that ‘for start-ups to succeed, a few ingredients must be in place’. Accordingly, she identified seven vital components in an ecosystem for startups, namely, suitable infrastructure, government support, network of universities and institutions, access to a big market, availability of talent, availability of funds, and enterprising spirit. There must be a dedicated space for technology clusters, favourable government policies, a network of universities and research institutes as the breeding grounds of innovation and agents of interaction with firms, big markets to enable the scaling up of start-ups, a fairly big talent pool, presence of Angel Investors (AIs)/ Private Equities (PEs)/Venture Capital Funds (VCFs) in adequate numbers, and a significant presence of enterprising sprit and prospective entrepreneurs. The importance of essential ingredients for an entrepreneurial ecosystem is also emphasized by Dale and Zell (2014) in the context of London and Boulder. They are (i) entrepreneurs, (ii) governments, (iii) universities, (iv) investors, (v) mentors, (vi) service providers, and (vii) large companies. WEF (2014) conducted an empirical analysis based on case studies covering entrepreneurial ecosystems around the globe and early-stage company growth dynamics. This study revealed that there are eight pillars of an entrepreneurial ecosystem, namely, (i) accessible markets, which would include domestic as well as foreign but would primarily comprise large firms, SMEs and governments as customers, (ii) human capital/workforce comprising managerial talent, technical talent, experienced entrepreneurs, access to immigrant workforce and outsourcing availability, (iii) funding and finance consisting of family and friends, angel investors, private equities, venture capital, and access to debt, (iv) support systems/mentors including mentors/advisors, professional services, incubators/accelerators, and network of entrepreneurial peers, (v) government and regulatory framework, which would comprise ease of starting a business, tax incentives, business friendly legislation/policies, access to basic infrastructure, telecommunications/broadband, and transport, (vi) education and training which would provide workforce with pre-university/university education, and entrepreneurship specific training, (vii) major universities as catalysts, which could promote – culture of respect for entrepreneurship, ideas as well as graduates for start-ups, and (viii) cultural support which will reflect in tolerance of risk and failure, preference of self-employment, research culture, positive image for entrepreneurs, celebration of innovation, and success stories/role models. However, of these, three elements are of pivotal importance – accessible markets, human capital/workforce, and funding and finance (WEF, 2014). Bala Subrahmanya (2015) noticed the emergence of an increasing number of new generation start-ups in India in the recent period, which he attributed to (i) ICT revolution, and (ii) globalization. Thus, start-ups owe their emergence to market forces more than anything else. At the same time, he noticed that a unique ecosystem is evolving favouring the emergence of start-ups, which has a strong base of diversified sources of entrepreneurship on the one hand, and three important sources of funding, namely, angels, VCs and private equities, on the other (Figure 2.1). In

2.3 Structure and components of entrepreneurial ecosystems

25

– NASSCOM – Startup websites – Informal startup clubs + programs – Startup initiatives by technology/knowledge intensive companies

Private support system

Sources of entrepreneurship – Technology/knowledge intensive large firms – Higher education institutions – R&D organizations – Public sector undertakings – Technology business incubator (TBI) and accelerators – Reverse braindrain

New generation startups

Public support system

Sources of funding – Angel investors – Private equities – Venture capital funds

– Limited liability Partnership Act 2008 – SME exchange

Figure 2.1: Ecosystem for new generation start-ups in India (Source: Bala Subrahmanya, 2015).

addition, public policy driven SME exchanges on the one hand, and private sector initiatives in the form of start-up promotion activities undertaken by industry associations such as National Association of Software and Service Companies (NASSCOM), MNCs such as Cisco and Microsoft, on the other, together contribute to the uniqueness of this ecosystem. Further, to nurture them more systematically, exclusive Technology Business Incubators (TBIs) are springing up across the country supported by public sector R&D institutions, whereas Accelerators are promoted, particularly in metro cities, by MNCs. Various informal start-up promotion activities add further vibrancy to the ecosystem. Stangler and Masterson (2015) laid emphasis on the vibrancy of an entrepreneurial ecosystem in generating successful start-ups. The vibrancy of a start-up ecosystem will be largely determined by four important indicators, namely, its density, fluidity, connectivity, and diversity. The density of an ecosystem can be measured by (i) new and young firms per 1000 people, (ii) share of employment generated by new and young firms, and (iii) high-tech start-up density in the start-up population. The fluidity of an ecosystem can be measured by (i) population flux, that is,

26

Chapter 2 Entrepreneurial ecosystems for start-ups: A global perspective

individuals moving between cities and regions; (ii) labour market reallocation, that is, movement of labour within a given region but between different jobs; and (iii) number and density of high-growth firms. The connectivity of an ecosystem is reflected on its (i) connectivity between progarmmes, companies and individuals, (ii) rate of spinoffs, and (iii) dealmaker networks. Finally, diversity is reflected in (i) the presence of multiple economic activities, (ii) attraction and assimilation of immigrants, and (iii) economic mobility of labour between different income quintiles. The structural components of an entrepreneurial ecosystem would consist of entrepreneurial start-ups, different policy agencies, incubators/accelerators, and actors providing risk capital. But other economic actors could also contribute to the start-up ecosystem structure. For example, the results of work of scientists contribute to research models of ecosystems as they provide the basic structure of business entities involved. In addition, the local high-tech industry must be locally concentrated on social networks, which allow the growth of the ecosystem. A coherent social structure is essential if the ecosystem has to prosper and produce desired results (Krajcik and Formanek, 2015). Sean (2015) attributes the growth of local start-up ecosystem in Singapore to the drive to transform Singapore into a knowledge economy. Prospective entrepreneurs are able to leverage on the stable government, conducive business environment prevailing in the city, and social harmony of Singapore’s diverse population to grow their business and access regional markets. Therefore, today Singapore occupies a unique position on the global innovation landscape as a favourable entrepreneurial ecosystem. He identifies six key components in the ecosystem framework of Singapore, namely, (i) culture, (ii) market, (iii) human capital, (iv) policy regulation, (v) finance, and (vii) support from government agencies. Haines (2016) with respect to the Cairns region of Australia, broadly identified eight key elements which play a crucial role in the birth, growth, and exit of startups. The key elements are (i) entrepreneurs, inventors and innovators, (ii) educational institutions, (iii) research institutions, (iv) specialist service providers, i.e., accountants, (v) government (local, state and federal), (vi) investors, (vii) mentors, and (viii) media. However, some key ingredients of an entrepreneurial ecosystem are either missing altogether or underdeveloped or disconnected in the region. These are culture, champions, network, stakeholder engagement, process and physical space and events. A region which lacks entrepreneurial culture or entrepreneurs (champions) in adequate numbers, or opportunities for networking among prospective entrepreneurs and other supporting entities, or start-up promotion activities/events, is unlikely to have a vibrant entrepreneurial ecosystem. Cukier, et al (2016) added the geographical dimension when they defined an ecosystem for start-ups. It is a limited region within 30 miles (or one-hour vehicular travel) range, formed by people, their start-ups, and various types of supporting organizations, interacting as a complex system to create new start-ups and evolve the

2.3 Structure and components of entrepreneurial ecosystems

27

existing ones. They contended that any healthy entrepreneurial ecosystem has a direct impact on entrepreneurs and enterprises. There are 10 common elements of successful start-up ecosystems, as identified by empirical researchers with respect to Western agglomerations (Hemmert, et al., 2016). These common elements are (i) a pool of highly talented people with entrepreneurial spirit and a high risk-taking propensity. They are supported by (ii) a culture that nurtures entrepreneurial spirit and tolerates or honours failures, (iii) closely located high density of research institutions where new ideas are generated, leading to innovations and technology development, (iv) a financial system which caters to the needs of highrisk ventures with a high-growth potential, at different stages of their growth, and exit, if necessary, (v) support system which bring start-up entrepreneurs and investors together through either open events or personal/systematic networks, (vi) a large pool of talented human resources, (vii) a pool of mentors who could be former successful entrepreneurs or experienced businessmen who are willing to advise, (viii) access to markets, both local and international, (ix) large companies which play multiple roles as early investors, early product adopters, as providers of technology, know-how or sales channels or offer exit options through mergers and acquisitions, and (x) a supportive regulatory and tax environment for risky ventures (Hemmert, et al., 2016). These common elements provide a point of reference to evaluate entrepreneurial ecosystems elsewhere. Hemmert, et al., (2016) based on an empirical investigation of entrepreneurial ecosystems covering Tokyo (Japan), Seoul (South Korea), Suzhou and Chongqing in China, relative to Western counterparts, concluded that unlike the Western start-up ecosystems, the four East Asian ecosystems are all located within very large urban agglomerations, and thus did not emerge out of regional clusters. Further, these four ecosystems did not emerge out of specific knowledge hubs either, rather they are subjected to a large number of relevant external institutions and organizations. However, the government support forthcoming for start-ups was comparatively higher but less effective. Further, the growth of East Asian high-tech start-up ecosystems was largely influenced by the growth and flexibility of the supporting labour market. Finally, high-tech start-ups of East Asia faced more obstacles and less pressure (relative to their Western counterparts) towards internationalization while operating within the large national markets. Aaltonen (2016) based on a review of all relevant core literature pertaining to start-up ecosystems, identified 10 generic factors that have been found to shape entrepreneurial ecosystems and the rise of entrepreneurship, as given in Table 2.1. A description on each of these factors is in order. Firstly, there are regional differences in supporting entrepreneurial ecosystems and contributing to successful entrepreneurship. These differences are largely visible in three different forms: – cultural, institutional and demographic differences, – geographical proximity, industrial clusters and agglomeration, and – government policy and public interventions.

28

Chapter 2 Entrepreneurial ecosystems for start-ups: A global perspective

Table 2.1: Generic factors that shape entrepreneurial ecosystems. Sl. No.

Factors

Importance



Regional context for entrepreneurship

Both local proximity and cross-border connections matter in entrepreneurship.



Knowledge, learning and resource acquisition

A start-up requires plenty of varied knowledge and learning to cope with typically severe resource constraints.



Funding, ownership and remuneration

Different types of funding interact with each other and support entrepreneurial success unevenly.



Founders and founding conditions

Founders imprint their companies with specific knowledge and personality, which has a lasting impact on the organization.



Innovation and product development

A start-up needs to justify its existence, usually by bringing some sort of innovation to the market.



Product architecture

Product modularity and platforms shape appropriate marketing approaches, strategy and relationships with other companies.



Marketing

The launch of the first product may define the fate of an entrepreneurial start-up.



Intellectual property

Innovation results often in intellectual property that can be exploited in different ways.



Start-up strategy

Entering or creating a market is a matter of strategy, whether the entrepreneur recognizes this or not.



Exit, failure and restart

Entrepreneurship is a project that may end in three different ways: failure, acquisition or growth.

Source: Aaltonen, 2016

Secondly, a start-up would require various forms of knowledge, and primarily it should emanate from the founder/s themselves so that it would get past its initial stages but over a period of time, plenty of new knowledge must be created and sourced by other means. This would call for a high absorptive capacity from a startup. The ability to acquire, process and digest knowledge will have a significant bearing on its success and growth. The ability to absorb both technological and managerial knowledge is crucial and can prove decisive. One way of obtaining the requisite additional knowledge is through social networking. Thirdly, finance plays a vital role in new venture creation and performance. Ideally, personal wealth of a founder can be a great source of initial strength to take an appropriate level of risk and to remain motivated in adverse circumstances. However, beyond a stage, new venture would require external funding. Generally,

2.3 Structure and components of entrepreneurial ecosystems

29

four types of external sources of finance exist for start-ups, namely, independent venture capital, corporate venture capital, angel investments and public government funding. Fourthly, founders and founding conditions both will have a considerable impact on start-ups. The learning, skills and experience of founders would play a crucial role in venture creation and success. Diversified but complementary talents in the founding team members will act as a great strength to the new venture. Further, opportunity identification trait is important for venture emergence. Similarly, motivation to start a new venture is important and is determined by many factors such as the environment in which an individual operates, which would have created successful entrepreneurs earlier, and provides opportunities to learn about entrepreneurship; lack of opportunities to commercialize an invention in a large enterprise, etc. The personality traits of an individual are also crucial in the formation and success of a new venture. Fifthly, the ability to innovate and develop new products plays an important role. A broader technology vision, which would require the ability to imagine the future and to articulate the vision, combine technical ability with market demand, develop social networks as a means of knowledge acquisition beyond the local region, etc. are all crucial in venture building and performance. Sixthly, understanding relevant platform dynamics and skill platform management and governance are critical for developing a successful product architecture of the start-up. Seventhly, a start-up often starts with a single product or a few products, to begin with. Therefore, its projection to the prospective customers to win over the market is extremely important. Eighthly, the ability to handle and project intellectual property to commercialize its innovation for a start-up creation to generate revenues is important. Ninthly, the strategy adopted by a start-up to enter the market either as a new product or as an improved product, and the strategy adopted to deal with competitors can have a profound influence on the new venture. Finally, a start-up may either fail, or succeed and get acquired by another start-up or a large enterprise, or succeed and grow into an established company. The rate of failures, acquisitions and growth into large firms can all have a strong influence on the ecosystem. Stam and Spigel (2017) identified key elements, outputs and outcomes that would emerge from an entrepreneurial ecosystem. According to them, aggregate value creation is the outcome, entrepreneurial activity is the output which emerge from the interactions between the various entrepreneurial ecosystem elements. The ecosystem elements are grouped into (i) systemic conditions comprising networks, leadership, finance, talent, knowledge, and support services/intermediaries, and (ii) framework conditions consisting of formal institutions, culture, physical infrastructure and market demand. An entrepreneurial ecosystem is a composition of coordinated and mutually dependent factors that result in the formation of a creative environment for entrepreneurship in a country. Given this, finance, human resources, markets, support system, government policy, infrastructure, industrial relationship networks, and

30

Chapter 2 Entrepreneurial ecosystems for start-ups: A global perspective

mentorship as the components together would constitute an ecosystem for startups. However, among these elements, human resource development is the most critical dimension followed by finance, support systems, and industrial network relationship as the other crucial dimensions. The regulatory role of the government, leadership, angel investors, and industrial training appeared to be the valid subdimensions in the context of Pakistan (Mujahid, et al., 2019). Shwetzer, et al., (2019) defined entrepreneurial ecosystem elements under three kinds of attributes, namely, social attributes, cultural attributes and material attributes. Social attributes comprised networks, investment capital, mentors and dealmakers, and worker talent. Cultural attributes included cultural attitudes and histories of entrepreneurship. Material attributes consisted of universities, support services and infrastructure, policies and governance, and markets. Broadly, an ecosystem has two dimensions, namely, relational interactions and institutional environment. It is an integration conceptualized based on a merger of aspects of entrepreneurial activity, value creation and interaction (Shwetzer, et al., 2019). The above reviewed conceptual literature, and empirical literature focusing on the diverse components of entrepreneurial ecosystems in different parts of the global economy, bring out clearly that there are some common elements without which an entrepreneurial ecosystem may not come into existence. Even if it emerges into existence, it may not be effective and successful. The key elements or components of an entrepreneurial ecosystem identified and emphasized by the various studies reviewed earlier are summarized in Table 2.2. A number of general and entrepreneurial ecosystem specific empirical studies primarily focused on identifying a broad list of elements in the ecosystem and their roles, but lacked any analysis on the interrelationships between the identified elements. As Motoyama and Watkins (2014) have argued it is more important to analyse how and how well these elements are connected than what these elements are. Given this, there are certain limitations in the context of existing empirical studies as observed by Motoyama and Watkins (2014). They identified three major limitations: (i) the past studies focused on identifying the key elements of a system but not many analysed the connections between them, (ii) the past works focused on holistic framework, which often ended up with an inclusive approach to any possible elements. As a result, what is missing is a critical examination of which elements are the essential actors. Such an insight is crucial because it can bring out implications for how to establish or promote the local ecosystem from a policy perspective, and (iii) the past studies lacked the power to analyse the evolution of ecosystems. For policy implications, it would be useful if we could answer how successful are the ecosystems that have developed over time, and particularly, how each ecosystem has started. But this poses an enormous challenge to scholars, as one has to trace the history of a region for at least, a couple of decades, to ascertain the ecosystem evolution.

It is at the core of ecosystem for birth, growth and exit of startups.

Entrepreneurship

Markets

Finance

Human Resources









Labour force, technical workforce, and managerial talent.

Angels, Private Equities, Venture Capital, public capital markets for IPO and debt instruments.

Markets would include early product adopters, repeatable customers, networks and MNCs.

Role and Importance

Sl. Components No.

Table 2.2: Components and their roles in an entrepreneurial ecosystem.

(continued )

Isenberg (); Foster and Shimizu (); Anjum (); WEF (); Sean (); Hemmert, et al., (); Aaltonen (): Stam and Spigel (); Mujahid, et al., ()

Isenberg (); Arruda, et al., (); Aleisa (); Foster and Shimizu (); Piscione (); Anjum (); Dale and Zell (); WEF (); Bala Subrahmanya (); Krajcik and Formanek (); Sean (); Haines (); Hemmert, et al., (); Aaltonen (); Stam and Spigel (); Mujahid, et al., (); Shwetzer,et.al., ()

Isenberg (); Arruda, et al., (); Aleisa (); Foster and Shimizu (); Anjum (); WEF (); Sean (); Hemmert, et al., (); Aaltonen (); Stam and Spigel (); Mujahid, et al., (); Shwetzer, et.al., ()

Isenberg (); Feld (); Arruda, et al., (); Aleisa (); Foster and Shimizu (); Piscione (); Anjum (); Dale and Zell (); WEF (); Bala Subrahmanya (); Stangler and Bell-Masterson (); Krajcik and Formanek (); Sean (); Haines (); Hemmert, et al., (); Aaltonen (); Stam & Spigel (); Mujahid, et al., (): Shwetzer,et al., ()

Identified Studies

2.3 Structure and components of entrepreneurial ecosystems

31

Large Companies including MNCs

Mentors/Advisors

Support Institutions Accelerators, Technology Business Incubators, Soft infrastructure Isenberg (); Foster and Shimizu (); Dale and Zell (professionals – Lawyers and Accountants) and hard (); WEF (); Bala Subrahmanya (); Krajcik and infrastructure (telecommunications, transportation and logistics) Formanek (); Haines (); Hemmert, et al., (); Stam and Spigel (); Mujahid, et al., (); Shwetzer, et.al., ()







Technical and managerial advice for start-up creation, stability, growth and exits.

As customers, sources of entrepreneurship, nurturers of start-ups through accelerators, sources of technical and managerial workforce, investors, technology providers, acquirers of startups.

Foster and Shimizu (); Dale and Zell (); WEF (); Haines (); Hemmert, et al., (); Shwetzer, et.al., ()

Isenberg (); Foster and Shimizu (); Dale and Zell (); Bala Subrahmanya (); Krajcik and Formanek (); Hemmert, et al., (); Aaltonen (): Stam and Spigel (); Mujahid, et al., ()

Isenberg (); Arruda, et al., (); Aleisa (); Foster and Shimizu (); Anjum (); Dale and Zell (); WEF (); Bala Subrahmanya (); Krajcik and Formanek (); Sean (); Haines (); Hemmert, et al., (); Aaltonen (): Stam and Spigel (); Mujahid, et al., (); Shwetzer,et.al., ()

Government: regulatory framework and policies



Favourable laws and regulations for tax incentives, venture capital, bankruptcy, property rights, labour and exits; public research institutions.

Institutions which produce non-graduate and graduate workforce, Isenberg (); Arruda, et al., (); Foster and Shimizu technical and managerial talent, innovations, entrepreneurial (); Piscione (); Anjum (); Dale and Zell training, etc. (); WEF (); Bala Subrahmanya (); Krajcik and Formanek (); Haines (); Hemmert, et al., (); Aaltonen (); Shwetzer,et.al., ()

Education and Research



Identified Studies

Role and Importance

Sl. Components No.

Table 2.2 (continued)

32 Chapter 2 Entrepreneurial ecosystems for start-ups: A global perspective

Media

Immigration of talent





Sources of entrepreneurship, human resources, advisors/ mentors, finance, support networks, etc.

Publicizing: start-up creations, its pre-requisites, support available, failure consequences, and achievements of success

Tolerance of risk, failures, support for innovation, creativity, drive and hunger for achievements; higher social status for entrepreneurs; respect for wealth creation.

Source: Compiled by author

Cultural Support



Senor and Singer (); Piscione (); Bala Subrahmanya (); Stangler and Bell-Masterson ()

Aleisa (); Bala Subrahmanya (); Haines ();

Isenberg (); Senor and Singer (); Arruda, et al., (); Foster and Shimizu (); Piscione (); WEF (); Sean (); Hemmert, et al., (); Aaltonen (): Stam and Spigel (); Mujahid, et al., (); Shwetzer,et.al., ()

2.3 Structure and components of entrepreneurial ecosystems

33

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Chapter 2 Entrepreneurial ecosystems for start-ups: A global perspective

In addition, as Alvedalen and Boschma (2017) have observed, previous studies have often focused on the entrepreneurial ecosystem in single regions or clusters but lack a comparative and multi-scalar perspective. Further, substantiating the observation of Motoyama and Watkins (2014), Alvedalen and Boschma contended that entrepreneurial ecosystem literature thus far tends to provide a static framework taking a snapshot of entrepreneurial ecosystem without considering systematically their evolution over time. Against the above backdrop, to examine the issues and perspectives of entrepreneurial ecosystems, a reference to competence bloc theory propagated by Eliasson (2000) looks appropriate. A competence bloc is the configuration of actors and agencies that together initiates and stimulates the growth of an industry through the exploitation of innovations for new ventures (Eliasson, 2000). According to him, economies grow mainly through experimental programmes and through the ability of economic systems to pick winners and discard losers towards the creation of startups. The structure of a competence bloc is defined originally by six elements or components, namely, customers, innovators, entrepreneurs, venture capital, exit markets, and industrialists (Eliasson, 2000) (Figure 2.2). Eliasson identifies a decisive role for each of these elements for their interaction within the ecosystem.

Customers

Large enterprises

Innovators

Exit markets

Entrepreneurs

Venture capitalists

Figure 2.2: Competence bloc for the generation of start-ups (Source: Author’s description).

First of all, the presence of customers is decisive, as they play a crucial role by taking an active part in the development and commercialization of products by serving as a channel of information and informing the firm about the market and customer

2.3 Structure and components of entrepreneurial ecosystems

35

demands. More importantly, they are a catalyst for innovation and therefore play a decisive role in the design and development of new products, and even new enterprises. The second element in the competence bloc is innovators, who combine old and new technologies into new composite technologies for entrepreneurial recognition and adoption. Entrepreneurs are the third element who select commercially viable innovations to exploit its market potential through enterprises on a desired scale initially. The gap between the innovators and the entrepreneurs is bridged by the fourth element, venture capitalists, who are critical in enabling the entrepreneurs to take advantage of technological innovation-based investment opportunities through commercialization. To facilitate the scaling up of winning business enterprises, and to spur up venture capital investments, existence of smooth exit markets is essential, which forms the fifth element. Finally, in scaling up the viable/successful business enterprises, the role of large industrialists is imperative, which forms the sixth element of the start-up ecosystem (Eliasson, 2000). It is important to note that each of these elements need not be separate entities, rather a single entity can play multiple roles in an ecosystem. For example, a large enterprise can be a customer, a source of innovation as well as entrepreneurship, a source of capital and scaling up, and can facilitate the exit of a start-up through its acquisition, at the end. The important function of the competence bloc is to guide the selection of successful innovations through its competence filter. This is done by incentives and enforced by competition, to take the innovations towards industrial scale of production and distribution. The larger the number of actors and the more varied their competence, the greater is the competition, and the more efficient and successful the selection of winners. The increasing returns to innovative search act as the incentives, which minimize the risk of losing a winner (Eliasson, 2000). Thus, a “vibrant entrepreneurial ecosystem” must comprise an adequate number of components of varying competence, who interact with one another, to ensure a steady generation of tech start-ups, and to facilitate its survival and/or stability and/or success. The above discussed issues raise the relevance of assessing an entrepreneurial ecosystem for start-ups for its evolution, current structure, role and interaction, and maturity. The OECD’s Entrepreneurship Measurement Framework identifies three broad elements that are important in assessing the entrepreneurial ecosystem, namely, (i) entrepreneurship determinants, (ii) entrepreneurial performance, and (iii) entrepreneurial impact (ANDE, 2013). Entrepreneurship determinants refer to the factors which affect the generation of entrepreneurship. The broad themes and actors involved are specific policies, venture capital financing deployed, and the availability of business development services. In particular, finance, business support, policy, markets, human capital, infrastructure, R&D and culture are considered the prominent determinants of entrepreneurial ecosystem. Entrepreneurial performance can be measured in terms of

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Chapter 2 Entrepreneurial ecosystems for start-ups: A global perspective

total number of firms, number of high-growth firms, employment and enterprise survival and death rates. Whereas entrepreneurial impact refers to the value created by entrepreneurs and entrepreneurship, which may be measured in terms of macroeconomic variables such as GDP growth, employment, Gini coefficients (to measure income distribution), or the size of the formal sector vs. informal sector (ANDE, 2013). Given the need for an evaluation of entrepreneurial ecosystems, ANDE (2013) has suggested Guidelines for conducting an assessment of an entrepreneurial ecosystem, which are as follows: – Geographic unit of analysis: As a first step, it is essential to identify the geographic region for the study, which may be a metropolitan region, a state or a province, or an entire country. However, assessments of specific regions within a country (e.g. metropolitan area) and specific sectors are likely to be a more effective approach for an evaluation and recommendation of specific interventions. Once a geographical location is chosen, evaluators should also select comparable regions or standardized benchmarks, to draw meaningful comparisons. – Depth of Analysis: Project scoping should include the level of analysis that needed to provide actionable recommendations to the relevant stakeholders. The level of analysis can be done at three levels: – Asset identification: Reviewing existing research and data sources, and obtaining input from the representatives of the key stakeholders including public, private, academic and non-profit entities. – Basic evaluation: Assessing the strengths and weaknesses of the ecosystem, and identifying gaps, with comparisons to relevant benchmarks or comparable regions. – Comprehensive assessment: A complete examination of the underlying business culture in the region, including understanding the linkages between the various domains and key actors within each domain. – Domains of interest: While the ecosystem is inherently interconnected, there may be some elements that are of more interest than others, based on the kinds of interventions that are possible. – Identifying and Rating indicators: Despite the wide range of indicators available for entrepreneurship research, it is essential to identify the most relevant and accurate indicators available. – Data collection and analysis: Once the appropriate indicators are identified, evaluators can examine its evolution over a period of time, ascertain its present structure, role and interactions, identify the gaps in the ecosystem, and develop potential interventions to fill the identified gaps, for the development of that entrepreneurial ecosystem.

2.3 Structure and components of entrepreneurial ecosystems

37

In the light of the above empirical literature review-based discussion and theoretical backdrop, we have identified the following research issues, which are relevant in the context of Indian economy: – How did an entrepreneurial ecosystem emerge? What factors facilitated its emergence? Does it evolve on its own or can it be built by design? – What are the components/elements of an ideal ecosystem for tech start-ups? – Which of these components/elements are more important or decisive, for a vibrant and productive ecosystem functioning for the successful generation of tech start-ups? – What are the components/elements of India’s most visible ecosystems for tech start-ups? How do these components/elements interact with one another? – Are there any gaps/weaknesses in Indian entrepreneurial ecosystems for tech start-ups? If yes, what are these? – Is public intervention necessary to overcome the identified gaps/weaknesses in the selected two ecosystems? If yes, what kinds of interventions are feasible and can be recommended so that both the rate of emergence of tech start-ups and the rate of survival of these emerging start-ups can be steadily enhanced? It is to fill up some of these research gaps that we have undertaken the present study. The specific research objectives, scope, data sources and methodology are described in the following chapter.

Chapter 3 Research questions and methods 3.1 Introduction The research objectives, scope, methodology adopted for data collection and analysis of research objectives are elaborated in this chapter. The research objectives are formulated in the backdrop of research gaps ascertained based on the literature review discussed in the previous chapter, supplemented by discussions with experts in the field. The scope of the present study is determined in the context of Indian economy and is confined to the entrepreneurial ecosystems in Bangalore and Hyderabad. Considering the research objectives and scope of the study, Delphi method is adopted for data collection and a description is given. The method of analysis of research objectives is enumerated at the end. The research process undertaken for the study is presented in Figure 3.1.

Literature review Research question

Research design

Identification of Delphi panelists

Discussion with experts Delphi R1 questionnaire design

Delphi R1 personal interactions and analysis

Delphi R2 questionnaire design

Delphi R2 tabulation and analysis

Delphi R3 questionnaire design

Delphi R3 tabulation and analysis

Delphi R4 questionnaire design

Delphi R4 tabulation and analysis

Research documentation and draft report preparation

Research workshop

Research report finalization and submission

Figure 3.1: Research process of the study (Source: Author’s description).

3.2 Research questions The specific research objectives of the study are as follows: – To ascertain and validate the components of an ideal ecosystem for technology start-ups feasible in the Indian context, https://doi.org/10.1515/9783110679359-003

3.4 Methodology

39

– To perform an in-depth synthesis of the existing ecosystem for technology start-ups in Bangalore and Hyderabad, the two most promising start-up hubs in India, – To make an assessment of the gap between the ideal and the existing ecosystems, and come out with recommendations for creating an ideal ecosystem for tech start-up promotion in the country.

3.3 Scope The present study is confined to Bangalore and Hyderabad. While Bangalore is an internationally recognized start-up hub, Hyderabad is a fast emerging start-up hub in India. Bangalore, the capital city of Karnataka state and nicknamed as India’s “Silicon Valley”, has been considered one of the nine “International Start-up Hubs” outside the USA (Pullen, 2013). Anjum (2014) has identified Bangalore as one of the 10 start-up capitals in the world. Further, Bangalore has been consistently identified among the top 20 cities to have the best eco-system for start-ups in the world, it occupied 18th rank among the top 20 start-up hubs in the global economy recently (Start-up Genome, 2019). This is an improvement as Bangalore was identified as having the 19th best ecosystem for start-ups in 2012 (Start-up Genome, 2012). Hyderabad, capital city of newly carved Telangana state, is currently working towards building one of the strongest foundations for a powerful start-up ecosystem and hub in India (Kashyap, 2016). Thus, these two are rather the most promising start-up hubs in India, as of now. It is to bring out a comparative perspective within Indian economy that these two start-up hubs are chosen for the study.

3.4 Methodology The study was conducted in three different stages sequentially, which are as follows: Stage I: An extensive literature survey was carried out focusing on the concepts of start-ups and technology-based start-ups, entrepreneurial ecosystems, its components and role in start-up promotion in the global economy. All possible empirical literature was gathered, surveyed and reviewed to develop a conceptual understanding, structure, components and the role played by each of these identified components in start-up promotion, ascertain the key theoretical issues related to start-up ecosystem, and bring out the key research gaps. Subsequently, we met and interacted with some knowledgeable experts (who are either start-up entrepreneurs or start-up promoters) to gain some preliminary information about the start-up ecosystem in Bangalore. This helped us in clearly defining the research problem as well as the research process.

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Chapter 3 Research questions and methods

Stage II: We adopted the Delphi method, to interact with the stakeholders of entrepreneurial ecosystems to ascertain their views on what constitutes an ideal ecosystem and what currently exists in Bangalore and Hyderabad, respectively. A description on the Delphi method is in order. The Delphi method had its origin in the 1950s developed by Dalkey and Helmer (1963) at the RAND Corporation in Santa Monica, California, USA. The Delphi technique is a method for obtaining consensus. It is now a widely used and accepted method for gathering data from respondents within their domain of expertise. It is a group communication process which aims to achieve a convergence of opinion on a specific real-world issue (Hsu and Sanford, 2007). It is an iterative process used to collect and distil the judgements of experts using a series of questionnaires interspersed with feedback. The questionnaires are designed to focus on problems, opportunities, solutions, or forecasts. Each subsequent questionnaire is developed based on the results of the previous questionnaire. The process stops when consensus is reached, or theoretical saturation is achieved, or when sufficient information is exchanged (Skulmoski, et al., 2007). Thus, Delphi technique is a way of obtaining a collective view from individual experts about issues where there is no or little definite evidence and where opinion is important (Thangaratinam and Redman, 2005). In general, Delphi method is useful in answering one, specific, single-dimension question. It is hardly considered appropriate to determine complex forecasts concerning multiple factors, as complex model building is more appropriate for quantitative models with Delphi results serving as inputs (Gatewood and Gatewood, 1983). However, Delphi technique has been applied in various fields such as economic and financial settings, policy determination, civic planning and health care (Thangaratinam and Redman, 2005; Hsu and Sandford, 2007). A valid Delphi process would involve at least, a three-iteration questionnaire survey, although decision about the number of rounds is largely pragmatic (Thangaratinam and Redman, 2005). Considering the above, we felt it is an appropriate technique to ascertain and understand an ideal entrepreneurial ecosystem for tech startups, and to assess the existing entrepreneurial ecosystems in Bangalore and Hyderabad. We implemented the Delphi method as follows: – We conducted interactions in four rounds, to elicit the views of experts on the ideal and existing ecosystems for tech start-ups. – Each round was accomplished, on average, within a period of three to four months. The process followed in the implementation of Delphi study is briefly presented in Figure 3.2.

Delphi Round 1

– Team formation to undertake and monitor a Delphi on the chosen research problem – Selection of Delphi panelists – Development of an open ended questionnaire – Testing the questionnaire for proper wording – Personal interactions with Delphi panelists – Analysis of the first round responses – Preparation of a structured questionnaire for a second round interaction through emails – Transmission of the structured questionnaire to Delphi panelists and collection of responses

Delphi Round 2

Delphi Round 3

– Analysis of the second round responses – Preparation of a third round questionnaire using questions for which consensus is not arrived at – Transmission of the questionnaire to Delphi panelists and collection of responses

– Analysis of the third round responses – Preparation of the fourth round questionnaire – Transmission to Delphi panelists and collection of responses – Preparation of draft report

Delphi Round 4

3.4 Methodology

Figure 3.2: Delphi technique implementation: Four rounds of interaction (Source: Author’s description).

41

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Chapter 3 Research questions and methods

I Round: At the outset, based on the literature review and personal interactions with experts, we identified the key components/groups of stakeholders in the ecosystem for tech start-ups/new ventures. They included the following: – Existing start-up entrepreneurs, – Potential/prospective entrepreneurs, – Government officials in the respective State governments, – Large industry executives, which are engaged in start-up promotion, – University/Institute faculty members, who are engaged in research and innovation and/or entrepreneurship educators, – Venture Capitalists, Angel Investors and Private Equities, – Accelerators and Technology Business Incubators, – Mentors, – Industry associations, and – Media representatives. The broad composition of components/stakeholders of entrepreneurial ecosystem which we identified at the outset, and the number of proposed respondents under each of the identified components for both Bangalore and Hyderabad are given in Table 3.1. We used (i) our personal contacts, (ii) Internet search, and (iii) media reports to identify the respondents under each specified stakeholder group (as described in Table 3.1). We contacted them through (i) phone calls, (ii) e-mails, and (iii) personal meetings, to appraise them about our research project and to seek their involvement for a detailed personal interaction subsequently. The actual composition of stakeholders in the entrepreneurial ecosystems of Bangalore and Hyderabad, however, varied from what was proposed initially. In fact, we could cover a greater number of stakeholder respondents than what was originally proposed, in both the cities. Tables 3.2 and 3.3 present the compositions of stakeholder respondents in the entrepreneurial ecosystems with whom we interacted in Bangalore and Hyderabad, respectively. We could cover a greater number of start-up entrepreneurs than what was initially planned, in both the cities. However, in Bangalore we could cover both prospective start-up entrepreneurs and start-up entrepreneurs who exited from the industry, apart from those whose start-ups have survived, stabilized and are on the growth path. We covered the CEOs of 12 functioning start-ups, 2 prospective startup CEOs; and 3 exited start-up CEOs, of which two exited due to (i) Merger and Acquisition (M&A) by two different large firms, and (ii) one exited due to start-up failure. While the founder of one of the start-ups which was acquired by a large firm, became an angel investor, the other joined the same large firm which acquired his start-up, as an employee. The CEO of the failed start-up joined a large firm as an employee. In contrast, in Hyderabad, we could cover the CEOs of only functioning (17) start-ups, which have survived, stabilized and are on the growth path.

3.4 Methodology

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Table 3.1: Proposed composition of entrepreneurial ecosystem stakeholders for interactions: Bangalore/Hyderabad. Stakeholder group

Organization/Institution

Number of respondents

– Start-up entrepreneurs

USA returned + institution based + emerged domestic enterprise

 each = 

– Prospective/ potential entrepreneurs

–Do -

 each = 

– Government

Commissioner, Department of Industries and Commerce;  and Secretary, Department of IT and BT, State Government

– Industry Associations

ABLE+IESA+MAIT+NASSCOM+TiE



– Financiers

Angels + VCs + PEs

 each = 

– Large Industries

MNCs + Domestic Large Firms

 each = 

– University/Institutes

IISc + IIMB + IIITB (in Bangalore) and IITH + ISB + IIITH (in Hyderabad)



– Support Institutions

TBIs (public + private) and Accelerators (MNC/Domestic Large firm promoted)

 each = 

– Mentors

IT + BT + Analytics

 each = 

– Media representatives

Two different media groups



– Total



Source: Author’s description

We interacted with the Secretary, Department of Information Technology, BioTechnology, and Science and Technology, Government of Karnataka in Bangalore, and the counterpart of Government of Telangana in Hyderabad. We could cover the CEOs/Executives of seven large companies (of which six are MNCs and one is a domestic enterprise) in Bangalore whereas only two large companies (both are domestic large enterprises) in Hyderabad, which are engaged in the promotion of start-ups. We met and interacted with three Institute Professors [one each in Institute of Bioinformatics and Applied Biology (IBAB); International Institute of Information Technology Bangalore (IIITB); and Xavier Institute of Management and Entrepreneurship (XIME), who is a retired Professor of entrepreneurship from Indian Institute of Management Bangalore (IIMB)] in Bangalore whereas six Professors/Scientists [one each in International Advanced Research Centre for Powder Metallurgy and Materials (ARCI), Administrative Staff College of India (ASCI),

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Chapter 3 Research questions and methods

Table 3.2: Actual composition of entrepreneurial ecosystem stakeholders in Bangalore: First round of interaction. Major domains of the ecosystem and its nature

No. of respondents

Start-up entrepreneurs ( functioning;  exited; and  prospective)



Government official (Secretary, Department of IT, BT and S&T, GOK, Bangalore)



Large Enterprises (MNCs= and domestic large firms=)



Institute Professors (IBAB, IIITB and XIME)



Financiers (Angels, VCs, PEs, Investment Banks)



Support Institutions (Accelerators +TBIs + Co-working spaces)



Industry associations (IESA, MAIT and TiE Bangalore)



Mentors



Media representatives (Business Line, Business Today and Business Standard)



Total



Source: Author’s description

Table 3.3: Actual composition of entrepreneurial ecosystem stakeholders in Hyderabad: First round of interaction. Major domains of the ecosystem and its nature Start-up entrepreneurs (all functioning)

No. of respondents 

Government official (Secretary, Department of IT and BT, GOT, Hyderabad)



Large Enterprises (domestic large firms=)



Institute Professors/Scientists (ARCI, ASCI, IICT, IIITH, ISB and UOH)



Financiers (Angels, VCs, Investment Banks)



Support Institutions (TBIs + Co-working spaces)



Industry associations (TiE Hyderabad)



Mentors



Media representative



Total Source: Author’s description



3.4 Methodology

45

Indian Institute of Chemical Technology (IICT), Indian Institute of Information Technology Hyderabad (IIITH), Indian School of Business (ISB), and University of Hyderabad (UOH)] in Hyderabad. We have covered seven financiers (who are either seed fund providers or angel investors or venture capitalists or private equities or investment bankers) in Bangalore, whereas we could cover only four financiers (of which two are angels whereas one each is a venture capitalist and an investment banker, respectively) in Hyderabad. When we started interacting with the chosen stakeholders, we realized that support institutions are not just confined to Accelerators or Technology Business Incubators (TBIs) but include Co-working spaces as well. Co-working spaces are promoted by private individuals or groups of individuals, unlike Accelerators which are promoted exclusively by MNCs and TBIs which are promoted within educational or research institutions. We covered seven support institutions comprising four Accelerators, one TBI and two Co-working spaces in Bangalore, and five TBIs and one Co-working space in Hyderabad. We could not access any of the Accelerators operating in Hyderabad. We covered three industry association Chiefs (one each from Indian Electronics and Semiconductors Association (IESA), Manufacturers Association of Information Technology (MAIT) and The Indus Entrepreneurs (TiE), Bangalore) whereas we could cover only one industry association chief (The Indus Entrepreneurs (TiE), Hyderabad) in Hyderabad. Despite our best efforts, we could not get any response from NASSCOM both in Bangalore and Hyderabad. We could cover three mentors in Bangalore whereas only one in Hyderabad. We covered three print media correspondents (one each from The Hindu Business Line, Business Standard and Business Today) but none in Hyderabad. A personal interview was conducted with each of the identified stakeholders (referred as Delphi panellists) during August 2015–January 2016 in Bangalore and Hyderabad, to solicit information about an ideal ecosystem as well as the ecosystem prevailing in Bangalore/Hyderabad, based on an open-ended questionnaire (Appendix 1). The questionnaire comprised 10 questions, half of which was on (i) tech start-up concept, (ii) its characteristics, (iii) components of an ideal ecosystem for tech start-ups, (iv) relative ranking of the identified components, and (v) factors which determine the effectiveness of an ecosystem. The remaining five questions focused on the specific city (Bangalore/Hyderabad) ecosystem, to understand (i) the factors which led to the growth of ecosystem for tech start-ups in the city, (ii) whether the city in question has the best ecosystem for tech start-ups in the country, (iii) significant components of the ecosystem for tech start-ups prevailing in the city, (iv) components which are lacking in its presence in the city currently, and (v) the level of interactions that take place between the existing components in the ecosystem. We sought an appointment with each of the identified Delphi experts in Bangalore as well as in Hyderabad for a detailed personal interaction. A soft copy of the open-ended questionnaire was sent by e-mail in advance to each of the

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Delphi experts, to enable them to be prepared for the personal interaction. Each of the personal interviews was held for about one to one and half hours. It is based on the inputs provided by the Delphi experts in the two cities, supplemented with our literature understanding that we developed a detailed and structured questionnaire (Appendix 2) for the second round of interactions with Delphi experts. The questionnaire comprised seven sections. Section 1 focused on the profile of Delphi experts, section 2 contained questions on the definition aspects of start-ups and tech start-ups and their characteristics. Section 3 consisted of questions on ecosystem components, section 4 focused on identifying the key growth accelerators and challenges in the pre-emergence stage, section 5 related to the setting up and operations stage of start-ups, whereas section 6 focused on the success and growth stage of start-ups. Section 7 exclusively focused on the start-up ecosystem components of Bangalore/Hyderabad. II Round: We had communicated to each of the Delphi panellists in the first round of interaction that the subsequent rounds of interactions would be through e-mail. Accordingly, the structured questionnaire was sent by e-mail to each of the 51 Delphi panellists in Bangalore and 38 Delphi panellists in Hyderabad, in the second half of January 2016. Each of the Delphi panellists was requested to fill up the questionnaire and send it back to us within a period of about one month. Though we intended to receive the filled-out questionnaires by the end of February 2016, we could not get all the replies by the proposed deadline. Therefore, we had to send repeated reminders and requests to our Delphi panellists in both the cities to send us the filled-out questionnaires with their inputs. At the end of March 2016, we could receive the filled-out questionnaires from all the 51 Delphi experts of Bangalore but only 30 Delphi experts (out of the total 38) of Hyderabad. Thus, eight of the 38 Delphi panellists in Hyderabad opted out of the Delphi study in the second round. Since we were aiming at achieving consensus through Delphi interactions, we looked at the degree of consensus that we could achieve for each of the questions in the second round of interactions. Since 100% consensus was not achieved for any single question, we decided to moderate the “definition of consensus” by deciding that agreement to the extent of 80% and above can be treated as “consensus”. We decided to move on to the third round, after examining the replies received for both the cities. III Round: For the third round of interactions with our Delphi panellists, we revised the questionnaire by leaving out all those questions for which agreement to the extent of 80% and more were achieved. Since the consensus achieved in Bangalore was different from that of Hyderabad, we developed two different questionnaires for the two cities, respectively. The revised questionnaire was sent by e-mail to all the 51 Delphi panellists in Bangalore and 30 Delphi panellists in Hyderabad, in the first week of April 2016, with a request to send back the filled-out questionnaires by the end of April 2016. The summarized results of the second round formed part of the third-round questionnaire, as inputs to the respondents

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with an option to change their responses with respect to questions on which we did not achieve consensus (at the end of the second round). As in the second round, we had to send repeated e-mail reminders and requests, supplemented by telephone-based persuasions to most of the Delphi panellists, to get their completed questionnaires. By the end of June 2016, we received the filled-out questionnaires from 44 Delphi panellists of Bangalore and 22 Delphi panellists of Hyderabad. Thus, seven out of the 51 Delphi panellists in Bangalore and 8 out of the 30 Delphi panellists in Hyderabad opted out of the Delphi study in the third round. Since not much convergence happened at the end of the third round compared to that of the second round, we redefined convergence in terms of agreement to the extent of 75% and above. IV Round: Based on the inputs received at the end of the third round, we devised a new common questionnaire (Appendix 3) for the fourth and the final round of interactions with our Delphi panellists, mainly to understand the ecosystem components and their importance in the best possible (ideal) start-up ecosystem in the Indian context, as well as to ascertain the extent of presence of ecosystem components and their importance in the existing start-up ecosystems of Bangalore and Hyderabad. The questionnaire contained a total of 27 questions and the respondents were asked to rank the level of importance on a five-point scale ranging from (i) very low presence, (ii) low presence, (iii) moderate presence, (iv) high presence, and to (v) very high presence. The questionnaire contained questions on the various components of an ideal entrepreneurial ecosystem in the international context, and their relative presence in the ecosystem in Bangalore/Hyderabad. The respondents were asked to rank in terms of importance, with respect to ideal (feasible in the Indian context) as well as with respect to what is prevailing in Bangalore/ Hyderabad. The fourth-round questionnaire was sent by e-mail to all the Delphi panellists of Bangalore and Hyderabad, in the first week of July 2016, with a request to send back the filled in questionnaires in about a month’s time. However, not many responded within the given time. After repeated e-mail requests and telephonebased persuasions, we could obtain filled out questionnaires from 34 panellists of Bangalore but only 14 panellists of Hyderabad, by the end of October 2016. Thus, 10 of the 44 panellists in Bangalore and 8 of the 22 panellists in Hyderabad opted out of the study in the fourth round. Overall, the four stage-based Delphi interactions in Bangalore and Hyderabad consumed a total period of almost 15 months starting from August 2015 and ending with October 2016. The convergence emerged at the end of the second and the third rounds helped us to understand the key components of an ideal ecosystem as well as that of the existing ecosystems of Bangalore and Hyderabad, respectively, to a large extent. But the fourth round of interaction helped us primarily to ascertain the gap between what is an ideal entrepreneurial ecosystem in the Indian context and that exists in the two start-up hubs.

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Stage III: The key components of an ideal ecosystem in the Indian context are identified and described. The structure of an entrepreneurial ecosystem for technology start-ups is described in terms of its components, functions of these components, and the role that these components could play in nurturing and promoting start-ups (i) prior to their emergence, (ii) during the operational stage after their emergence, and (iii) for their success and growth and/or their exits. Thus, the role of structural components is discussed with respect to the lifecycle stages of technology start-ups. This is a descriptive analysis. If an existing entrepreneurial ecosystem has to be understood, its origin and evolution spanning over, at least, a couple of decades need to be examined. We could gather relevant literature and secondary sources of data, and supplement it with discussions with the Delphi panellists who are knowledgeable about the recent growth of Bangalore and Hyderabad, to explore and analyse the evolution of both the start-up hubs for technology start-ups. Thus, a descriptive analysis is done to trace the evolution and growth of entrepreneurial ecosystems of Bangalore and Hyderabad. Given the historical evolution of entrepreneurial ecosystems of Bangalore and Hyderabad, it is essential to understand the structure of entrepreneurial ecosystem as currently prevailing in the two start-up hubs, in terms of its components, functions of these components and the role that these components play in nurturing and promoting technology start-ups (i) prior to their emergence, (ii) during the operational stage after their emergence, and (iii) for their success and growth and/or their exits. Thus, the role of structural components is discussed with respect to the lifecycle stages of technology start-ups, in the entrepreneurial ecosystems of both Bangalore and Hyderabad. This is examined by means of a descriptive analysis. This has enabled us to throw light on the level of maturity achieved by each of these two start-up hubs. Thereafter, we examined how the ideal ecosystems identified by the Delphi experts in Bangalore and Hyderabad, respectively are similar or different from each other as well as from the currently prevailing ecosystems in Bangalore and Hyderabad, respectively and how similar or dissimilar Bangalore and Hyderabad ecosystems from each other, by means of two-sample t tests as follows: – Ideal (Bangalore) vs. Ideal (Hyderabad) – Ideal (Bangalore) vs. Bangalore (current) – Ideal (Hyderabad) vs. Hyderabad (current) – Bangalore (current) vs. Hyderabad (current) Subsequently, we carried out one-way Analysis of Variance (ANOVA) among the four groups simultaneously to ascertain whether the four groups are similar or dissimilar from one another. Since ANOVA will not indicate which of the four groups are better than the rest, we proposed to carry out a post-hoc test (Tukey HSD test) to find out how each group is better-off or worse-off as compared to the other.

3.4 Methodology

49

Finally, we have explored what factors contributed to the gaps between the ideal ecosystem in the Indian context and that prevails in Bangalore as well as in Hyderabad by means of a gap analysis. In the process, a gap analysis of entrepreneurial ecosystems of Bangalore and Hyderabad is also done. Since the objective of our exploration is to find out the factors which distinguish the ideal ecosystem from the prevailing ecosystems, we decided to confine our gap analysis to (i) stepwise (backward elimination) logistic regression. We preferred stepwise (backward elimination) logistic regression as it results in the best possible model comprising only those explanatory variables which have a statistically significant influence on the dependent variable. For the stepwise logistic regression analysis, the dependent and explanatory variables, and a control variable are used as follows: – Dependent variable: The dependent variable is binary. It took the value of 1 for the ideal ecosystem and 0 for the prevailing ecosystems of Bangalore and Hyderabad. Since there are 48 respondents (34 from Bangalore and 14 from Hyderabad) who ranked the ideal ecosystem, and the ecosystems of Bangalore (34 respondents) and Hyderabad (14 respondents), the total number of observations stood at 96 (48 for ideal and 48 for Bangalore and Hyderabad together). – Explanatory variables: The explanatory variables are derived from 27 questions of the fourth-round questionnaire. For each of the 27 questions, a rank was assigned by each of the 48 respondents from the ecosystem of Bangalore/ Hyderabad to the ideal ecosystem and to the prevailing ecosystem of Bangalore/ Hyderabad, respectively. Thus, we obtained 27 question specific values from 48 respondents for the ideal ecosystem as well as for the prevailing ecosystems. This formed the basis for identifying the explanatory variables. The distribution of 27 questions covering the various components of an ecosystem is given in Table 3.4. We derived one value for each of the ecosystem domains, by calculating the average of the ranks assigned under each of the questions under each domain, by each respondent. Thus, we arrived at 13 explanatory variables pertaining to 13 ecosystem domains, for the ideal ecosystem as well as for the prevailing ecosystems from 48 respondents. – Control variable: We used a control (dummy) variable to distinguish Bangalore from Hyderabad. We used 1 for Bangalore, and 0 for Hyderabad, to ascertain whether the two start-up hubs contribute differently to the gaps, if any. We carried out a stepwise (backward elimination) logistic regression analysis to ascertain the factors which distinguish an ideal entrepreneurial ecosystem and the entrepreneurial ecosystems prevailing in Bangalore and Hyderabad. The logistic regression equation used for the analysis is as follows: Ln [p/(1-p)] = b0 + b1LF+b2ER+b3GO+b4SU+b5FI+b6MR+b7WF+b8SS+b9ME +b10SC+b11EM+b12WE+b13EI+b14ED

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Chapter 3 Research questions and methods

Table 3.4: Delphi round-4 questionnaire: Ecosystem domains and explanatory variables. Sl. No. Ecosystem domain

Number of questions Number of explanatory variables



Large Enterprises (LF)







Education/Research institutions (ER)







Government (GO)







Entrepreneurship and start-ups (SU)







Finance (FI)







Market (MR)







Human resources (WF)







Mentorship (ME)







Support systems (SS)







Culture (SC)







Media (EM)







Weather (WE)







Level of interactions (EI)







Total





Source: Author’s description

Where p represents the probability of an event (ideal ecosystem), b0 is the y-intercept, and each independent variable’s association with the outcome (log odds) is indicated by the coefficients b1 to b14. In effect, we are trying to model the probability that an event (ideal ecosystem) is a result of a linear combination of variables as indicated in the equation above. More details on the equation are given in chapter 7. Stepwise (backward elimination) logistic regression, at the outset, will consider all the explanatory variables included in the model but it will delete those variables which do not have a statistically significant contribution to the dependent variable, stepwise. At the end, it will result in the selection of those explanatory variables which have statistically significant coefficients and therefore can be considered “best predictors” of the dependent variable. Thus, stepwise regression involves developing a sequence of linear models leading to the identification of fewest predictors of the dependent variable (Lewis, 2007).

Chapter 4 An ideal entrepreneurial ecosystem for tech start-ups: Characteristics, structure and role 4.1 Introduction An ideal entrepreneurial ecosystem must have some core components, duly supported by some supplementary factors (as discussed and identified in Chapter 2). Further, each component must be identified with a specific role in nurturing and promoting tech start-ups for its emergence, survival and stability, success and growth over its lifecycle. It is important to understand how the identified components are related to one another in the ecosystem, and how do they interact for start-up promotion. Similarly, the ecosystem must have options for the exit of unviable tech start-ups either prior to its emergence or immediately after its emergence, or after its survival and stability, or even after its success and growth. This chapter attempts to throw light on these issues, based on the consensus arrived at by the Delphi experts in Bangalore and Hyderabad, with respect to an ideal ecosystem. The consensus achieved at the end of the second and third rounds of interactions with the Delphi experts formed the basis of discussions on the structure, its components, its inter-relationships and its role in the nurturing and promotion of tech start-ups in an ideal entrepreneurial ecosystem.

4.2 An ideal entrepreneurial ecosystem: Structure and components Entrepreneurs are the key drivers of economic and social progress. Rapidly growing entrepreneurial enterprises are often viewed as important sources of innovation, productivity growth and employment. Therefore, many governments across the global economy are trying to actively promote entrepreneurial ecosystems by means of various forms of support (WEF, 2014). This understanding leads to some pertinent questions, which are as follows: – What should be the ultimate goal of such government initiatives for the promotion of entrepreneurial ecosystems in an emerging economy like India? – Is there anything called an “ideal structure” for an entrepreneurial ecosystem in the Indian context? If yes, what would be the components of such a structure? – What role do these identified components play in such an entrepreneurial ecosystem? https://doi.org/10.1515/9783110679359-004

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Chapter 4 An ideal entrepreneurial ecosystem for tech start-ups

These questions are examined based on the responses that we obtained from our Delphi experts (for which consensus was reached) in Bangalore and Hyderabad. The primary objective of an entrepreneurial ecosystem is nurturing and promotion of entrepreneurship. Without entrepreneurship and entrepreneurs, start-ups will not emerge and function, and therefore, an entrepreneurial ecosystem will not exist or come into being. They are the centre of attention as well as action. The entire ecosystem has to be geared up to understand and cater to the needs of entrepreneurs so that start-ups emerge continuously and adequately, emerged start-ups survive and stabilize adequately, and stabilized start-ups succeed and grow adequately. Thus, the entire lifecycle of start-ups becomes crucial and accordingly, existence of entrepreneurs of start-ups operating in different stages of start-up lifecycle assumes a decisive importance. Equally important is the presence of various forms of sources of entrepreneurship such as education and research institutions, large firms, existing start-ups, etc. Therefore, entrepreneurs and sources of entrepreneurship form the nucleus of an entrepreneurial ecosystem. Delphi experts of both Bangalore and Hyderabad have strongly affirmed the central focus of attention of the ecosystem on entrepreneurs and sources of entrepreneurship. Any entrepreneurial venture would require finance (i) prior to its emergence at the stage of seeding of an entrepreneurial idea for blossoming it into a start-up with the identification of a niche market, (ii) immediately after its emergence for production and operations as well as for identified market penetration, and (iii) if it survives and succeeds, it would require funding for market expansion and growth. Therefore, an ideal entrepreneurial ecosystem must have sources of funding and finance comprising seed funders, angel investors, venture capitalists, private equities, and even investment banks. While seed funders generally play a role in financing start-ups prior to its emergence, angel investors fund them either prior to or after their emergence, followed by venture capitalists which fund them when they survive and stabilize, whereas private equities and investment banks fund them for their expansion and growth. The critical role of financiers comprising seed funds, angels, VCs, private equities and investment banks in an ideal entrepreneurial ecosystem is confirmed by the Delphi experts in both Bangalore and Hyderabad. An entrepreneurial venture is generally started by a promoter or a group of promoters. However, every promoter or group of promoters would plan to recruit talented workforce either prior to its emergence or after its emergence, or after its survival and stability for expansion and growth. Therefore, adequate availability of human resources or workforce is another essential component of an ideal ecosystem for technology start-ups. Both Bangalore and Hyderabad based Delphi experts have concurred on the role and adequate availability of human capital from higher education institutions, large enterprises and other start-ups as an essential component of an entrepreneurial ecosystem. Accessible market for technology start-ups is another indispensable component of an entrepreneurial ecosystem. Market can be local or regional or national or

4.2 An ideal entrepreneurial ecosystem: Structure and components

53

international. Market in the form of early product/service adopters is a vital pillar of the ecosystem. Similarly, market availability for start-up survival and stability, expansion and growth assumes great significance, as concurred by the Delphi experts of Bangalore and Hyderabad. Thus, entrepreneurship, finance, human resources and market form the core necessities for the very emergence, existence and survival of an entrepreneurial ecosystem. This holds good for any entrepreneurial ecosystem, irrespective of its nature (technology or otherwise), irrespective of regions, and times. But technology start-ups are of a different kind, and it requires an elaboration. First, about entrepreneurship. Entrepreneurship which drives new generation start-ups or technology start-ups are entirely different from the start-ups which emerged in the traditional industries/services and modern industries/services. Unlike the entrepreneurs who promoted traditional/modern start-ups, tech start-up entrepreneurs are educated, mostly degree holders, particularly technology graduates, and even the sources of entrepreneurship for tech start-ups are diverse. More often than not, tech start-up entrepreneurship is technology based or innovation driven (Bala Subrahmanya, 2015). Secondly, tech start-ups do not depend on traditional sources of finance such as banking and other financial institutions, which generally lend, based on a fixed rate of interest. Such financial intermediaries generally lend to (i) a new venture, which is based on a sound and approved business plan, and (ii) existing ventures which have a proven track record of business. In either case, financial institutions ensure the security of their investments at an assured rate of return, and they hardly lend to tech start-ups. Therefore, a new generation of financiers has emerged, which lend to new ventures which involve a great amount of risk and uncertainty about its future. The financial capabilities of these financiers vary, and accordingly they focus on different stages of the lifecycle of tech start-ups rather than all across. It is the success of tech start-ups through emergence, or survival and stability, or success and growth, which enables these financiers to get back their investments with a return. The failure of tech start-ups results in such financiers forfeiting their investments completely. Thus, it is the nature of risk and uncertainty involved in tech start-ups and the new bunch of financiers who are willing to bear the risk and uncertainty of tech start-ups for a higher probable return, which give a new identity to tech startups and its ecosystem. Thirdly, the nature of human talent required for tech start-ups again differentiates it from the rest. Tech start-ups hardly absorb skilled and unskilled labour force, which traditional/modern start-ups generally do. Tech start-ups by their very nature, would require technically qualified labour force, and therefore, generally scout for such talent either in higher education and research institutes or in technology intensive large industries or other tech start-ups. Fourthly, tech start-up entrepreneurs initiate their start-ups which are technology or innovation driven, and as such it aims at resolving a real problem which the

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Chapter 4 An ideal entrepreneurial ecosystem for tech start-ups

founder/s has/have identified around. Given this, there is hardly any readily available market for tech start-ups. Therefore, they are confronted with the challenge of identifying and exploiting an early market (which could be the tech-savvy consumers at large if it is a B2C start-up or the technology-intensive large enterprises if it is a B2B start-up) for their entry, steady market penetration for their survival and stability, and an accelerated market expansion for their success and growth. Given the distinct nature of tech start-ups, and its unique – finance, human resources and market – requirements, it has seen the emergence of a unique and unprecedented support system, as part of the entrepreneurial ecosystem. One important component of this support system comprises Accelerators, Technology Business Incubators (TBIs) and Co-working spaces. While all these three have the same objective of nurturing and promoting tech start-ups, the process adopted for its nurturing varies from one another. Accelerators are generally driven by an MNC, domestic or foreign, TBIs are generally academic/research institution based, whereas Coworking spaces are promoted by non-corporate private individuals. Accelerators choose prospective entrepreneurs who have approached them with the already developed business plans, nurture them through a time-bound and intense programme that include mentorship and training, and help them with seed funds through an equity and early market. TBIs guide a prospective start-up through each stage of its lifecycle and through the grind of the day-to-day operations. The TBI based prospective start-ups are helped with mentorship, access to seed funds, human resources and identification of markets. Co-working space is a milder version of TBIs, which are mostly stand-alone entities. Some co-working spaces operate in multiple cities within a country or even internationally. They provide working space for the prospective start-up entrepreneurs, help them in networking through knowledge sharing and collaboration, enable access to mentors, funders, and provide common services under a single umbrella. Accelerators, TBIs and Co-working spaces are the “launch pads” of tech start-ups and their abundance will encourage the emergence of a larger number of tech start-ups in an ecosystem. Therefore, as agreed upon by the Delphi experts in both the cities, these support systems form an important element in the ecosystem. Tech start-up entrepreneurs face enormous challenges in building, running and growing a start-up – be it raising capital, hiring a team, or acquiring customers. An effective way to overcome these challenges lies in finding motivated and compatible mentors who can provide the critical skills, knowledge and motivation that a start-up would need. Unlike the traditional/modern start-ups, tech start-ups by their very nature, would look for mentorship on the technology and business fronts. The commercialization of an innovative idea by proof of concept through prototype development and product finalization is often an insurmountable task for prospective entrepreneurs individually. Developing a business plan to take the product to the market is equally challenging. Thus, at the pre-emergence stage of a tech start-up there is an absolute necessity for technology as well as business

4.2 An ideal entrepreneurial ecosystem: Structure and components

55

mentorship. Their role is equally crucial to take the start-up beyond its formation, towards survival and stability, and expansion and growth. The Delphi experts have unanimously concluded that an ideal ecosystem must have both technology mentors and business mentors. They are equally unanimous in stating that the role of both business and technology mentors is not just confined to the preemergence stage but covers survival and stability as well as success and growth stages of technology start-ups. Thus, both technology and business mentoring form an indispensable component of an entrepreneurial ecosystem, as revealed by the Delphi experts of Bangalore and Hyderabad. Large firms (particularly MNCs) can play multiple roles in the promotion of tech start-ups in an ecosystem. They can directly nurture start-ups through their own Accelerators at the pre-emergence stage, they can be the early product adopters and thus provide marketing support for start-up survival and stability, they can also be the source of human resources and entrepreneurship, they might provide seed funds, and even mentorship. However, Delphi experts in both Bangalore and Hyderabad are of the unanimous view that large firms are not an indispensable component of the ecosystem for technology start-ups. But Bangalore based Delphi experts, unlike that of Hyderabad, are of the view that large firms can be nurturers of start-up ideas in the pre-emergence stage. On the other hand, Delphi experts of Hyderabad, unlike that of Bangalore, are of the view that large firms can be the early adopters of start-up products/services in the initial stage of start-up operations. But Delphi experts of both Bangalore and Hyderabad are equally unanimous that large firms have a definite role as the acquirers of start-ups in the later stage of their lifecycle. Thus, the Delphi experts explicitly disagreed but implicitly admitted the crucial role of large firms in an ideal entrepreneurial ecosystem. Education and research institutes are an important source of entrepreneurship and provide the much-needed human capital for start-ups at different stages of their lifecycle. In addition, they host TBIs as the nurturers of entrepreneurship within. Professors who have experience in becoming start-up entrepreneurs or who have dealt with TBIs can also provide mentorship. Thus, institutions can play multiple roles in an ecosystem. Therefore, as agreed upon by the Delphi experts of both Bangalore and Hyderabad, education and research institutions are an important pillar of entrepreneurial ecosystem for technology start-ups. The role of the government in promoting start-ups is unique. The government can play a role administratively, fiscally and financially. The government can frame business friendly legislations/policies for the entry, operations and exit of start-ups. It can provide fiscal incentives in the form of tax concessions, and encourage new sources of finance (seed funds, angels, VCs and PEs) for funding the emergence, operations, success and growth or exit of start-ups in different stages of start-up lifecycle. Thus, both entry policy and exit policy for start-ups have to be determined by the government. The government also has a decisive role to play in building up

56

Chapter 4 An ideal entrepreneurial ecosystem for tech start-ups

the physical and virtual infrastructure for the accelerated growth of industrial sector including MNCs in the form of Foreign Direct Investment (FDI), to attract immigration of multi-cultural talented workforce, investors, mentors, etc. In addition, government will determine the presence of a strong Intellectual Property (IP) regime, which would encourage technology innovations and its commercialization for start-up generation. Thus, government policy and regulatory framework form another important pillar of the ecosystem, as unanimously agreed by the Delphi experts of both Bangalore and Hyderabad. Since tech start-ups are generally technology or innovation driven, the presence of common facility centres or common technology platforms for facilitating the development and testing of product prototypes/designs would strengthen the ecosystem. Therefore, Delphi experts have unanimously concluded that common facility centres/common technology platforms form the other important component of an ecosystem. If start-ups have to emerge, a conducive culture is essential. A culture which is open to risk-taking and encourages experimentation of new ideas will be conducive for the growth of entrepreneurship for tech start-ups. Thus, the presence of a favourable culture is an important ingredient of a start-up ecosystem. Tech start-ups generally emerge in clusters or hubs of economic activities, which are invariably urban centres. In such locations, the availability of high quality and efficient urban infrastructure including physical space in the form of land and buildings, roads and railways for smooth human mobility, un-interrupted power supply, communications, affordable housing, schools, hospitals, etc. would play a prominent role in the immigration of diverse talent and emergence of a healthy start-up ecosystem. The Delphi experts of Bangalore and Hyderabad have unanimously concurred that both conducive culture and high-quality urban infrastructure form the other two components of an entrepreneurial ecosystem. Finally, media has an important role to play in the ecosystem. A supportive media can effectively disseminate all the vital information relating to (i) the support that is available from the various components of an ecosystem for a prospective entrepreneur and functioning start-ups, (ii) emergence of start-ups, (iii) survival and stability of start-ups, (iv) success and growth of start-ups, (v) merger and acquisition of start-ups by other start-ups or large firms, and (vi) failure/exit of start-ups. In addition, media itself may undertake various start-up promotion activities. While the Delphi experts of Bangalore have strongly agreed with the indispensable role of the media in an ideal ecosystem, Hyderabad Delphi experts did not agree with this view. If an ideal ecosystem has to be nurtured, it is essential to prioritize the various components (discussed above) based on their relative importance and role in the ecosystem. But a precise ranking is neither feasible nor desirable. What is recommended is a broad categorization of these components based on their primary importance and secondary importance, for ecosystem nurturing, as unanimously

4.2 An ideal entrepreneurial ecosystem: Structure and components

57

agreed by the Delphi experts of both Bangalore and Hyderabad. However, it is important note that a mere presence of these components, primary or secondary, will not make an ecosystem ideal. The effectiveness of an ecosystem for tech start-ups will require the availability of these components in adequate quality, adequate quantity, and adequate interactions between them. Therefore, an ideal ecosystem can be defined as one which has “all the identified components required for tech start-ups discussed previously, with high quality, in adequate quantity, and have high levels of interactions between them”. Such an ecosystem can also be considered “highly matured”. An ideal and highly matured start-up ecosystem will be vibrant in all the stages of a start-up lifecycle, namely, (i) stage of emergence (where ideas are translated into prototype/product design, product development, followed by product testing, market identification, and launching a start-up with seed funds), (ii) stage of survival and stability (where repetition of products and repeated customers are achieved for market penetration with angel or venture capital investments), and (iii) stage of success and accelerated growth (where market expansion and scaling up of the enterprise is achieved through VCs/ PEs or get acquired by other start-ups or large firms), as unanimously concurred by the Delphi experts of Bangalore and Hyderabad. To ascertain the level of agreement achieved by the Delphi experts between Bangalore and Hyderabad, we carried out a simple correlation analysis. We had 31 questions relating to the characteristics of an ideal ecosystem, for which agreement (consensus) or disagreement (lack of consensus) has been arrived at in both the cities (section 1 in Appendix 2). We assigned the value of 1 for questions for which unanimous agreement was reached and 0 for those where unanimous agreement was not reached, in the two respective cities. The calculated correlation coefficient for 31 questions between Bangalore and Hyderabad turned out to be +0.62, which is found to be statistically significant at 0.01 level (non-directional). This implies that there is a statistically significant moderately high positive correlation between agreements and disagreements reached by the Delphi experts between the two cities with respect to an ideal entrepreneurial ecosystem in the Indian context. This implies that consensus has been reached not only between the Delphi experts within a start-up hub but equally importantly the consensus pattern seems to be largely similar between the two start-up hubs. Given the identification of essential components of an ideal ecosystem, it is appropriate to ascertain how each of these components plays a role through interactions with other components for nurturing tech start-ups in different stages of their lifecycle. This is done for three different stages of lifecycle of tech start-ups, namely, (i) Stage of emergence, (ii) Stage of survival and stability, and (iii) Stage of success and growth. Not all the components are crucial in all the three stages as their role and importance would vary from stage to stage.

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Chapter 4 An ideal entrepreneurial ecosystem for tech start-ups

4.3 Growth accelerators and challenges for tech start-ups: Pre-emergence to emergence stage The lifecycle of tech start-ups begins with the ideation stage where ensuring that the idea of a prospective start-up founder/s has the potential for translating it into a viable business model is the biggest challenge. Though start-up promotion activities are not critical, participation in such activities can prove beneficial to start-up founder/s as it facilitates their networking within the ecosystem. At this stage, identifying and contacting a technology mentor as well as a business mentor is a major challenge. At the same time, mobilizing seed funds either internally (using past savings or borrowing from friends/relatives) or from external sources (professional seed funders or angels) is equally crucial. Identifying the niche market and reaching “early product adopters” for product testing for its wider acceptability in the market is the final challenge faced by prospective start-up founder/s. Early product adopters may be large firms, other but established tech start-ups or tech savvy consumers, facilitated by either education institutions or the government. If a start-up founder/s is/are able to join an Accelerator/TBI/Co-working space, (i) accessing mentorship, (ii) mobilizing seed funds, and (iii) searching for and winning over early product adopters, becomes a smooth process. In the pre-emergence stage, potential start-ups hardly look for acquiring talented workforce. Here any support, direct or indirect, that may emerge from large firms can play a decisive role in the nurturing of start-ups in the pre-emergence stage. However, the role of the government as an early product adopter of potential start-ups is not considered essential in the pre-emergence stage, by the Delphi experts of both Bangalore and Hyderabad. We found great similarity in the agreement reached by the Delphi experts in Bangalore and Hyderabad for the pre-emergence challenges of tech start-ups. To ascertain the level of agreement achieved by the Delphi experts between Bangalore and Hyderabad, we carried out a simple correlation analysis. We had 10 questions relating to the challenges for tech start-ups in the pre-emergence stage, for which agreement (consensus) or disagreement (lack of consensus) has been arrived at in both the cities (section 2 in Appendix 2). We assigned the value of 1 for questions for which unanimous agreement was reached and 0 for those where unanimous agreement was not reached, in the two respective cities. The calculated correlation coefficient for 10 questions between Bangalore and Hyderabad turned out to be +0.76, which is statistically significant at 0.01 level (non-directional). This brings out that there is a statistically significant high positive correlation between agreements/disagreements reached by the Delphi experts between the two cities with respect to the pre-emergence stage challenges of tech start-ups in the Indian context.

4.4 Growth accelerators and challenges for tech start-ups

59

4.4 Growth accelerators and challenges for tech start-ups: Setting-up and operations stage The nature of challenges faced by tech start-ups undergoes a change once they formally enter the market. Based on the feedback that they receive on their product testing from early product adopters, the product undergoes required modifications to meet customer expectations. The roles of both technology mentors and business mentors assume equal importance in product finalization for launching and targeting the identified market for penetration. The start-up would aim at product repeatability and capture repeatable customers. Towards this end, funding is sought from angel investors or early stage venture capitalists, as the role of seed funders ceases at this stage. But the role of early adopters (either large firms or consumer segments) continues to be critical. Higher education and research institutions become the sources of human resources. Ideally, by this time, the crucial needs of tech start-ups would have been addressed adequately by Accelerators/TBIs/Co-working spaces resulting in start-ups moving out of their “shelter”. But start-ups which have emerged independently (outside Accelerators/TBIs/Co-working spaces) generally go for formal registration at this stage. Tech start-ups have the option for registration either in India or abroad. Registration of start-ups in countries like Singapore is considered easier and more advantageous from the points of view of (i) visibility and (ii) getting access to funds for expansion and growth. This is largely the view held by Delphi experts of Bangalore and not that of Hyderabad. The Delphi experts of both Bangalore and Hyderabad are not unanimous to conclude that registration process in India is tedious and time consuming. But they are unanimous in their view that acquiring a market, funding and talent are the three decisive accelerators of a start-up at this stage. The survival and stability of a start-up is determined in this stage, characterized by its formal launch and operations. Even here, there is found to be similarity between the Delphi experts’ consensus between Bangalore and Hyderabad. We carried out a correlation analysis to ascertain the degree of correlation between the two hubs. We had 12 questions relating to the challenges for tech start-ups in the setting up and operations stage, for which agreement (consensus) or disagreement (lack of consensus) has been arrived at in both the cities (section 3 in Appendix 2). We assigned the value of 1 for questions for which unanimous agreement was reached and 0 for those where unanimous agreement was not reached, in the two respective cities. The correlation coefficient for 12 questions turned out to be +0.52, which is statistically significant at 0.10 level (non-directional). This indicates that there is a statistically significant moderately high positive correlation between the consensus of Delphi experts of Bangalore and Hyderabad, with respect to the challenges faced by tech start-ups in the setting up and operations stage.

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Chapter 4 An ideal entrepreneurial ecosystem for tech start-ups

4.5 Growth accelerators and challenges for tech start-ups: Success and growth stage The tech start-ups which survive and stabilize will aim at an accelerated growth through rapid market expansion by scaling up the enterprise. The role of both technology and business mentors continues in this phase as well, as both have a crucial role to play in the scaling up and growth of tech start-ups. The stability and advancement of business of start-ups would lead to a higher valuation, enabling them to attract the attention of late stage venture capitalists or private equities for raising successive rounds of finance. Some tech start-ups might even go public through Initial Public Offerings (IPOs). However, if these start-ups have strong business complementarity with large firms, particularly MNCs, the former will have the option of scouting for and realizing M&A by the latter. While scaling up, these start-ups would further approach education and research institutions for acquiring the required human resources for growth. This is the stage where start-ups are “firmly on the saddle” with respect to (i) market, (ii) finance, and (iii) talent with respect to their operations in their lifecycle. The active vibrancy in terms of repeated success and growth of tech start-ups leading to their scalability would largely contribute to the growth and maturity of the ecosystem. We carried out a correlation analysis to ascertain the degree of correlation between the two hubs. We had 10 questions relating to the challenges for tech startups in the success and growth stage, for which agreement (consensus) or disagreement (lack of consensus) has been arrived at in both the cities (section 4 in Appendix 2). We assigned the value of 1 for questions for which unanimous agreement was reached and 0 for those where unanimous agreement was not reached, in the two respective cities. The correlation coefficient for 10 questions turned out to be +0.38, which is not statistically significant. This indicates that there is no statistically significant relationship between the consensus of Delphi experts of Bangalore and Hyderabad, with respect to the challenges faced by tech start-ups in the success and growth stage. This could be due to different start-up growth trajectories experienced in the two ecosystems.

4.6 Structure and components of an ideal ecosystem, and tech start-up lifecycle stages In the light of the above discussion based on the consensus of Delphi experts in Bangalore and Hyderabad, we would like to identify the major issues concerning an ideal entrepreneurial ecosystem and the components which support or promote

4.6 Structure and components of an ideal ecosystem and lifecycle stages

61

Large firms (domestic/MNC) provide/influence ①②③④⑤⑥⑧⑨

Government provide/influence ②③④⑤⑥⑦⑧⑨

Source of Supportive entrepreneurship media ① ⑨ Conducive Finance Tech startups and culture ② prospective tech ⑧ startups Market provide/influence Policy ③ ①②③④ ⑦ ⑥⑧⑨ Human resources Support Mentorship ④ structure ⑥ ⑤

Educational & research institutes provide/influence ①②③④⑤⑥⑧⑨

①②③④⑤⑥⑦⑧⑨

Figure 4.1: Entrepreneurial ecosystem for tech start-ups – core issues and supportive components (Source: Author’s description).

them, as given in Figure 4.1. There are nine core issues concerning an ideal ecosystem for tech start-ups, which are as follows: – Sources of entrepreneurship – Finance – Market – Human Resources – Support structure – Mentorship – Policy – Culture – Media These nine core issues are provided or promoted by either one or more of the four key elements/components, which are described as follows: – Large firms (domestic or MNCs): generate entrepreneurship (1), provide finance (2), markets (3), human resources (4) and business and technology mentorship (6) either directly or through their own Accelerators (5). They can contribute to the emergence of entrepreneurial culture (8) and supportive media (9) within an ecosystem. Experienced former employees of large firms become start-up founders, seed funders/angels/VCs, join start-ups as employees, become technology and/or

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business mentors, or set up their own Co-working spaces, and thereby influence entrepreneurial culture and impact the media. Even existing employees might be encouraged to become start-up founders through a sabbatical policy. – Education and research institutions: contribute in the form of sources of entrepreneurship (1), provide finance (2), human resources (4), technology and business mentorship (6) and market (3) through their own TBIs (5), facilitate the emergence of conducive culture (8) and favourable media (9). Graduates or Professors of education and research institutes become start-up founders, or join start-ups as employees, become technology/business mentors, induce conducive culture and influence the media. – Regional and national governments: can provide finance through its own seed funds or VC firms (2), be the early/late adopters of start-up products (3), create TBIs (5) and facilitate the availability of mentorship (6), be the active promoter through its policy for start-ups, fiscal and financial incentives, promote industry, infrastructure and a strong IP regime for encouraging innovations and technology commercialization (7), nurture a competitive and environmental culture (8) and influence the media (9). – Tech start-ups (in different stages of their lifecycle): Start-up co-founders or employees can set up their own start-ups (1), existing start-ups can finance new start-ups (2), existing start-ups can be the early adopters of new start-up products (3), employees of existing start-ups can become new start-up employees (4), founders of start-ups can become mentors for new start-ups (6), and overall have an influence on culture (8) and media (9). Serial start-up entrepreneurs become either technology/business mentors or seed funders/angels/VCs or set up their own Co-working spaces. Of the above, (i) large firms and tech start-ups constitute industry, (ii) education and research institutions represent the academia, and (iii) regional and national governments broadly represent the government. Given this, it is pertinent to define the structure of an ideal ecosystem and the major components which promote tech start-ups. The ideal entrepreneurial ecosystem will broadly emerge within and supported by the Triple Helix Model consisting of academia-government-industry and their interactions, the latter was originally proposed by Etzkowitz (2003). The triple helix model posits three spheres, overlapping and interacting with one another, with each “taking the role of the other”, producing hybrid organizations such as science park, spin-offs, university-run enterprises and the incubator from these interactions (Etzkowitz, et al., 2007). A triple helix regime typically starts as university, industry and government enter into a reciprocal relationship with each other in which each attempts to enhance the performance of the other. Most such initiatives take place at the regional level where specific contexts of industrial clusters, academic development and presence of governing authority influence the development of the triple helix (Etzkowitz, et al., 2007).

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This triple helix-field interaction results in three kinds of circulation between them, namely, (i) personnel circulation, (ii) information circulation and (iii) product circulation. These circulations occur both at “macro and micro” levels. Macro circulations move among the helices; while micro circulations take place within a particular helix. The former creates collaboration policies, projects and networks whereas the latter consists of outputs of individual helices. It is this triple helix interaction leading to circulations of personnel, information and products which form the base or foundation for the evolution of an entrepreneurial ecosystem comprising its various components. Within this triple helix model, an entrepreneurial ecosystem would comprise a nucleus consisting of tech start-up entrepreneurs, tech start-ups and prospective tech start-up entrepreneurs, with two outer layers as presented in Figure 4.2. The first outer layer will include indispensable (primary) components consisting of (i) Sources of finance such as Seed Funds, Angel Investors, Venture Capitalists, Private Equities and Investment Bankers, (ii) Market, (iii) Human Resources, (iv) Support system comprising Accelerators, Business Incubators and Co-working Spaces, and common facility centres or common technology platforms/laboratories, and (v) Business and Technology Mentors. The second and outer most layer will comprise supplementary components such as (i) supportive local culture, and (ii) supportive media. Primary components are those without which an ecosystem will not emerge or sustain or effective, whereas secondary components are those which play only a supportive role. Given the structure of an ideal ecosystem, it is appropriate to examine how each of these nine core ecosystem issues through the four identified structural components plays a role in the nurturing and growth of a tech start-up in different stages of its lifecycle. The three critical stages of lifecycle of a tech start-up are presented in Figure 4.3. Broadly, as discussed earlier, it comprises (i) pre-emergence leading to emergence, (ii) emergence leading to survival and stability, and (iii) survival and stability leading to success and growth. In the pre-emergence stage, a prospective start-up entrepreneur has two options: either join an Accelerator/TBI/Co-working space or explore oneself the entrepreneurial journey of setting up a tech start-up. If one opts and succeeds in the former, his/her idea would have got screened for its viability, resulting in obtaining technology/business mentorship, getting access to seed funds/angel investors, and getting assistance in market identification. Generally, prospective start-ups here have to register their start-ups to proceed further. The screened idea will be taken forward to develop a proof of concept through prototype development, development of a minimum viable product, followed by product testing and obtaining customer feedback from identified early product adopters. If one decides to explore the entrepreneurial journey by oneself, the task is to scout for a compatible technology/business mentor, and with his help validate entrepreneurial idea/s, develop a proof of concept or product prototype, minim viable product, obtain access to seed

Indispensable (primary) factors

hip Media

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Tech startups and prospective startups

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Figure 4.2: Ideal entrepreneurial ecosystem for tech start-ups: Structure and components (Source: Author’s description).

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1 Sources of Entrepreneurship

3 Conducive Culture

Stage III

Expansion and Growth

4 Supportive Media

4. Human Resources: Education & Research Institutes/ Large Firms/Start-ups

Figure 4.3: Ecosystem components influencing lifecycle stages of tech start-ups (Source: Author’s description).

2 Government policy for startups, Industry infrastructure and IP

Stage II

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Factors which influence tech start-ups across their lifecycle stages

Survival and Stability

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4. Start-ups/Public Consumers 5. Human Resources: Education & Research Institutes/Large Firms/Start-ups

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1. Mentorship: Technology and Business Mentors

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3. Finance: Seed funders/Angel Investors 4. Market: Customer testing & Market identification: Large Firms/Start-ups/ Public consumers

Scaling up

Repeatable Products/Repeated Customers

Ideas to Prototype to Market Identification

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funds/angel investors as well as identify early markets. Thus, in the stage of preemergence to emergence, the critical parameters required for setting up a start-up would have been found and connected together, resulting in the birth of a tech start-up and its formal registration with a government organization. In the stage of survival and stability, a tech start-up after its birth, goes for repeated manufacturing of products and strives for market penetration by obtaining repeated customers. In the process, it would acquire more funding and employ more human resources. The role of technology and business mentors continues to be crucial as they guide in bringing out “repeatable products” and obtain “repeated and/or new customers”. The required finance is obtained from angel investors and/or venture capitalists. The required human resources are recruited from either education and research institutes (that is, fresh talent) or large firms or other tech start-ups (experienced technical workforce). The target market for penetration would comprise large firms (for B2B start-ups) and/or general consumers (for B2C customers). In the stage of expansion and growth, once a tech start-up survives and gets stabilized, it would go for accelerated market expansion. The role of technology/ business mentors continues to be decisive. The requirement for funds is much larger, affordable to provide by only late stage VCs or Private Equities. The rapid expansion of the start-up would call for speedier recruitment of fresh talent from education and research institutions and experienced technical personnel from large firms or other tech start-ups. The identified market penetration in an accelerated rate would occur at this stage. Such tech start-ups would attract the attention of large firms (domestic/MNCs) or other well established and rapidly growing tech start-ups which have business compatibility, for Mergers and Acquisition (M&A). Alternatively, some of the tech start-ups would go public through Initial Public Offerings (IPOs) in the stock market to raise more resources, and thereby reach a higher growth path. A favourable government policy in the form of high-quality and effective urban infrastructure, fiscal and financial concessions for early stage start-ups, easy entry and exit policies, a strong IP regime, etc. all would contribute to a conducive startup environment encouraging the emergence, survival and stability, expansion and growth of start-ups. It would also witness and absorb start-up failures at different stages of its lifecycle. The more open the cultural environment for risk taking, uncertainty bearing and absorbing failures, the greater number of start-up entrepreneurs that would emerge in the ecosystem. The diffusion of information about (i) sources of tech start-up entrepreneurship, (ii) availability and quality of ecosystem components, (iii) emergence of tech start-ups addressing diverse problems of a society, (iv) achievements as well as failures of tech start-ups in the ecosystem, through the media will have a further positive influence on the various lifecycle stages of tech start-ups. All this together would contribute and determine the vibrancy and maturity of an ideal entrepreneurial ecosystem in Indian economy.

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4.7 Summary In this chapter, we have discussed the structure and components of an ideal entrepreneurial ecosystem in the Indian context followed by the key facilitators and challenges faced by tech start-ups in different stages of their lifecycle in such an ecosystem. In the process, we have examined the role played by each of the structural components in nurturing and promoting tech start-ups in the entrepreneurial ecosystem. The entrepreneurship for tech start-ups forms the nucleus of an entrepreneurial ecosystem, since every component or stakeholder is oriented towards the creation and success of entrepreneurship for tech start-ups and the whole ecosystem is driven by it, for achieving the objectives of employment creation and income generation for economic growth through innovation and technology commercialization. In such an ideal ecosystem, nine core variables are imperative, namely, (i) sources of entrepreneurship, (ii) finance, (iii) market, (iv) human resources, (v) support structure, (vi) mentorship, (vii) policy for start-up entry, operations and exit; fiscal and financial incentives; infrastructure, industry and intellectual property, (viii) conducive culture, and (ix) supportive media. These nine variables are provided/generated or influenced/encouraged, directly or indirectly, by four entities, namely, (1) Large firms (domestic/MNCs), (2) Education and Research Institutes, (3) Government, and (4) Tech Start-ups. These four entities broadly form, what Etzkowitz (2003) has proposed as a Triple Helix Model consisting of Academia-Government-Industry and their interactions. Based on these core issues and facilitators, the ideal ecosystem in the Indian context is defined in terms of a nucleus comprising tech start-up entrepreneurs and prospective entrepreneurs, surrounded by two outer layers. The first outer layer comprises five indispensable (primary) components including (i) sources of finance such as seed funders, angel investors, venture capitalists and private equities, (ii) market, (iii) human resources, (iv) technology and business mentors, and (v) support system consisting of accelerators, business incubators and co-working spaces with/without common facility centres or common technology platforms/laboratories. The second (outer most) layer includes secondary (supplementary) components such as supportive local culture and supportive media. This broadly defines the structure of an ideal entrepreneurial ecosystem and its components. Each of the identified components plays, directly or indirectly, multiple roles in the (i) pre-emergence to emergence, (ii) emergence to survival and stability, (iii) stability to expansion and growth – stages of lifecycle of tech start-ups. The adequacy, quality and interactions between the nine ecosystem components ensure its vibrancy and maturity in a dynamic economic environment.

Chapter 5 Entrepreneurial ecosystems for tech start-ups in Bangalore and Hyderabad: An exploration of evolution 5.1 Introduction Entrepreneurial ecosystem development is a process occurring over a period of time. Successful ecosystems are highly developed and matured. The two often cited benchmarks in this regard are: Silicon Valley and Israel, which are uniquely identified for their success in entrepreneurship development and for generating in one year, more successful start-ups than any other nation would have done in years or decades (Arruda, et al., 2013). If the structure of an ecosystem has to be understood for policy implications, it would be appropriate to probe how each ecosystem originated and developed over time (Motoyama and Watkins, 2014; Alvedalen and Boschma, 2017). The emergence of tech start-up hubs in both Bangalore and Hyderabad is a very recent phenomenon. However, the foundation for its emergence was laid decades back, after India’s independence in 1947. These are two of the metropolitan cities of the country, which are industrial clusters comprising modern manufacturing industries of varying sizes, Information Technology (IT) and Bio-Technology (BT) industries, among others. They are also the homes for several Public-funded R&D institutions and high-quality education institutes, promoted by both public and private sectors. Both have pro-industry regional governments, which have formulated and implemented regional (state-level) industrial policies periodically for the development of industries and infrastructure. Thus, both have the much-needed IndustryInstitute-Government combination for the emergence of a conducive ecosystem for start-ups. Given this, in this chapter we would examine the evolution of entrepreneurial ecosystems in the two cities, with a historical perspective, since India’s independence.

5.2 The emergence of entrepreneurial ecosystem in Bangalore: Phases of evolution The modern economic history of Bangalore for any analysis from any angle must begin with India’s independence. The laying of foundation for the origin of Bangalore as a hub of tech start-ups in the country can be traced back to the decades immediately after India’s Independence in 1947. The late 1940s, 1950s and early 1960s, in fact, laid foundation for the growth of Bangalore as a modern city, with the https://doi.org/10.1515/9783110679359-005

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establishment of key Central Public Sector Undertakings (CPSUs) such as Hindustan Aeronautics Limited (HAL), Hindustan Machine Tools (HMT), Bharat Electronics Limited (BEL), Bharat Heavy Electricals Limited (BHEL), Indian Telephone Industries (ITI), and Bharat Earth Movers Limited (BEML) (Department of Gazetteer, 1996). Further, in the 1960s, as part of the Industrial Estates Program of Government of India, a series of Industrial Estates were set up to promote modern Small-Scale Industries (SSI). They were supposed to meet the intermediate product demands of large CPSUs through industrial subcontracting. By early 1980s, there were more than 20 industrial estates in Bangalore. Of them, Peenya Industrial Estate and Electronic City stood apart, the former primarily comprised machinery and electronic industry Small and Medium Enterprises (SMEs) whereas the latter consisted of electronic industry enterprises of varying sizes. Peenya Industrial Estate was established in the early 1970s to support modern SMEs to cater to the needs of large engineering enterprises located in the city, both in the Public and Private Sectors. Subsequently, an exclusive “Electronic City” for the promotion of modern electronic industries was created in 1978. A majority of the SMEs functioned as ancillaries/ subcontractors to large enterprises in the field of machinery and electronics industries, among others (Sudhira, et al., 2007). The setting up of CPSUs and promotion of SMEs through industrial estates gradually and steadily gave a fillip to inmigration of science and technology workforce and skilled/un-skilled labour to the city. Thus, cross-cultural migration into Bangalore began and picked up pace gradually and steadily. While CPSUs and modern SMEs were emerging gradually, many academic and research institutions were also established. Indian Institute of Science (IISc) (1909) and University Visvesvaraya College of Engineering (set up by the legendary M Visvesvaraya as a Government Engineering College in 1917) had come up much earlier but grew in terms of batch size and number of programs (Balaram, 2012; UVCE, 2016). Subsequently, Indian Institute of Management (1973) and Indian Statistical Institute (1978) were created. Six of the most reputed engineering institutions of Karnataka State came up during this period: BMS College of Engineering (1946), M S Ramaiah Institute of Technology (1962), R V College of Engineering (1963), PES Institute of Technology (1972), Bangalore Institute of Technology and Dayanand Sagar College of Engineering (both in 1979). This led to the training and availability of techno-managerial workforce within the city. During the same period, varieties of national government funded public R&D institutions were also set up: Central Manufacturing Technological Institute (CMTI), Central Power Research Institute (CPRI), headquarters of Indian Space Research Organization (ISRO), National Centre for Biological Sciences (NCBS), National Dairy Research Institute (NRDI), National Aerospace Laboratories (NAL) and many Défense Research and Development Organization (DRDO) Laboratories. All this led to the emergence of a cluster of modern electronics and machinery industries in Bangalore by the mid-1980s. This marked the first phase in the evolution

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of Bangalore entrepreneurial ecosystem characterized by the emergence of a triple helix model comprising industry, academia and the government. This was primarily a national government initiated public policy driven development. The entry of Texas Instruments (TI) into Bangalore in 1984 (Basant and Mani, 2012) marked the beginning of another milestone in the growth of Bangalore as the “Silicon Valley of India”. In the late 1980s, some of today’s most reputed Indian IT companies such as Infosys and Wipro, among others, took birth in or shifted base to Bangalore (Kumar, 2014). With the onset of “economic liberalization” in 1991, more and more IT MNCs started flowing into Bangalore. In the early 1990s, Indian Institute of Information Technology Bangalore (IIITB) was created to address the “exclusive talent needs” of Indian IT industry. An International Tech Park was created in Whitefield, Bangalore as a result of a joint venture between India and Singapore in January 1994, followed by several other IT Parks in certain key locations of the city, providing multiple facilities for IT companies. In the process, most of the foreign software majors that have set up development centres in India preferred their entry through Bangalore (Kumar, 2014). This resulted in the emergence of an IT industry cluster in Bangalore. Today Bangalore is said to be the second largest IT cluster in the world with about 0.9 million direct and 2.7 million indirect employment, which is second only to the Silicon Valley (Department of IT, BT and S&T, 2013). In the meantime, from the 1990s onwards, the Biotechnology (BT) sector began to emerge in India (Ramani and Guennif, 2014). Karnataka in general, Bangalore in particular led the growth of BT industry as it became the home to a large array of BT enterprises including large companies, medium-sized ones, and many promising biotech start-ups (Department of IT, BT and S&T, 2014). The strong base of research institutions in Bangalore such as IISc, Jawaharlal Nehru Centre for Advanced Scientific Research (JNCASR), NCBS, University of Agricultural Sciences, among others, ensured a steady supply of skilled human resources, apart from R&D support. To promote the industry in a big way, Government of Karnataka set up bio-tech parks across the state including Bangalore. An Institute of Bioinformatics and Applied Biotechnology (IBAB) was established in 2001 and Centre for Cellular and Molecular Platforms (C-CAMP) came up in Bangalore as an enabler of success in bioscience research and entrepreneurship by providing R&D, training and services in state-of-the-art technology platforms. By late 1990s, almost half of the BT companies were based out of Karnataka, majority being in Bangalore (Department of IT, BT and S&T, 2014). Thus, the IT industry cluster was compounded by BT industry cluster. While Bangalore was emerging as a hub of IT and BT industries, in the late 1990s onwards, many MNCs started locating their R&D centres as well in Bangalore, to take advantage of the “relatively easily available and economical” “high-quality R&D workforce”. Of course, India as a whole started getting growing acceptance as the ideal R&D base due to three distinct factors: (i) talent pool, (ii) domain expertise,

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and (iii) leadership (Kingdom of the Netherlands, 2013), but Bangalore was clearly at the forefront. In fact, Bangalore accounted for the highest R&D suitability index in the country, in terms of suitability and differential cost (Zinnov, 2012). As a result, while the country as a whole was attracting more and more “resourceseeking” and “market-seeking” Foreign Direct Investments (FDI), Bangalore was attracting “efficiency-seeking” R&D related FDI, apart from IT industry investments (for a description on the motives of FDI, see third chapter in Dunning and Lundan, 2008). To name a few, MNCs such as ABB, Accenture Services, Airbus, AMD, Aricent, Bell Labs, Boeing, CISCO systems, Delta India Electronics, Dynamatics, Freescale Semiconductor, Goodrich, GE J F W Technology Centre, Hitachi, Honeywell, HP Labs, Infineon, Intel, Oracle, Samsung Electronics, Synopsys, Texas Instruments, Unilever, UTL, Yahoo Labs and many others set up their R&D and Engineering centres in Bangalore (Electronicsforu.com, 2013; Gupta and Gupta, 2014). This lent further strength to the “R&D environment” existing in the city due to the already present Public Sector R&D institutions. Basant and Mani (2012) revealed that Bangalore accounted for 50% of the total 120 surveyed foreign R&D centres located in India. According to a study of Zinnov Consulting, Bangalore accounted for 48% of the total (323000) MNC R&D workforce and about 40% of the total (1165) MNC R&D centres in India (TOI, 2016). An important characteristic of these foreign R&D affiliates of MNCs was that they started collaborating with other cluster participants, that is, research and education institutions and companies (Strukelj and Dolinsek, 2010; Gupta and Gupta, 2014). Perhaps, the cumulative impact of all of these together led Bangalore to get recognition as one of the globally known technology cities in the world (Rogers, et al., 2001) and to emerge as one of the “46 Global Hubs of Technological Innovation” (UNDP, 2001). A decade later, it was considered one among the eight largest technology innovation clusters in a global rating by MIT Technology Review (TOI, 2013). Today Bangalore is the leading R&D hub of India, and it is home for the largest number of technology talent in the country, and it attracts maximum number of new technology workers globally (Zinnov, 2012; Rai, 2014). One of the reasons for Bangalore to be identified as a top innovation cluster, according to MIT Technology Review, is its close connection with Silicon Valley and its contribution to the innovation culture (TOI, 2013). The growth of IT and BT industries and R&D affiliates of MNCs spontaneously led to a strong and growing relationship between Bangalore and Silicon Valley (SV). This relationship has been characterized and promoted by the following factors: – Business relationship between Indian origin firms in Bangalore and SV based MNCs – SV based affiliates of Indian origin firms – MNC affiliates based in Bangalore and the parent MNCs based in SV – Movement of executive personnel between Bangalore and SV, due to the above

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– Return and re-location of SV based Indian executives and start-up owners in Bangalore – Opening of subsidiaries of SV based VC Funds in Bangalore – Bangalore based Indian VCs had a strong link with SV due to their prior MNC experience or prior entrepreneurial experience or new linkages with SV based VC Funds. – A large percentage of Indian origin entrepreneurs in SV had direct and indirect interactions with Bangalore through flow of talent and funds. All this played a unique and distinct role in promoting the emergence of critical components of entrepreneurial ecosystem for tech start-ups in Bangalore. Two other factors which would have played a role in the building up of entrepreneurial ecosystem of Bangalore are (i) regional government policy and (i) weather. In fact, the initial spurt in Bangalore’s industrial growth occurred in the late 1950s and after, was attributed to the liberal policy of the regional government of inviting industries to the State when electric power from Sharavathi Hydroelectric Project became available with its 10 units generating more than 1000 MW power between 1963 and 1977 (Vyasulu, 1985). Since then, Karnataka has always had an industry-friendly industrial policy, which laid emphasis on industry related infrastructure development (Department of Industries and Commerce, 1996; 2006; 2014). The State has consistently pursued progressive industrial policies to meet the changing needs of State’s economy and industry which played a decisive role in the development of industrial areas, industrial estates, Export Promotion Industrial Park in Whitefield, Bangalore, apart from International Tech Park, Software Technology Parks and Electronic Cities in the State (Department of Industries and Commerce, 2006). To give an exclusive fillip to the growth of IT industry, a first ever Information Technology Policy was announced in 1997 (KUM, 1997). An exclusive BT industry policy was first brought out in 2001, followed by a Millennium Biotechnology Policy II in 2009. More recently, Government of Karnataka recognized the growing importance of start-ups and therefore has come out with an exclusive Karnataka Start-up Policy (2015–2020) (Department of IT, BT and S&T, 2013; 2014; 2015). The role of weather in the emergence of Bangalore as an industrial city, and later as a hub for tech start-ups cannot be underestimated. According to MIT Technology Review, Bangalore’s strongest point is its weather, which helps foster a culture of optimism and openness (Times of India, 2013). Bangalore is draped over the Deccan Plateau at an altitude of 949 meters (3113 ft.) above sea level, which gives it possibly the best climate among all the cities in India. Its altitude of over 3000 feet keeps it cooler than most Indian cities. The summer temperature ranges from 18˚C to 38˚C, while the winter temperature ranges from 12˚C to 25˚C. Thus, Bangalore enjoys a salubrious climate all-round the year (Sudhira, et al., 2007).

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This favourable weather would have played an important role in attracting investments and technology talent to the city incessantly. This briefly traces the key components of the growth of Bangalore which laid foundation for its entrepreneurial ecosystem to promote tech start-ups gradually and steadily. The emergence of Bangalore entrepreneurial ecosystem over a period of time, represents a process that blends the deliberate helping hand of public policy and the favourable response of market forces. This is presented briefly in Figure 5.1. The foundation for the emergence of entrepreneurial ecosystem for tech start-ups in Bangalore was laid over a period comprising about six decades: from late 1940s to early 2000s, which can be broadly classified into three different but overlapping periods: Period I from late 1940s till mid 1980s: Bangalore emerged as a modern industrial cluster (primarily comprising machinery and electronics industries) mainly due to national government initiated public policies which promoted the location and growth of CPSUs, national government funded R&D institutions, industrial estates for SMEs, and education and research institutions – the triple helix components. Period II from mid 1980s till late 1990s: Bangalore emerged as an IT and BT industries’ cluster due to liberalization of national economic policies which enabled a steady entry and growth of a growing number of MNCs, apart from encouraging the spring up of domestic IT and BT firms. Period III from late 1990s to early 2000s: Bangalore emerged as a R&D centres’ cluster due to a steady and gradual liberalization of foreign investment rules and regulations, and an increasing entry of MNC R&D affiliates, in addition to the already established public R&D institutions.

5.3 The emergence of entrepreneurial ecosystem in Hyderabad: Phases of evolution The modern economic history of Hyderabad, similar to that of Bangalore, for any analysis from any angle must begin with India’s independence, particularly after the integration of Hyderabad into the Indian Union in September 1948 (Das, 2015). The process of laying foundation for a modern industrial city of Hyderabad started with the establishment of key CPSUs, like in Bangalore, such as BEL in 1954, National Mineral Development Corporation (NMDC) in 1958, BEML and BHEL in 1964, Electronics Corporation of India in 1967, Bharath Dynamics in 1970, Mishra Dhatu Nigam in 1973 and Sponge Iron Limited in 1978. Much earlier, Praga Tools Corporation (which became Praga Tools Limited and a part of HMT Ltd., later) was established in 1943. Thus, Hyderabad became a home to a number of heavy industries in the central public sector covering defense, electronics, heavy electrical, machine tools, alloys, etc., as far back as in the 1950s to 1970s (Ramachandraiah and Prasad, 2008). The

Weather

Public R&D institutions

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Birth and growth of Indian IT and BT firms

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Government policy for industry and infrastructure

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IT + BT Modern industrial cluster industrial cluster

Steady entry and growth of MNC R&D firms

Late 1990s to early 2000s Phase III

Figure 5.1: Phases in the evolution of entrepreneurial ecosystem for tech start-ups in Bangalore (Source: Author’s description).

Indirect inducing factors

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Immigration of talent

PSUs

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city also saw the spring up and growth of several private sector enterprises such as VST Industries, ITC Group of Companies, and later in the 1980s the Nagarjuna Group of Companies. The Industrial Estates Programme launched across the country for the promotion of modern SSIs led to the establishment of industrial estates in Hyderabad thereby leading to their growth in the city. The city had six industrial clusters/areas/estates, namely, (i) Sanathnagar and Mushirabad comprising large and medium industries, (ii) Azamabad industrial area, (iii) Balanagar-Sanathnagar-Kukatpally industrial cluster which comprised a variety of industries, (iv) Moula-Ali-Nacharam-Uppal industrial area comprising mainly large industries, (v) Ramachandrapuram-Patancheru industrial cluster which comprised BHEL, among others, and (vi) Chandulal Baradari industrial estate, which consisted mostly of small scale industries (Markandey and Anant, 2011). The location of modern industries comprising large CPSUs on the one hand, and modern SSIs, on the other created enormous employment opportunities, which encouraged the in-migration of technically qualified as well as skilled/unskilled labour from the surrounding districts to Hyderabad (Das, 2015). While CPSUs and modern SSIs were emerging gradually due to public policy initiatives, some national government funded public R&D institutions and engineering education institutes were also established. National Institute of Nutrition had come up much earlier in 1918. The CSIR-Indian Institute of Chemical Technology (CSIR-IICT) which is one of the oldest National Laboratories under the Council of Scientific and Industrial Research (CSIR), started as the Central Laboratories for Scientific and Industrial Research (CLSIR) by the then princely State of Hyderabad in 1944. After 1948, National Institute of Rural development (NIRD) was set up in 1964, Nuclear Fuel Complex (NFC) in 1971, International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) in 1972, Centre for Cellular and Molecular Biology (CCMB) in 1977, and National Institute for Agricultural Extension Management (MANAGE) in 1987. Along with industries and research institutes/laboratories, several reputed educational institutions in engineering came up. The University College of Engineering, Osmania University was created in 1929, College of Agricultural Engineering, Achrya N G Ranga Agricultural University and Jawaharlal Nehru Technological University (JNTU) Hyderabad both in 1965, University College of Technology in 1969, Chaithanya Bharathi Institute of Technology in 1979 and Vasavi College of Engineering in 1981. This in a way helped the generation of technical talent locally. All this ensured the emergence and sustenance of a modern industrial cluster in Hyderabad by the 1980s. This is the first phase in the evolution of Hyderabad entrepreneurial ecosystem characterized by the emergence of a triple helix comprising industry, academia and the government, and similar to Bangalore, this was primarily a national government initiated public policy driven development. In 1987, Satyam Computers was incorporated as a private limited company for software development and consultancy services to large firms, which became a

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public limited company in 1991 (Sify Finance, 2016). With the onset of economic liberalization in 1991, particularly with a new regional (state) government, its Chief Minister Mr Chandrababu Naidu in 1994 envisioned transforming Hyderabad into a world-class city. Based on a vision document prepared by McKinsey Consultancy, Hyderabad was strategized to develop as one of the engines of growth through the creation of high-tech knowledge enclaves (GOAP and Government of Andhra Pradesh, 1999). Added to this, a similar prescription was given by the World Bank to achieve a desired growth trajectory to achieve the status of an information society (Das, 2015). In response, the state government initiated a massive restructuring of Hyderabad to promote and brand it as a world-class knowledge hub of IT, ITES and BT industries (Naidu and Ninan, 2000). During this period, two key educational institutions, namely, Indian Institute of Information Technology Hyderabad (1998), and Indian School of Business (2001) were established. An exclusive HITEC City (Hyderabad Information Technology and Engineering Consultancy City) was planned and its first phase was inaugurated in 1998. The HITEC City started generating employment avenues for local engineering talent and attracted many international IT giants to set up offices and research centres (Das, 2015). The state government came out with an exclusive IT Policy in 1999, followed by a second one in 2002 and third in 2005 (Das, 2015). By this time, some key IT firms have already emerged within the city such as Cybage Software Private Ltd. (1995), Aryabhata Solutions Ltd. (2000), and C1 India Private Ltd. (2000). This was followed by the entry of other major domestic IT firms such as Infosys, Wipro and Tata Consultancy Services (TCS), followed by MNCs such as Microsoft, Google, IBM, Facebook, Oracle, Amazon, etc. This gradually and steadily led to the formation of an IT cluster in Hyderabad. Along with IT industries, Pharma and Biotech (BT) industries also started emerging and growing. Perhaps the first major pharma company to come up was IDPL in 1967, which is often credited with the pioneer status and the nursery of all the pharma units in Hyderabad. One of the first BT enterprises to come up in Hyderabad was Indian Immunologicals Limited, founded in 1982 by National Dairy Development Board. This was followed by the formations of Dr Reddy’s Laboratories in 1984, Divi’s Laboratories in 1990, Shantha Biotechnics Limited in 1993, Bharath Biotech in 1996, and Virchow Biotech Private Ltd., in 2001 (Business Maps of India, 2016; Bharath Biotech, 2016; Virchow, 2016). These are some of the top Pharma and Biotech companies in the country today. In 2001, the state government came out with an exclusive Biotechnology Policy to give a big push to the growth of Biotech industry, and proposed the formation of a specialized Biotech enclave, known as Genome Valley (Das, 2015). Thus, the late 1990s marked the beginning of second phase in the evolution of entrepreneurial ecosystem of Hyderabad, characterized by the growth of IT, Pharma and BT industries. In the 2000s, the steady growth of IT and BT industries started attracting the attention of MNCs to set up their R&D affiliates in Hyderabad. One of the first MNCs

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to open its R&D centre was Microsoft in 1998, followed by many others such as Aricent, AMD, Freesacle Semiconductor, Synopsys, Hyundai, Oracle, Silicon Image, etc. Some of these MNCs have already opened their R&D/engineering and development centres in Bangalore, but spread to other key metro cities in India such as Hyderabad subsequently. More recently, Apple has opened its first development centre in Hyderabad (Live Mint, 2016). Hyderabad accounted for 12.5% of the total MNC R&D talent, about 13% of the MNC R&D centres in the country, and its R&D suitability index is next to Bangalore and Pune in India (Zinnov, 2012). Overall, Hyderabad shows promise and is catching up but yet to emerge as a dominant R&D affiliates cluster in the country. While in the first phase, the emergence of modern industrial cluster in Hyderabad was largely induced by public policies of the Central Government, the emergence and growth of second phase as an IT and BT cluster was largely led by the state government initiatives. In fact, regional government’s pro-active initiatives have assumed growing importance in the growth of Hyderabad since the late 1990s. However, the phase of R&D centres cluster is yet to emerge visibly. But with the formation of Telangana state and Hyderabad being its capital city, the new state government has taken several initiatives for the promotion of tech start-ups. A major step taken in this direction was the formation of T-Hub in the city. T-Hub is a unique public/private partnership between the government of Telangana, 3 of India’s premier academic institutes (IIIT-H, ISB and National Academy of Legal Studies And Research – NALSAR) and key private sector leaders. It stands at the intersection of the start-up, academic, corporate, research and government sectors (T-Hub, 2016). More recently, the regional govenment has come out with an exclusive ICT Policy Framework for the promotion of IT industry including innovation and start-ups (Government of Telangana, 2016). Another factor which has implicitly played a major role in the growth and transformation of Hyderabad is its unique status in terms its ability to assimilate diverse cultures, its centralized location in the country and its weather. Hyderabad has a history of assimilating diverse cultures which is a pre-requisite to be a global city. People from different parts of the country have migrated to Hyderabad for education, in search of employment, and to exhibit their entrepreneurial talent. The IT revolution, economic liberalization and political leadership have been catalyst in nurturing Hyderabad as one of the nerve centres of global economy (Socio Economic Outlook, 2015). More important is its location. Hyderabad is geographically safe, with zero chance of earthquakes, and has an ideal climate (The Hans India, 2015). With a location of above 550 meters from the sea level, the climate of Hyderabad is semi-arid with temperatures reaching nearly 40 degrees Celsius during May and falling to 15 degrees Celsius during December (Das, 2015). All this might have contributed to the incessant in-migration of talent to the city. This briefly traces the key components in the growth of Hyderabad which laid foundation for its entrepreneurial ecosystem to promote tech start-ups gradually and steadily. The emergence of Hyderabad entrepreneurial ecosystem over a period

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of time, represents a process that blends the deliberate helping hand of public policy and the favourable response of market forces. This is presented briefly in Figure 5.2. The foundation for the emergence of entrepreneurial ecosystem for tech start-ups in Hyderabad was laid over a period comprising about six decades: from late 1940s to late 2000s, which can be broadly classified into two different periods, while the third phase is still in the process of emerging: Period I from late-1940s to mid-1980s: Hyderabad emerged as a modern industrial cluster (comprising diverse manufacturing industries) mainly due to national government initiated public policies which promoted the location and growth of CPSUs, national government funded R&D institutions, industrial estates for SMEs, and education and research institutions – the triple helix components. Period II from late-1990s to late-2000s: Hyderabad emerged as an IT and BT industries’ cluster due to the aggressive policy initiatives of the regional government, which enabled a steady entry and growth of a growing number of MNCs, apart from encouraging the spring up of domestic IT and BT firms. Period III from late-2000s onwards: Hyderabad is fast emerging as a R&D centres’ cluster due to a steady and gradual entry of MNC R&D affiliates, in addition to the already established public R&D institutions.

5.4 The emergence of entrepreneurial ecosystems for tech startups in Bangalore and Hyderabad: A comparative perspective Both Bangalore and Hyderabad are the capital cities of their respective States, namely, Karnataka and Andhra Pradesh (till June 1, 2014) and Telangana (since June 2, 2014). These are two of the metro cities of India, and are industrial/commercial/institutional hubs of the country. After India’s independence in 1947 (for Bangalore) and after the integration into Indian Union in 1948 (for Hyderabad), the foundation for the evolution of an entrepreneurial ecosystem was laid in both the cities. This was primarily driven by national government initiated public policies characterized by the location and growth of CPSUs followed by industrial estates for modern SSIs, establishment of national government funded public R&D institutions, as well as educational institutions (promoted by both public and private sectors). This resulted in the emergence of the much-needed regional innovation system, led by “Triple Helix” comprising university-industry-government and their interactions, as propounded by Etzkowitz (2003). In the Triple-Helix model, the State (national government) played a dominant role, driving industry and academia for national/regional development, resembling what Etzkowitz and Leydesdorff have proposed as a ‘statist’ model (2000). The development of such a regional innovation system occurred over a period comprising almost four decades, ranging from the late-1940s to mid-1980s. This marked the first phase in the evolution of an entrepreneurial ecosystem in both the cities.

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Figure 5.2: Phases in the evolution of entrepreneurial ecosystem for tech start-ups in Hyderabad (Source: Author’s description).

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The transition from the first phase to the second phase occurred rather smoothly and spontaneously since the mid-1980s in Bangalore, with the entry of Texas Instruments and the origin of Bangalore based IT firms. The process got a fillip with the introduction of national economic reforms in 1991 and its acceleration since then, which virtually removed the entry barriers for IT MNCs. This, coupled with the initiatives of regional government to strengthen the physical and virtual infrastructure as well as educational institutions, Bangalore got a boost to emerge as an IT industry cluster, soon compounded by a BT industry cluster, by the late-1990s. With the introduction and acceleration of national economic reforms, the role of the State (national government) declined in intensity, though regional government continued to be important, and the role of industry and academia became more important. Thus, in the Triple-Helix model, all the three partners, namely, State, Academia and Industry seemed to emerge equally important resembling a ‘laissez-faire’ model proposed by Etzkowitz and Leydesdorff (2000). The role of industry shifted increasingly from CPSUs to MNCs and domestic IT firms. However, in Hyderabad, the transition from the first phase to the second phase was neither smooth nor spontaneous. Though Hyderabad, similar to Bangalore, had emerged as a cluster of modern manufacturing industries by the 1980s, it was the explicit initiative taken by the State (regional government) since the late 1990s for the transformation of the city towards the creation of a knowledge society and the positive response from the IT MNCs duly supported by domestic IT firms, which led to the emergence and growth of an IT cluster in the subsequent decade. Further, unlike Bangalore, Hyderabad had a heavy concentration of pharmaceutical industries and a higher concentration of BT industries, both had come up (in 1980s as well as 1990s) prior to the emergence and growth of IT industries. The State (regional government in the place of national government) continued to be the dominant partner with industry and academia, implying that the ‘statist model’ continued to be relevant for Hyderabad, unlike Bangalore, even in the second phase. Only the role of industry shifted from CPSUs to MNCs and domestic private firms, and the role of academia got strengthened with the addition of private sector academic institutions. The transition from the second phase to the third phase, again, took place smoothly and spontaneously since the late-1990s in Bangalore, with more and more MNCs locating their R&D affiliates in the city. This, coupled with the already established public funded R&D institutions, facilitated the emergence of a R&D cluster. In the process, interactions through partnerships and networking initiatives between MNC R&D affiliates and IT industry development centres, academia and government grew. Perhaps, all this led to the emergence of Bangalore as one of the 46 Global Hubs of Technological Innovation, and more recently identified by MIT Technology Review as one of the eight largest technology innovation clusters in the world (UNDP, 2001; TOI, 2013).

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Considering this, Bangalore might be in the process of witnessing, what Etzkowitz and Leydesdorff (2000) have proposed, a ‘balanced’ Triple-Helix model. Though Hyderabad, similar to Bangalore, started to attract MNCs to locate their R&D affiliates, it is still in the process of catching up with Bangalore as a R&D centres cluster. Given this, Hyderabad might take some more time to witness a ‘balanced’ Triple-Helix model. The relevant question is what is the relevance of Triple-Helix model and its different configurations for an entrepreneurial ecosystem for tech start-ups? It is the “TripleHelix” of university-industry-government interactions which generates knowledge and innovations contributing to the emergence and growth of technology-based start-ups. In addition, along with tech start-ups, as discussed in Chapter 4, they provide or influence all the required components of an entrepreneurial ecosystem for tech start-ups such as (i) sources of entrepreneurship, (ii) sources of finance, (iii) market, (iv) human resources, (v) support structure comprising Accelerators, TBIs and Co-working spaces, among others, (vi) mentorship, (vii) policy, (viii) conducive culture, and (ix) supportive media. Both Bangalore and Hyderabad have witnessed the emergence of these components in varying degrees, from the Triple-Helix interactions. Given this, it is appropriate to understand the structure and role of entrepreneurial ecosystems in the two tech start-up hubs.

Chapter 6 Entrepreneurial ecosystems for tech start-ups in Bangalore and Hyderabad: Structure and role 6.1 Introduction The post-independence growth of Bangalore and Hyderabad spanning over more than seven decades building on one cluster over the other in a sequence, has led to the emergence and growth of an entrepreneurial ecosystem slowly and steadily comprising certain key components. Given the identification of key issues concerning an ideal entrepreneurial ecosystem that is feasible in the Indian context, it is appropriate to examine the following pertinent questions to understand the entrepreneurial ecosystems of both Bangalore Hyderabad: – How and how far the identified key issues are addressed in the entrepreneurial ecosystems of Bangalore and Hyderabad? – What is the structure of currently prevailing entrepreneurial ecosystems in the two start-up hubs? – What role the structural components of the two ecosystems play in nurturing and promoting tech start-ups in the two hubs? and – How matured are the two ecosystems for tech start-ups? These issues are examined and analysed based on the consensus arrived at, by the Delphi Experts in the second and third rounds of interactions.

6.2 Structure and components of entrepreneurial ecosystem in Bangalore The more than seven decades’ growth of Bangalore, which saw the setting up of CPSUs comprising modern manufacturing industries in machinery and electronics, coupled with the growth of much needed SMEs, educational institutions, Public R&D institutions, followed by IT and BT industries, and then by R&D affiliates of MNCs, ensured the emergence and growth of Triple Helix model partners, namely, Government, Industry and Academia. This gradually but steadily led to the spring up of different components of entrepreneurial ecosystem for tech startups. Bangalore’s current entrepreneurial ecosystem for tech start-ups can be summarized as given in Figure 6.1. The ecosystem can be broadly viewed as a system within the Triple Helix Model comprising (i) a nucleus, surrounded by the existence of (ii) indispensable (primary) factors, and (iii) supplementary (secondary) factors. https://doi.org/10.1515/9783110679359-006

Men

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Figure 6.1: Entrepreneurial ecosystem for tech start-ups in Bangalore: Structure and components (Source: Author’s description).

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The large base of education and research institutions in Bangalore play multiple roles in supporting and promoting the ecosystem. Karnataka state, of which Bangalore is the capital, has the third largest concentration of professional (technical and management) education institutions and has one of the highest concentrations of Universities/ University level institutes in the country (Government of India, 2016), majority being located in Bangalore. First and foremost, these institutions generate entrepreneurial as well as human resource talent for tech start-ups. Secondly, faculty members in these institutions provide mentorship and sometimes, even facilitate market support as the early adopters of start-up products/services. Thirdly, some of these institutions (such as IISc, IIMB, IIITB, IBAB, NCBS) have their own Technology Business Incubators (TBIs) and arrange for other support services such as Intellectual Property (IP) consultancy, to nurture entrepreneurship through technology innovation commercialization, particularly among their own faculty/would-be graduates. The Delphi experts have opined on consensus that there is a concentration of higher education institutions and talent pool in Bangalore. However, they were not unanimous to state that the available talent pool is suitable enough for the emergence and growth of tech start-ups. Large firms, similar to education and research institutions, form an indispensable part of the ecosystem for various reasons. These include CPSUs, domestic private firms, and MNCs. Firstly, similar to education and research institutions, they generate entrepreneurial talent as well as human resources for tech start-ups. The employees of large firms quit their jobs and enter the entrepreneurial world to implement their innovative ideas. Some of the MNCs explicitly encourage entrepreneurship among their employees by providing them sabbatical leave to experiment with their entrepreneurial ideas, with the option of returning to the company if the start-up fails (Sabharwal, 2018). Secondly, large firms provide early market support in the form of early adopters of start-up products/services. Thirdly, at times, they consciously nurture and promote start-ups through their own accelerators, with the objective of expanding market base for their own final products and services. Bangalore is home to many accelerators such as Kyron, Microsoft, SAP Labs and Target. At a later stage, depending upon the “complementarity of business” and “compatibility of culture”, they even acquire some of these start-ups. While Delphi experts are unanimous about the positive role played by the adequate concentration of MNCs and the technical workforce available in the Bangalore ecosystem for tech start-ups, they did not hold the same view on the positive role played by the concentration of CPSUs in the city. India being a quasi-federal state, both the national government and the state government can play a role directly or indirectly, in the ecosystem for tech start-ups. The role of the national/regional government in start-up promotion can be either passive or active. It can be passive, if the government does not play any facilitating role. However, to begin with, immediately after independence, national government located several key CPSUs, public R&D institutions, and universities in Bangalore. In the meantime, the regional government created the much-needed industrial infrastructure

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(in the form of power, industrial area development, communication, water, etc.) and gave a fillip to modern industrialization. This was followed by the growth of IT and BT industries, and setting up of MNC R&D centres, apart from facilitating the establishment of education and research institutes. Now regional government appears to be an active facilitator of tech start-ups through the creation of support infrastructure such as VC Funds and TBIs, though not on a considerable scale. But, the role of the government as an early adopter of start-up products/services is hardly visible. More importantly, Government of Karnataka has recently come out with an exclusive policy for start-ups to give them a further fillip (Department of IT, BT and S&T, 2015). However, overall, Delphi experts are not unanimous in their view that regional government is currently pro-active in terms of policy, regulations and support for tech start-ups in Bangalore. It is the Triple Helix consisting of academia-industry-government combination and its interactions which led to the gradual and steady emergence of a nucleus with a set of indispensable (primary) ecosystem components and supplementary (secondary) components. A description on each of these components is in order. The entrepreneurs and prospective entrepreneurs form the nucleus of the system. Today entrepreneurship for tech start-ups gets generated primarily from large (domestic and foreign) firms, educational and research institutions, supplemented by CPSUs, public R&D institutions, and returning start-up entrepreneurs and MNC employees from abroad. It is observed that even currently operating start-ups in Bangalore generate entrepreneurship for new ones. A substantial number of these start-up founders are from outside the state of Karnataka, coming from different parts of the world in general, and different parts of India in particular. Thus, Bangalore “imports” start-up founders from all around the world. These are either youngsters educated abroad or experienced MNC executives served elsewhere or in Bangalore, or previous start-up founders elsewhere. Thus, they have obtained wider international exposure, and not averse to experimenting or risk taking. The Delphi experts are unanimous in their view that there are (i) adequate number of tech start-up entrepreneurs and (ii) sources of entrepreneurs for tech start-ups in Bangalore. As a result, they opined that there is a large number of “successful tech start-ups” operating in the Bangalore ecosystem. The indispensable or primary factors would consist of (i) financiers comprising seed funds, angels, VCs and PEs, (ii) market, (iii) human resources, (iv) accelerators/co-working spaces/TBIs, and (v) mentors (both technology and business). Without these factors, the ecosystem will not emerge and prevail or even if it emerges, it will not be effective. Firstly, finance and sources of finance. The funding needs of start-ups take different shapes as they move on in their lifecycle. At the early stage of taking a validated idea to proof of concept and product development, they look for Seed Funds or Angel Investors, but while getting ready to launch the start-up they need more funds which are generally met by Angel Investors or occasionally by early stage VC

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Funds. Once they stabilize and go for expansion, they need support from late stage VC Funds. However, with success if they go for scaling up, Private Equities enter the scene. While the roles of Angels and VCFs is fairly visible, the presence of Seed Funds and Private Equities is not prominently visible yet, in Bangalore ecosystem. The Delphi experts are unanimously of the view that while the presence and availability of funding from seed funds, angels, VCs and PEs is improving, these are not adequately available. Secondly, markets – it can be local, national or international. Bangalore has a high density of large firms consisting of MNCs, CPSUs, State PSUs, private domestic firms of varying sizes, and tech savvy consumers. Further, Bangalore has strong linkages with national and international markets. Therefore, tech start-ups have multiple options for market accessibility. However, the existing market support for tech start-ups in the pre-emergence to emergence stage, setting-up and operations stage for their survival and stability, expansion and scaling up for ensuring their success and growth in the form of early as well as late adopters of start-up products is not considered adequate by the Delphi experts. Thirdly, human resources. Technically qualified human resources are crucial in different stages of the lifecycle of tech start-ups, and these are generally provided by education and research institutions, large firms or currently operating tech startups. Though Bangalore has an adequate concentration of engineering, technology and management education institutions as well as talent pool, the Delphi experts have not unanimously agreed that this concentration is good enough to generate the much-needed talent pool for the emergence and growth of tech start-ups. But it is the presence of accelerators/co-working spaces/TBIs which has given a distinct entity to the start-up ecosystem in Bangalore. While accelerators are primarily confined to large firms (mostly MNCs), co-working spaces are promoted by private individuals who have the experience in dealing with start-ups, whereas TBIs are largely an institutional phenomenon. An accelerator has a time-bound programme for converting an idea into a proof of concept and product development for taking it to the market, and at the end of the programme the start-up graduates. A TBI has no such time restrictions, and therefore a start-up in an incubator is likely to take a longer time to graduate. A co-working space primarily provides space for working, arranges for mentorship, apart from facilitating net-working among those who occupy slots in the co-working space. There are many accelerators/co-working spaces/TBIs emerging and functioning in Bangalore but, they are yet to make their presence felt in the form of producing results. The Delphi experts have unanimously concurred that the support system comprising accelerators, co-working spaces and TBIs is fast emerging, though may not be considered adequate. Prospective entrepreneurs, more often, come with “raw ideas” and they lack adequate capability to validate their idea/s, take their idea/s to the proof of concept stage, prototype development, a minimum viable product and later to introduce the

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product/service into the market. Therefore, they generally look for mentors who can provide technology and/or business mentorship. Mentors are generally either erstwhile start-up owners (either in India or abroad) or financiers who are seed funders/angel investors/venture capitalists but erstwhile employees of MNCs in India or abroad. Though mentors are available in Bangalore, and their number is said to be growing, the quality of mentorship (either technology or business) is not yet systematically ascertained. Therefore, Delphi experts have expressed their apprehensions about the adequacy of “quality of business/technology mentorship” available in Bangalore. The supplementary (secondary) factors are not essential but they give a distinct strength to the ecosystem. These include (i) good weather, (ii) supportive local culture, and (iii) supportive media. Bangalore has a salubrious climate in every sense of the term, which places it far ahead of other cities of India (in terms of attracting and retaining domestic young professionals as well as Indian-born talent returning home, both for career and entrepreneurship) (Dutta, 2013). Therefore, weather plays an important positive role in the ecosystem of Bangalore, as unanimously agreed by the Delphi experts. Culture and supportive media, are the other two supportive ingredients of Bangalore ecosystem. Culture can be inhibitive or supportive for experimenting and risk taking. In general, Indian culture (with the exception of certain business communities) is generally conservative and therefore not supportive for start-up generation. However, Bangalore being a cosmopolitan city where cross-cultural migration, among others, has led to its population boom, start-up promotion has been occurring from middle and upper middle-class populations who have got much wider (national/international) exposure than the previous generations. This has invariably changed the culture from “conservative and inhibitive” to “progressive and supportive” for experimenting and risk-taking for new venture creation. It is this steady transformation characterized by a steady immigration of talent, which is changing the cultural landscape of start-up ecosystem in Bangalore for better. The Delphi experts are unanimously of the view that Bangalore attracts cross-cultural migration of talent and therefore, has an adequate culture of encouraging “risk-taking and experimenting”, particularly among its youngsters. Finally, media (both print and electronic) can play a supplementary role in the effective dissemination of ecosystem information, to help the prospective entrepreneurs. It could be relating to success/failure stories of start-ups, availability of finance, markets and human resources, mentors, accelerators/co-working spaces/ TBIs, support from large firms, government policy, education and research institutions, changing culture, availability of physical infrastructure, etc. There is an ever-increasing interest showed by the media in Bangalore to project what is happening in the start-up ecosystem. The print media (both business and general newspapers) in Bangalore plays a supportive role, by publishing news on start-ups and ecosystem related information through dedicated columns periodically. Of

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late, even electronic media gives publicity to tech start-ups through dedicated programs. However, Delphi experts are not unanimous in their view that media in the city is fully supportive and plays a constructive role for the promotion of start-ups. Thus, the entrepreneurial ecosystem for tech start-ups in Bangalore has all the essential components, as identified in an ideal ecosystem in the Indian context. But they vary in terms of quality and adequacy, though they are growing in number. However, what is crucial is an effective interaction among the ecosystem components for the growth of start-ups. The Delphi experts are not of the view that the level of interaction between the ecosystem components is adequate to promote a steady emergence and growth of tech start-ups, and they feel that the level of interaction is unlikely to improve spontaneously without any explicit external intervention.

6.3 Structure and components of entrepreneurial ecosystem in Hyderabad The more than seven decades’ growth of Hyderabad, saw the setting up of CPSUs comprising a wide range of modern manufacturing industries such as machinery, electronics and pharmaceuticals, coupled with the growth of much needed SMEs, educational institutions and Public R&D institutions. This was followed by the emergence and growth of IT and BT industries, and of late, by R&D affiliates of MNCs. This has resulted in the emergence and growth of Triple Helix model partners, namely, Government, Industry and Academia. All this has gradually and steadily led to the nurturing of different components of entrepreneurial ecosystem for tech start-ups. Hyderabad’s current entrepreneurial ecosystem for tech start-ups can be summarized as given in Figure 6.2. The ecosystem can be broadly viewed, similar to Bangalore, as a system within the Triple Helix Model comprising (i) a nucleus, surrounded by the existence of (ii) indispensable (primary) factors, and (iii) supplementary (secondary) factors. Hyderabad is the home for several national level education and research institutions, which play multiple roles in supporting and promoting the ecosystem. First, these institutions are the sources of entrepreneurship and human resources for tech start-ups. Second, these institutions provide mentorship and sometimes, even facilitate market support for product testing, as early adopters of start-up products/services. Third, some of these institutions (such as ICRISAT, IIITH, University of Hyderabad, IKP Knowledge Park, BITS-Pilani, Hyderabad) have their own Technology Business Incubators (TBIs) and arrange for other support services including Intellectual Property (IP) consultancy, to nurture innovation and entrepreneurship through technology commercialization, particularly among their own faculty/would-be graduates. More recently, IIT Hyderabad (which was started in 2008) has initiated its own TBI. The Delphi experts have opined unanimously that there is an adequate concentration

tors hip

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Figure 6.2: Entrepreneurial ecosystem for tech start-ups in Hyderabad: Structure and components (Source: Author’s description).

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of higher education institutions which generate the much-needed talent pool for the emergence and growth of tech start-ups. Large firms, particularly MNCs, form another indispensable part of the ecosystem for various reasons. These include CPSUs, domestic private firms, and MNCs. Firstly, similar to Bangalore, they generate entrepreneurial talent as well as human resources for tech start-ups. The employees of large firms quit their jobs and enter the entrepreneurial world to implement their innovative ideas or they fund promising entrepreneurial ideas as angel investors. Secondly, large firms provide early market support in the form of early adopters of start-up products/services which have business compatibility. Thirdly, at a later stage, depending upon the “complementarity of business” and “compatibility of culture”, they go for M&A of some of these start-ups. Thus, large firms provide the much-needed support for tech start-ups such as entrepreneurship, market, finance and human resources, directly and indirectly. The Delphi experts are unanimous about the positive role played by the adequate concentration of large private domestic/foreign companies as a means of support for tech start-ups in Hyderabad, though they did not hold the same view on the positive role played by the concentration of CPSUs in the city. Like in Bangalore, to begin with, immediately after the independence, national government located several key CPSUs, public R&D institutions, and universities in Hyderabad. During this time, the regional government was not visibly active to promote industrialization. However, since the late 1990s, state government took a proactive stand for the promotion of IT industries through the explicit development of IT industry specific infrastructure, while pharma and BT industries have already registered their presence along with the growth of other manufacturing industries. The process of setting up of MNC R&D centres began much later. As of now, regional government is an active facilitator of tech start-ups through the creation of support infrastructure. The setting-up of T-Hub in 2015, the largest technology business incubator in the country, represents just one example of the positive initiatives taken by the state government. T-Hub is designed for tech start-ups with the mission to catalyse the creation of one of the most vibrant entrepreneur communities in the world to encourage and fuel more start-up success stories. It is a unique public-private partnership between the Government of Telangana, and three premier Institutes, namely, IIITH, ISB Hyderabad and NALSAR. It stands at the intersection of the start-up, academic, corporate, research and government sectors. (T-Hub, 2016). The regional government has recently brought out an Innovation Policy and an ICT Policy, respectively which, among others, lay thrust on the promotion of tech startups (Government of Telangana, 2016a; Government of Telangana, 2016b). The Delphi experts are unanimously of the view that the Government of Telangana is currently proactively in favour of tech start-ups in Hyderabad.

6.3 Structure and components of entrepreneurial ecosystem in Hyderabad

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It is the Triple Helix consisting of academia-industry-government combination and its interactions which resulted in the gradual and steady growth of a nucleus with a set of indispensable (primary) ecosystem components and supplementary (secondary) components. A description on each of these components is in order. The entrepreneurs and prospective entrepreneurs form the nucleus of the ecosystem. There are a wide variety of sources of entrepreneurship for tech start-ups in Hyderabad such as large (domestic and foreign) firms, educational and research institutions, augmented by CPSUs, public R&D institutions, and returning start-up entrepreneurs and MNC employees from abroad. A substantial number of these start-up founders are from Telangana/Andhra Pradesh, apart from those migrated from different parts of the world in general, and different parts of India in particular. These are either youngsters educated abroad or experienced MNC executives served elsewhere or locally in Hyderabad, or previous start-up founders elsewhere. Thus, they have obtained wider international exposure, and they are not averse to experimenting or risk taking, though Delphi experts are not unanimous with respect to the presence of cultural adequacy for risk-taking and experimenting among the youngsters in the city. The Delphi experts are unanimous in their view that there are (i) adequate number of tech start-up entrepreneurs and (ii) sources of entrepreneurs for tech startups in Hyderabad. However, Delphi experts are not unanimous in their opinion that there is a large number of “successful tech start-ups” operating in Hyderabad. The inadequacy of cultural support for entrepreneurship might explain why not many successful tech start-ups are visibly operational, despite the presence of diverse sources of entrepreneurship present in the city currently. The indispensable or primary factors such as (i) financiers comprising seed funds, angels, VCs and PEs, (ii) market, (iii) human resources, (iv) accelerators/coworking spaces/TBIs, and (v) mentors (both technology and business), would hold good for Hyderabad as much as to Bangalore. Hyderabad ecosystem accounts for the presence of all of these components, though in varying proportions. A description on each of these components is in order. Considering the diverse funding needs of tech start-ups in different stages of their lifecycle, the Delphi experts have unanimously stated that fund availability in Hyderabad ecosystem is far from satisfactory. The presence and availability of funding from seed funds, angels, VCs and PEs is improving, but these are not adequately available as of now. Hyderabad has a high concentration of large firms consisting of MNCs, CPSUs, State PSUs, private domestic firms of varying sizes, and tech savvy consumers. Thus, Hyderabad, similar to Bangalore, offers multiple options to tech start-ups for market accessibility, though Delphi experts are not unanimous on this. Further, the existing market support for tech start-ups in the pre-emergence to emergence stage, setting-up and operations stage for their survival and stability, expansion and

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scaling up for ensuring their success and growth in the form of early as well as late adopters of start-up products is not considered adequate by the Delphi experts. Technically qualified human resources are essential in different stages of the lifecycle of tech start-ups, and these are generally provided by education and research institutions, large (domestic and foreign) firms or currently operating tech start-ups. Hyderabad has an adequate concentration of engineering, technology and management education institutions as well as talent pool, and therefore the Delphi experts have unanimously agreed that this concentration is good enough to generate the much-needed talent pool for the emergence and growth of tech start-ups. The presence of accelerators/co-working spaces/TBIs has given a distinct entity to the start-up ecosystem in Hyderabad, similar to Bangalore. But both accelerators and co-working spaces are promoted by private individuals who have the experience in dealing with start-ups, whereas TBIs are largely an institutional phenomenon. There are many accelerators/co-working spaces/TBIs emerging and functioning in Hyderabad but they have not yet made their presence felt in the form of generating any major tech start-up for its accelerated growth in the ecosystem. The Delphi experts have unanimously stated that the support system comprising accelerators, co-working spaces and TBIs though fast emerging, cannot be considered adequate. As noted earlier, technology and business mentors play a crucial role in every stage of the lifecycle of tech start-ups from emergence to stability to success and growth. From enabling a prospective entrepreneur to pick a viable idea to product prototype development to final product manufacturing as well as from market identification to market penetration to accelerated market growth, technology and business mentors are an important component of entrepreneurial ecosystem for tech start-ups. Mentors may emerge from MNCs or education and research institutions, with or without previous start-up founding experience and they may play an additional role as financiers. Though mentors are available in Hyderabad, and their number is said to be growing, the quality of mentorship (either technology or business) is not considered adequate by the Delphi experts. The possible supplementary (secondary) factors include (i) local culture, (iii) supportive media, and (iv) weather. Local culture can play an important role in the nurturing and development of tech start-ups. Hyderabad, similar to Bangalore, being a cosmopolitan city where cross-cultural migration, among others, has led to its population boom, start-up promotion has been occurring from middle and upper middle-class populations who have got much wider (national/international) exposure than the previous generations. This, coupled with pro-active regional government, has been steadily promoting a culture of experimenting and risktaking for new venture creation. However, the Delphi experts are not unanimous that Hyderabad has an adequate culture of encouraging “risk-taking and experimenting”, particularly among its youngsters.

6.4 Role of ecosystem components in the lifecycle of tech start-ups

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Finally, media (both print and electronic) can play a complementary role in the effective dissemination of ecosystem related information, to prompt the youngsters to become prospective entrepreneurs. The information dissemination by the media could cover success/failure stories of start-ups, availability of finance, markets and human resources, mentors, accelerators/co-working spaces/TBIs, support from large firms, government policy, education and research institutions, changing culture, availability of physical infrastructure, etc. There is an ever-growing interest in the Hyderabad media to project what is happening in the start-up ecosystem. The print media (both business and general newspapers) in Hyderabad plays a supportive role, by periodically publishing news on start-ups and ecosystem related information through dedicated columns. Even electronic media has recently started focusing on start-ups and its ecosystem related news. However, Delphi experts are not unanimous in their view that media in the city is effective, supportive and plays an adequate role for the promotion of start-ups in the city. Finally, weather is not considered an important component favourable to tech start-ups, by the Delph experts in the context of Hyderabad. Thus, the entrepreneurial ecosystem for tech start-ups in Hyderabad has all the essential components, as identified in an ideal ecosystem in the Indian context. But they vary in terms of quality and adequacy, though they are growing in number. What is equally important is an effective interaction among the ecosystem components. The Delphi experts are not of the view that the level of interaction between the ecosystem components is adequate to promote tech start-ups, and they feel that the level of interaction is unlikely to improve spontaneously without any explicit external intervention. Given the description on the entrepreneurial ecosystem for tech start-ups in Bangalore and Hyderabad, it is pertinent to examine how these components play their roles in nurturing and promoting tech start-ups, from their lifecycle perspective. A mere presence of ecosystem components would not mean much, rather what is decisive is their appropriate interactions with prospective/functional entrepreneurs along with other necessary components, in every stage of the lifecycle of tech start-ups. Accordingly, the role of ecosystem components in the lifecycle stages of tech start-ups is analysed with respect to both Bangalore and Hyderabad.

6.4 Role of ecosystem components in the lifecycle of tech startups in Bangalore and Hyderabad: A comparative perspective The lifecycle of tech start-ups can be broadly divided into three stages: (i) emergence, (ii) survival and stability, and (iii) success and growth (Figure 6.3). The first stage will be induced by the availability and quality of entrepreneurship and sources of entrepreneurship. The starting point for a successful entrepreneurial venture is picking up a right idea and its validation (Soota and Gopalan, 2016).

1 Government policy for startups, Industry infrastructure and IP

3. Technology and Business Mentorship 4. Finance: Seed funders/Angel Investors 5. Market: Product testing & customer feedback 6. Market identification: Large Firms/Start-ups 7. Formal registration

1. Technology and Business Mentorship

Scaling up and accelerated growth

3 Weather

4 Media

2. Finance: Late stage VCs/PEs/ Investment Banks 3. Market Penetration: by obtaining repeated customers/expanding 3. Market market base - Large Firms/Startexpansion: national/ ups/Public Consumers international 4. Human Resources: Education & 4. Human Resources: Education & Research Institutes/Large Research Institutes/ Firms/Start-ups Large Firms/Start-ups 5. Production: Resorting to 5. Large scale production repeated manufacturing to meet the targeted market

1. Technology and Business Mentorship 2. Finance: Angels/early stage VCs

2 Local culture

1. Team of founders 2. Accelerators/TBIs/Co-working Spaces

Idea validation to Prototype Repeatable products and market development to Market Identification penetration

Figure 6.3: Ecosystem components in the nurturing of tech start-ups through their lifecycle: Bangalore and Hyderabad (Source: Author’s description).

Conducive factors

4. Education and research institutions 5. Erstwhile MNC employees/ startup founders from abroad

3. Tech startups

1. Domestic large firms 2. MNCs

Entrepreneurship generation: Sources of Entrepreneurship

94 Chapter 6 Entrepreneurial ecosystems for tech start-ups in Bangalore and Hyderabad

6.4 Role of ecosystem components in the lifecycle of tech start-ups

95

The way entrepreneurs are able to give shape to their chosen idea/s and take it to the market would determine the emergence of a start-up in the first stage. The ability to produce repeatable products and penetrate the market would determine its survival and stability, in the second stage. The stability and sustenance achieved in the second stage would feed into the third stage for its subsequent success and growth. A start-up may fail pre-maturely in the first stage itself, or struggle to survive and sustain in the second stage but fail subsequently, or succeed and grow into the third stage and thereby go public or get acquired by another start-up or a large firm. Thus, failure of start-ups through either abortion of ideas pre-maturely, or infant mortality or demise of adolescents/adults is a part and parcel of the different lifecycle stages of tech start-ups. The number and quality of tech start-ups emerging in an ecosystem will be largely determined by the diversity of sources of entrepreneurship existing in the ecosystem. Entrepreneurship can emerge from large firms, both domestic firms and MNCs, education and research institutes, R&D laboratories, existing tech start-ups, and entrepreneurs/employees of MNCs within the country or those returning from abroad. Bangalore as well as Hyderabad have all of these. In fact, a good number of returnees to Bangalore are from California, USA, particularly from the Silicon Valley, who were either start-up owners themselves or employees of MNCs who had exposure to start-ups and developed inclination to become start-up owners back home. Hyderabad also has experienced tech start-up entrepreneurship emerging from foreign returnees, particularly from the USA. As discussed earlier, the culture of new generation, which has much wider exposure and experience, is not risk-averse and is keen on experimenting. The wide publicity that media provides to these new generation start-ups is generating entrepreneurial interests in young minds, both employed and would-be graduates, in the city. All of these have contributed in the form of an ever-increasing number of prospective entrepreneurs for tech start-ups in Bangalore and Hyderabad. Getting motivated to become an entrepreneur will be influenced by culture of one’s environment, and one’s own exposure, experience, ability to gather right kind of information through the media as well as one’s own social network, ability to access the supportive system that exists, etc. This will play a decisive role in validating and giving shape to one’s idea and taking it towards the development of proof of concept/prototype followed by a minimum viable product. The supportive system would comprise various formal/informal start-up promotion activities, accelerators/co-working space/TBIs, provision of seed funds and technology/business mentorship. Once the proof of concept/prototype is formulated and MVP is developed, how to take it to the market becomes crucial. It is here that technology/business mentorship assumes decisive significance. Customer testing of products/services and market identification are done at this stage. At the end of this stage, the start-up is

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ready for formal launching. The start-ups go for registration with statutory bodies for launching formal business operations. However, as of now, as revealed by some of the start-up owners, the registration process of tech start-ups in India is considered to be time-consuming and arduous. As a result, some of these tech start-ups registered themselves in Singapore/USA (due to easy, smooth and quick registration and “better visibility” for raising funds) but operated out of Bangalore/Hyderabad. The Karnataka Start-up Policy (2015–2020) aims at, among others, addressing this issue by making the registration process simpler, quicker and easier (Department of IT BT and S&T, 2015). Similarly, Government of Telangana has announced a start-up promotion policy as part of its Innovation Policy and ICT Policy framework (Government of Telangana, 2016a; Government of Telangana, 2016b). Bangalore has various start-up clubs and programmes (such as Start-up Garage), apart from numerous private websites (such as india.start-uplogic.com; desistart-ups. in and Start-upNews.in) which enable prospective entrepreneurs to understand the “pre-requisites of entrepreneurship” (Bala Subrahmanya, 2015). Start-up weekend and Start-up Hyderabad aim at promoting start-ups in Hyderabad. Further, industry associations such as NASSCOM, MAIT, IESA and TiE Bangalore actively pursue startup promotion activities in Bangalore whereas NASSCOM and TiE Hyderabad do likewise in Hyderabad. Thus, industry associations play an important role in tech startup promotion in the two cities. In addition, the support system for start-ups in the two cities, as of now, comprises the following (as obtained from the Internet search): – Accelerators: 17 in Bangalore and 10 in Hyderabad, promoted by MNCs or others. – Business Incubators: 33 in Bangalore and 11 in Hyderabad, promoted by institutions or others. – Co-working spaces: 52 in Bangalore and 7 in Hyderabad, promoted by national or international organizations. Many of these support systems also arrange for seed funds or angel investors or early stage VCs as well as mentors. The large and diversified industrial/consumer base of the two cities offers adequate scope for customer testing of new products/services. In fact, Bangalore has a high concentration of large firms, particularly MNCs and consumers in Bangalore are considered tech-savvy (Quartz India, 2016), and both provide the much-needed prospective market base for tech start-ups. Hyderabad may not be falling far behind. Thus, both Bangalore and Hyderabad ecosystems are quite vibrant with respect to the first stage of lifecycle of tech start-ups. The second stage of lifecycle marks the stage of market penetration and fund raising for initial growth. Product repeatability and obtaining repeated customers are crucial at this stage. Such start-ups with market tested products look for early product/service adopters for stable market opportunities and for more funds which

6.4 Role of ecosystem components in the lifecycle of tech start-ups

97

are generally met by either angel investors or early stage VCs. The role of both technology mentors and business mentors continues to be crucial at this stage, to guide the start-up towards survival and stability. Similarly, the role of large firms and/or public/private institutions as early adopters of their products/services is decisive. The required talent pool as the workforce for tech start-ups would emerge from either large firms and/or education and research institutions. Thus, the three key requirements of tech start-ups – finance, market and human resources – have to be adequately met at this stage. Both Bangalore and Hyderabad have a relatively good base of angel investors for early financing, a huge concentration of MNCs, domestic private firms and CPSUs to offer market support in the form of prospective early adopters of start-up products/services, and a fairly good cluster of education and research institutions – to provide the much needed workforce talent. As a result, there is a growing number of tech start-ups surviving and stabilizing in both the cities. Many of them are likely to be cockroaches. There are no fixed textbook definitions for a cockroach start-up, but a good, healthy start-up which can sustain even if the next round of investments may or may not come, is a good indicator (Damani, 2016). A cockroach start-up is the one which keeps surviving, going forward in spite of changing environments, market conditions and investment scenarios, just like a cockroach (Juneja, 2016). Thus, there is vibrancy with respect to the second stage of lifecycle of tech start-ups as well, in both Bangalore and Hyderabad. If tech start-ups survive and stabilize after launching, they would invariably aim at scaling up their operations. That is, after the start-up has exhibited some track record, Series A funding is useful in optimizing product and user base. The objective is to exploit opportunities to scale up the product across different markets. In this round, it is important to have a plan for developing a business model that will generate long-term profit. Often, seed start-ups have great ideas that generate a substantial number of enthusiastic users, but the company does not know how it will monetize on them. Typically, Series A rounds raise approximately US$2 million to US$15 million, but this number has increased on average due to high recent tech industry valuations, or “Unicorns”. Generally, the investors involved in the Series A round come from more traditional VCs. Series B rounds are all about taking businesses to the next level, past the development stage. Investors help start-ups get there by expanding market reach. In Series B, venture capitalists have more of vision around what the pie will look like, and how big of a slice they hope to obtain. Building a winning product and growing a team requires quality talent acquisition. The role of education and research institutions continues to be important as the suppliers of talented workforce. Bulking up on business development, sales, advertising, tech support, and other people costs a firm a lot. Estimated capital raised hovers around US$30 million to US$60 million. Series C is about perfecting, and of course, continuing to scale fast

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and wide. Start-ups raise double digit to hundreds of millions in this final round. As the operation gets less risky, more investors come to play. In Series C, groups such as hedge funds, investment banks, and private equity firms join start-ups through financing. The other alternatives for scaling up are (i) going public through Initial Public Offerings (IPOs) or getting acquired by large (domestic or foreign) firms. Broadly, Bangalore has witnessed all the three stages of lifecycle of start-up growth, as of now, as concurred by the Delphi experts whereas Hyderabad ecosystem has witnessed primarily the first two stages of start-up lifecycle. Bangalore accounted for about 30% of all early stage start-ups in the country, whereas Hyderabad accounted for about one-third of that of Bangalore (Joshi and Krishna, 2014). Thus, both the cities perhaps have enough cockroaches. But unlike Bangalore which has the highest number of Unicorns of 13 of the total 31 Unicorns in the country [the others being at National Capital Regin, Delhi (comprising Delhi, Gurgaon and Noida) (11), Mumbai (4), Pune (2) and Chennai (1)], Hyderabad is yet to witness the emergence of a Unicorn (Venture Intelligence, 2020). A Unicorn is a company with a valuation of $1 billion or more (Soota and Gopalan, 2016). Though there are private equities, hedge funds and investment banks operating out of Bangalore, and availability of talent within the city is fairly smooth, graduation of tech start-ups to enter the third stage of start-up lifecycle is yet to happen in a visible way. Of course, start-up acquisitions by large firms have occurred here and there, but a larger visible action is yet to emerge. Similarly, the trend of start-ups going public for IPOs is not yet known. But this is a nation-wide phenomenon, as observed by the government due to the fact that the exit for investors, especially through the IPO route continues to remain sparse, driven by a combination of choppiness in markets globally, difficult listing rules, and in the case of consumer internet start-ups, it is due to the lack of profitability (Government of India, 2016). It is very hard for investors and start-ups to list in India, and that is why many of them relocate outside the country’s borders (Gooptu, 2016). Given this, it is clear that vibrancy with respect to the third stage of start-up lifecycle in Bangalore has not yet emerged and Hyderabad is yet to catch-up as well. Broadly, ecosystem for start-ups is said to pass through four different stages of evolution, namely, (i) nascent, (ii) evolving, (iii) mature, and (iv) self-sustainable (Cukier, et al., 2016). Considering the three stages of start-up lifecycle the vibrancy of entrepreneurial ecosystem for tech start-ups in Bangalore and Hyderabad are largely confined to the first two stages, and therefore it can only be considered “evolving” and therefore, “moderately matured”. The overall maturity of the ecosystem covering the third stage of lifecycle might take some more time, about 10 years in Bangalore as well as Hyderabad, as concurred by majority Delphi experts. However, Delphi experts are unanimously of the view that Bangalore, as of now, has the best ecosystem for tech start-ups in the country whereas Delphi experts of Hyderabad are unanimous that the city does not yet have the best ecosystem in the country.

6.5 Summary

99

6.5 Summary In this chapter, we have examined the structure and components of entrepreneurial ecosystems as currently prevailing in Bangalore and Hyderabad. Subsequently, we have examined the role played by each of the structural components in nurturing and promoting tech start-ups in the entrepreneurial ecosystem. The structure of an ideal ecosystem in the Indian context holds good for both Bangalore and Hyderabad. The triple helix structure comprising industry-universitygovernment and its interactions formed the foundation for the entrepreneurial ecosystems in both the cities. Within this, the entrepreneurship for tech start-ups forms the nucleus of an entrepreneurial ecosystem, since every component or stakeholder is oriented towards the creation and success of entrepreneurship for tech start-ups and the whole ecosystem is led and driven by it. Thus, ecosystem in both the start-up hubs, is defined in terms of a nucleus comprising tech start-up entrepreneurs and prospective entrepreneurs, surrounded by two outer layers. The first outer layer comprises five indispensable (primary) components including (i) sources of finance such as seed funders, angel investors, venture capitalists and private equities, (ii) markets, (iii) human resources, (iv) technology and business mentors, and (v) support system consisting of accelerators, business incubators and co-working spaces with/without common facility centres or common technology platforms/laboratories. The second layer comprises two secondary (supplementary) components such as supportive local culture and supportive media. In addition, in Bangalore weather occupies an important supportive role in the ecosystem. This broadly defines the structure of the entrepreneurial ecosystem and its components, as it prevails in Bangalore and Hyderabad. Each of the identified components plays, directly or indirectly, multiple roles in varying forms in the (i) pre-emergence to emergence, and (ii) emergence to survival and stability – stages of lifecycle of tech start-ups. The adequacy, quality and interactions between the ecosystem components ensure its vibrancy in both Bangalore and Hyderabad, though the former appears to have a lead against the latter. However, the vibrancy with respect to the third stage of expansion and growth is only mildly visible in Bangalore but yet to emerge in Hyderabad. Given this, both the ecosystems are only moderately matured and may take about a decade to attain full maturity.

Chapter 7 Ideal entrepreneurial ecosystem and ecosystems of Bangalore and Hyderabad: A gap analysis 7.1 Introduction The entrepreneurial ecosystems prevailing in Bangalore and Hyderabad have all the components which are identified by the Delphi experts in the two start-up hubs with respect to an ideal ecosystem in the Indian context. However, some of these components are not available as adequately as required. Further, the level of interaction in different stages of the lifecycle of tech start-ups are not considered to be at the desired level. Further, both the ecosystems are considered to be moderately matured, the maturity being largely confined to first two stages of the lifecycle, namely, stage of emergence and stage of survival and stability, characterized by the presence of a growing number of “Cockroaches”. Though Bangalore accounts for the highest number of “Unicorns” in the country and Hyderabad accounts for none, as of now, the much-needed maturity in the third stage of success and growth is yet to emerge in a visible way in both the ecosystems. Given this, it is appropriate to ascertain the gaps that exist between the ideal ecosystem and the ecosystems prevailing in Bangalore and Hyderabad. Accordingly, based on the responses that we have obtained from the Delphi experts in both the start-up hubs in the fourth round of interactions, we have carried out a gap analysis not only between what is ideal and what prevails in Bangalore and Hyderabad, but also between Bangalore and Hyderabad ecosystems. We have used Stata 11 software for all of our analyses presented in this chapter.

7.2 The ideal ecosystem and the ecosystems of Bangalore and Hyderabad: A comparative perspective The data gathered and tabulated using the fourth-round questionnaire formed the basis for the analysis covering ideal, Bangalore and Hyderabad ecosystems. The questionnaire contained questions on the various components of an ideal entrepreneurial ecosystem in the Indian context, and their relative presence in the ecosystem in Bangalore and Hyderabad. The questionnaire contained a total of 27 questions focusing on entrepreneurship and tech start-ups, large enterprises, education and research institutions, government, finance, market, human resources, mentorship, support systems, culture, media, weather, and level of interactions. The Delphi experts ranked the level of importance on a five-point scale ranging from (1) very low importance, (2) low importance, (3) moderate importance, (4) high https://doi.org/10.1515/9783110679359-007

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7 .2 The ideal ecosystem and the ecosystems of Bangalore and Hyderabad

importance, and to (5) very high importance. The Delphi experts responded to each question in terms of importance, with respect to ideal (practically possible in the Indian context) as well as with respect to what is prevailing in Bangalore/Hyderabad. The mean and standard deviation for the values assigned by the Delphi experts in Bangalore and Hyderabad, for each of the 27 questions for the ideal ecosystem and that prevailing in the two respective start-up ecosystems are given in Table 7.1. The mean values indicate the existence of a gap between an ideal ecosystem and the ecosystem of Bangalore as well as between the ideal ecosystem and the ecosystem of Hyderabad, as identified by the Delphi experts in the two start-up hubs respectively. It is important to note that the mean values of ideal ecosystems as identified by the Delphi experts in the two start-up hubs did not differ much from each other. Table 7.1: Ideal ecosystem and ecosystems of Bangalore and Hyderabad: Descriptive statistics. Variable

Observations

Mean

Standard Deviation

Minimum

Maximum

Ideal (Bangalore) (IDB)



.

.

.

.

Bangalore (BN)



.

.

.

.

Ideal (Hyderabad) (IDH)



.

.

.

.

Hyderabad (HY)



.

.

.

.

Note: Ideal (Bangalore) represents ideal ecosystem values assigned by Bangalore Delphi experts whereas Ideal (Hyderabad) represents ideal ecosystem values assigned by Hyderabad Delphi experts. Source: Author’s calculation

Given this, it is important to know whether there exists any statistically significant relationship between these variables. Therefore, we carried out a correlation analysis for all the four variables, and the results are given in Table 7.2. All the correlation coefficients above +/−0.38 are statistically significant at 0.05 level. There exists a statistically significant high positive correlation (correlation coefficient: 0.8942) between the two ideal ecosystems, implying that the Delphi experts in Bangalore Table 7.2: Correlation coefficients between the variables. Number of observations = 

Correlate IDB IDH BN HY Variables

IDB

IDB

.

IDH

.

.

BN

.

.

.

HY

.

.

.

Source: Author’s calculation

IDH

BN

HY

.

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Chapter 7 Ideal ecosystem and Bangalore/Hyderabad ecosystems

and Hyderabad have largely converged with respect to the importance of various components in terms of their presence, with respect to an ideal ecosystem. But there exists a statistically significant moderate positive relationship (correlation coefficient: 0.3962) between Bangalore and Hyderabad ecosystems. The relationship between ideal (Bangalore) and Bangalore ecosystems is positive and statistically significant (correlation coefficient: 0.5015), which can be considered moderately high, whereas the relationship between ideal (Hyderabad) and Hyderabad ecosystems is also positive and statistically significant (correlation coefficient: 0.3967) but relatively lower than that of the former. Thus, despite differences between the mean values of all the four variables, they have a statistically significant positive relationship between one another. This could be an indicator that the relative importance of various components has varied, more or less, uniformly between the four groups, as expressed by the Delphi experts in two start-up hubs. Given the above, we would like to know whether there is any similarity or dissimilarity between the ideal ecosystem feasible in the Indian context as identified by Bangalore Delphi experts and the ideal ecosystem as identified by Hyderabad Delphi experts. Since the sample size is small, to ascertain the same, we conducted a two-sample t test. The null hypothesis and alternative hypothesis for the twosample t test are as follows: Null Hypothesis (H0): Ideal (Bangalore) = Ideal (Hyderabad) Alternative Hypothesis (Ha): Ideal (Bangalore) ≠ Ideal (Hyderabad) The two-sample t-test results are presented in Table 7.3. Since the calculated t value is greater than the tabulated t value, we will reject the Null Hypothesis and state that there is a significant mean difference between the two paired samples. Next, we Table 7.3: Two-sample t test: Ideal (Bangalore) vs. Ideal (Hyderabad). ttest IDB=IDH Paired t test Variable

Observations

Mean

Std. Err.

Std. Dev.

[% Conf. Interval]

IDB



.

.

.

.

.

IDH



.

.

.

.

.

diff



−.

.

.

−.

−.

mean(diff) = mean(IDB – IDH)

t = −.

H: mean(diff) < 

Degrees of freedom = 

H: mean(diff) < 

Ha: mean(diff) !=

Ha: mean(diff) > 

Pr(T < t) = .

Pr(|T| > |t|) = .

Pr(T > t) = .

Source: Author’s estimation

103

7 .2 The ideal ecosystem and the ecosystems of Bangalore and Hyderabad

examined to know whether there is any similarity or dissimilarity between Bangalore ecosystem and Hyderabad ecosystem. To ascertain the same, we conducted a twosample t test. The null hypothesis and alternative hypothesis for the two-sample t test are as follows: Null Hypothesis (H0): Bangalore ecosystem = Hyderabad ecosystem Alternative Hypothesis (Ha): Bangalore ecosystem ≠ Hyderabad ecosystem The two sample t-test results are given in Table 7.4. Since the calculated t value is greater than the tabulated t value, we will reject the Null Hypothesis and state that there is a significant mean difference between the two paired samples. Table 7.4: Two-sample t test: Bangalore vs. Hyderabad. ttest BN=HY Paired t test Variable

Observations

Mean

Std. Err.

Std. Dev.

[% Conf. Interval]

BN



.

.

.

.

.

HY



.

.

.

.

.

diff



.

.

.

.

mean(diff) = mean(BN – HY)

. t = .

H: mean(diff) < 

Degrees of freedom = 

H: mean(diff) < 

Ha: mean(diff) !=

Ha: mean(diff) > 

Pr(T < t) = .

Pr(|T| > |t|) = .

Pr(T > t) = .

Source: Author’s estimation

The above two paired t test analysis results indicate that the ideal ecosystem as well as the prevailing ecosystem identified by the Delphi experts in the two respective start-up hubs differ in their mean values. Given this, we explored to know whether there is any difference between the mean values of ideal ecosystem and Bangalore ecosystem as identified by Bangalore Delphi experts and between the mean values of ideal ecosystem and Hyderabad ecosystem as identified by the Hyderabad Delphi experts. Accordingly, we conducted a two-sample t test with the following Null Hypothesis and Alternative Hypothesis, for Bangalore: Null Hypothesis (H0): Ideal (Bangalore) = Bangalore ecosystem Alternative Hypothesis (Ha): Ideal (Bangalore) ≠ Bangalore ecosystem The two-sample t-test results are given in Table 7.5. Since the calculated t value is greater than the tabulated t value, we will reject the Null Hypothesis and state that there is a significant mean difference between the two paired samples.

104

Chapter 7 Ideal ecosystem and Bangalore/Hyderabad ecosystems

Table 7.5: Two-sample t test: Ideal (Bangalore) vs. Bangalore. ttest IDB=BN Paired t test Variable

Observations

Mean

Std. Err.

Std. Dev.

[% Conf. Interval]

IDB



.

.

.

.

.

BN



.

.

.

.

.

diff



.

.

.

.

.

mean(diff) = mean(IDB – BN)

t = .

H: mean(diff) < 

Degrees of freedom = 

H: mean(diff) < 

Ha: mean(diff) !=

Ha: mean(diff) > 

Pr(T < t) = .

Pr(|T| > |t|) = .

Pr(T > t) = .

Source: Author’s estimation

Table 7.6: Two-sample t test: Ideal (Hyderabad) vs. Hyderabad. ttest IDH=HY Paired t test Variable

Observations

Mean

Std. Err.

Std. Dev.

[% Conf. Interval]

IDH



.

.

.

.

.

HY



.

.

.

.

.

diff



.

.

.

.

.

mean(diff) = mean(IDH – HY)

t = .

H: mean(diff) < 

Degrees of freedom = 

H: mean(diff) < 

Ha: mean(diff) !=

Ha: mean(diff) > 

Pr(T < t) = .

Pr(|T| > |t|) = .

Pr(T > t) = .

Source: Author’s estimation

We conducted a two-sample t test with the following Null Hypothesis and Alternative Hypothesis, for Hyderabad: Null Hypothesis (H0): Ideal (Hyderabad) = Hyderabad ecosystem Alternative Hypothesis (Ha): Ideal (Hyderabad) ≠ Hyderabad ecosystem The two-sample t-test results are given in Table 7.6. Since the calculated t value is greater than the tabulated t value, we will reject the Null Hypothesis and state that

7 .2 The ideal ecosystem and the ecosystems of Bangalore and Hyderabad

105

there is a significant mean difference between the two paired samples. Thus, we find a significant difference between the mean values of two ideal ecosystems, between the ideal ecosystem and the prevailing ecosystem in both Bangalore and Hyderabad, as well as between the prevailing ecosystems of Bangalore and Hyderabad. To further ascertain how each of these groups differ with the rest, we carried out one-way Analysis of Variance (ANOVA). ANOVA expands on the basic concepts used in performing a t-test. ANOVA can be used for comparing the means of more than two groups and it is in fact more statistically powerful in this situation (Kao and Green, 2008). ANOVA provides considerably more flexibility in testing for group differences than found in the t-test. It has the ability to test for differences between more than two groups, among others (Hair et al., 2007). It can identify an overall difference between three or more means using a single test that compares all of the groups simultaneously. Therefore, ANOVA is referred to as an omnibus test (Kao and Green, 2008). We carried out one-way ANOVA for the four groups of ecosystems, namely, ideal (Bangalore), ideal (Hyderabad), Bangalore and Hyderabad ecosystems. The one-way ANOVA compares the means between the four groups and determines whether any one of those means is statistically significantly different from each other. The specific Null Hypothesis and Alternative Hypothesis are as follows: Null Hypothesis (H0): µ1 = µ2 = µ3 = µ4 Alternative Hypothesis (Ha): µ1 ≠ µ2 ≠ µ3 ≠ µ4 where µ = group mean and 1, 2, 3 and 4 = number of groups. If the one-way ANOVA yields a statistically significant result, we accept the Alternative Hypothesis (HA), which states that there are at least two group means that are statistically significantly different from each other. The one-way ANOVA results for the four groups are presented in Table 7.7. The model has a high explanatory Table 7.7: One-way ANOVA results. anova ECO CAT Number of observations = 

R-squared = . Adj. R Squared = .

Root MSE = . Source

Partial SS

df

MS

F

Prob > F

Model

.



.

.

.

CAT

.



.

.

.

Residual

.



.

Total

.



.

Source: Author’s estimation

106

Chapter 7 Ideal ecosystem and Bangalore/Hyderabad ecosystems

power as indicated by the adjusted R-squared value. The model is statistically significant as reflected by the F value, implying that there are significant differences between the means of two or more groups. Therefore, we reject the Null Hypothesis and accept the Alternative Hypothesis. Although the F statistic test assesses the null hypothesis of equal means, it does not address the question of which means of the groups are different. That is, in a four-group situation, all the four groups may differ significantly, or two may be equal but differ from the other two. To assess these differences, we have resorted to a post hoc test, to uncover the source of the significance or, in other words, to determine which specific means are different (Kao and Green, 2008). We decided to carry out Tukey’s HSD (Honestly Significant Difference) post hoc test, since the number of observations in all the four groups is the same. The purpose of Tukey’s HSD test is to determine which groups differ from the other. It is not likely that all the four groups differ when compared to each other, but only some of them might have significant differences. Tukey’s HSD post hoc test would clarify which of the groups have significant differences. Table 7.8 presents Tukey’s HSD test results, which indicate the difference between the two groups followed by its level of statistical significance. The difference between the two ideal ecosystems (.124577, 0.844) is not statistically significant and so is the difference between Bangalore and Hyderabad (−.171303, 0.559). However, there is a statistically significant difference between the ideal ecosystem (Bangalore) and Bangalore ecosystem (−1.03929, 0.000), the former being higher than the latter. Similarly, there is a statistically significant difference between the ideal ecosystem (Hyderabad) and Hyderabad ecosystem (−1.33517, 0.000), the former being higher than the latter. Table 7.8: Tukey’s HSD test results. Comparison of Ecosystem values for IDB IDH BN HY By Categories: =IDB, =IDH, =BN, =HY (Sidak) Row mean →







Column mean ↓ 

. .



−. .

−. .



−. .

−. .

Source: Author’s estimation

−. .

7.3 Analysis of factors contributing to the ecosystem gap

107

This brings out clearly that there exists a statistically significant gap between the ideal ecosystems and the ecosystems of Bangalore and Hyderabad, respectively. These findings raise the following question: – What ecosystem components do not exist adequately and therefore differentiate the ideal ecosystem from the prevailing two ecosystems of Bangalore and Hyderabad? This issue needs to be examined in detail, in the context of both Bangalore and Hyderabad ecosystems.

7.3 Analysis of factors contributing to the ecosystem gap The ecosystem gap (between what is ideal and what is prevailing currently) has been ascertained by probing the factors which differentiate the ideal ecosystem from that of prevailing ecosystems of Bangalore and Hyderabad in terms of individual ecosystem component levels including the level of interactions between these components, by means of stepwise (backward elimination) logistic regression analysis. Accordingly, we have used one binary dependent variable (1 to represent the ideal ecosystem and 0 to represent the prevailing ecosystems of Bangalore and Hyderabad), 13 explanatory variables (for 34 Delphi experts in Bangalore and 14 Delphi experts in Hyderabad) and a control (dummy) variable (to differentiate Bangalore from Hyderabad) (as described in Chapter 3). The equation used for stepwise (backward elimination) logistic regression analysis is as follows: Ln ½p=ð1 − pÞ = b0 + b1LF + b2ER + b3GO + b4SU + b5FI + b6MR + b7WF + b8SS + b9ME + b10SC + b11EM + b12WE + b13EI + b14ED Where p represents the probability of an event (ideal ecosystem), b0 is the y-intercept, and each independent variable’s association with the outcome (log odds) is indicated by the coefficients b1 to b14. In effect, we are trying to model the probability that an event (ideal ecosystem) is a result of a linear combination of variables as indicated in the equation above. In the above equation, P/[1-P] is a log-odds ratio between the ideal and the prevailing ecosystems, which is the dependent variable whereas the explanatory variables represent the ecosystem components as follows: LF=Large Firms, ER=Education and Research Institutions, GO=Government, SU=Start-ups, FI=Finance, MR=Market, WF=Workforce, SS=Support systems, ME=Technology and Business Mentors, SC=Supportive Culture, EM=Effective Media, WE=Weather, and EI=Interactions whereas ED=Ecosystem Dummy (1 for Bangalore and 0 for Hyderabad), b0=Constant, and b1 to b14= Coefficients of the explanatory variables.

108

Chapter 7 Ideal ecosystem and Bangalore/Hyderabad ecosystems

Stepwise regression is used in empirical research to evaluate the order of importance of variables and to select useful subsets of variables (Thompson, 1995). The advantage in using stepwise backward elimination logistic regression is that it starts with a logistic regression equation, including all the independent variables, and then deletes independent variables stepwise that do not contribute significantly. Sequential search methods which include backward elimination logistic regression, among others, are useful statistical tools for researchers because it results in a model with maximum predictive power with only those variables that contribute in a statistically significant amount to explain the dependent variable (Hair, et al., 2007). Though stepwise modelling has several disadvantages as argued by Whittingham, et al., (2006), it is useful particularly in exploratory research as a screening device. Since the present study is exploratory in nature, we consider it appropriate for the proposed analysis. To begin with, we present the summary statistics of the dependent and the explanatory variables comprising number of observations, mean, standard deviation, minimum and maximum values for the ideal ecosystem and the prevailing ecosystems, separately (Table 7.9). The descriptive statistics for 13 ecosystem variables presented under P-0 are for the prevailing ecosystems of Bangalore and Hyderabad, whereas the descriptive statistics given under P-1 are for the ideal ecosystem. The minimum values for all the 13 ecosystem variables are higher for the ideal ecosystem compared to that of the prevailing ecosystems. The maximum value assigned for Start-ups (SU) is higher for the ideal ecosystem compared to that of the prevailing ecosystems, whereas it is the same for the remaining 12 variables for both ideal and prevailing ecosystems. Overall, there is an indication that there exists a gap between the ideal and the prevailing ecosystems. The correlation coefficients between the various variables and their level of statistical significance for the ideal ecosystem as well as for the prevailing ecosystems of Bangalore and Hyderabad are presented in Tables 7.10 and 7.11, respectively. All the coefficients which are =/>0.2850 are statistically significant at 0.05 level. The results of stepwise (backward elimination) logistic regression are presented in Table 7.12. The model deleted nine of the 13 ecosystem variables and the control (ecosystem dummy) variable. Overall, the model retained four explanatory variables, namely, ER, MR, SC and EI as they significantly contributed in differentiating the ideal ecosystem from the prevailing ecosystems. Among the Triple Helix variables, GO and LF are removed implying that the roles played by government and large firms in the prevailing ecosystems are as much as that would prevail in an ideal ecosystem. The nucleus of the ecosystem SU comprising start-ups and prospective start-ups, does not distinguish the ideal from the real, implying that they prevail in good number in the prevailing ecosystems as much as that would prevail in the ideal ecosystem. Among the five indispensable/primary components, FI, WF, ME and SS are not statistically significant implying that sources of finance (FI), work force (WF), mentors (ME) and support systems (SS) do not distinguish the ideal from the real (prevailing)

109

7.3 Analysis of factors contributing to the ecosystem gap

Table 7.9: Descriptive statistics of variables: Ideal vs. Real. P

Variable

N

Min.

Max.

Mean

 (Real)

SU



.

.

.

.

GO



.



.

.

FI



.



.

.

MR









.

LF







.

.

ER







.

.

WF







.

.

ME







.

SS



.



.

SC







.

EM







.

.

WE







.

.

EI







.

.

SU



.



.

.

GO







.

.

FI







.

.

MR



.



.

.

LF







.

.

ER







.

.

WF







.

.

ME







.

.

SS



.



.

.

SC







.

.

EM







.

.

WE







.

EI







.

 (Ideal)

Source: Author’s estimation

SD

. . .

. .

.

.

.

.

.

.

.

.

–.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

–.

FI

MR

LF

ER

WF

ME

SS

SE

EM

WE

EI

ED

Source: Author’s estimation

.

.

GO

GO

.

SU

SU

Variables

–.

.

–.

–.

.

.

.

.

.

.

.

.

FI

–.

–.

–.

–.

–.

.

.

.

.

.

.

MR

–.

.

–.

–.

–.

.

.

.

.

.

LF

–.

.

.

–.

.

.

.

.

.

ER

Table 7.10: Correlation coefficients between the variables for ideal ecosystem.

–.

.

.

.

.

.

.

.

WF

–.

.

.

.

.

.

.

ME

–.

.

.

.

.

.

SS

.

.

.

.

.

SE

.

.

.

.

EM

–.

.

.

WE

–.

.

EI

110 Chapter 7 Ideal ecosystem and Bangalore/Hyderabad ecosystems

.

.

.

.

.

–.

.

.

.

.

.

–.

.

.

.

.

.

.

.

.

.

.

.

.

.

GO

FI

MR

LF

ER

WF

ME

SS

SE

EM

WE

EI

ED

Source: Author’s estimation

.

.

SU

GO

SU

Variables

.

.

.

.

.

.

.

.

.

.

.

.

FI

.

.

.

.

.

.

.

.

.

.

.

MR

.

–.

–.

.

.

.

–.

.

.

.

LF

–.

.

.

.

–.

.

–.

.

.

ER

.

.

.

.

.

.

.

.

WF

.

.

.

.

.

.

.

ME

–.

.

.

.

.

.

SS

Table 7.11: Correlation coefficients between the variables for prevailing ecosystems of Bangalore and Hyderabad.

.

.

.

.

.

SE

.

.

.

.

EM

–.

.

.

WE

.

.

EI

7.3 Analysis of factors contributing to the ecosystem gap

111

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Chapter 7 Ideal ecosystem and Bangalore/Hyderabad ecosystems

Table 7.12: Stepwise (backward elimination) logistic regression analysis results. Stepwise, pr(.): logit P SU GO ER LF MR FI WF ME SS SC EM WE EI ED begin with full model P = . >= . removing GO P = . >= . removing ME P = . >= . removing LF P = . >= . removing FI P = . >= . removing WF P = . >= . removing ED P = . >= . removing ME P = . >= . removing SS P = . >= . removing SU P = . >= . removing EM Number of observations = 

Logistic regression

LR Chi() =. Prob > Chi =. Pseudo R = .

Log Likelihood = –. P

Coefficient

Std. error

MR

.

.

SC

.

ER EI Constant

P>|Z|

[% confidence interval]

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

–.

–.

.

–.

.

Z

–.

.

. –.

Source: Author’s estimation

ecosystems. Only market (MR) emerged as a statistically significant differentiator between the two. Among the three supplementary/secondary components, effective media (EM) and weather (WE) did not emerge as the significant differentiators, indicating that both media and weather are good enough in the two prevailing ecosystems relative to that of the ideal ecosystem. Only supportive culture (SC) differentiated the ideal ecosystem from the real ecosystems. Further, the level of interactions (EI) also differentiated the ideal from the real ecosystems, which infers that the level of interactions between the ecosystem components is not adequate in the real ecosystems compared to that of the ideal

7.3 Analysis of factors contributing to the ecosystem gap

113

ecosystem. Finally, the control (ecosystem dummy) variable is not statistically significant which implies that there is no significant difference in terms of gaps, between the prevailing ecosystem in Bangalore relative to that of Hyderabad. It is pertinent to elaborate on the ecosystem components (ER, MR, SC and EI) which differentiate the ideal and the real ecosystems. Firstly, education and research institutions (ER). They can play multiple roles in the form of generating entrepreneurship for tech start-ups, provide support systems in the form of Technology Business Incubators (TBIs) and centres for Proof of Concept/Prototype development, a MVP and thereby enable commercialization of innovations/patents, market support as early product adopters for certain niche products, supply high-quality workforce, provide technology/business mentors, be a source of seed funds for in-house start-ups, etc. While some higher education and research institutions in both Bangalore and Hyderabad have their own TBIs with mentors, sources of funds, etc. and would have generated entrepreneurship, workforce and even early markets for tech startups, directly or indirectly, this is confined only to a few. Particularly, their role in the commercialization of in-house innovations/patents is not explicitly visible. There is immense potential for innovation/patent commercialization and Indian education and research institutions have a long way to go in this direction, to emerge in a big way. Matured market (MR) is imperative not only for start-up emergence, but more importantly for start-up survival and stability, and further for start-up expansion and accelerated growth. The fact that more and more start-ups are emerging increasingly in both the cities and many are able to survive and stabilize (in the form of cockroaches), but not many have reached the stage of success and growth (in the form of Unicorns) is a reflection on the inadequate market size for a steady growth of start-ups in both the cities. That is why, both the start-up hubs have been considered “evolving” and “moderately matured”, which imply the underdeveloped nature of their markets, among others. Though cultural orientation towards tech start-ups has been gradually and steadily improving over a period of time, in both Bangalore and Hyderabad due to cross-cultural migration, among others, the larger mindset of families is driven by “middle-class values” prompting youngsters to embrace secured jobs, and the education system at large is geared towards meeting this objective. The perception towards “failure of entrepreneurship” is still negative, and risk-averse attitude is largely prevalent in both the cities. That is why, lack of supportive culture (SC) differentiates the ideal ecosystem from the prevailing ecosystems of Bangalore and Hyderabad. Finally, the level of effective interactions (EI) among the defined ecosystem components is still inadequate. There are multiple means for promoting “networking” among the ecosystem components, such as “Hackathons”, “start-up clubs”, and other start-up promotion events promoted by education and research institutes, MNCs/domestic large companies, industry associations, TBIs, etc., occurring

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periodically in both the start-up hubs. However, these interactions may not be adequate enough to (i) translate “ideas into action” as well as (ii) facilitate “scaling-up of start-ups”, on a large scale. In other words, “innovation commercialization” for spring-up of successful start-ups and “identification of larger markets” for accelerated growth of start-ups are not adequately driven by the existing level of interactions in both the cities, and therefore differentiate the ideal ecosystem from the real ecosystems.

7.4 Summary The ideal ecosystems as identified by the Delphi experts in both Bangalore and Hyderabad are found to be largely similar implying that the Delphi experts of both the start-up hubs have converged in identifying the importance and adequacy of ecosystem components for a vibrant entrepreneurial ecosystem in the Indian context. Further, ANOVA brought out that there exists a difference between the prevailing ecosystems of both Bangalore and Hyderabad and their respective ideal ecosystems. The Tukey’s HSD (post-hoc) test revealed that there exists a gap between what is considered ideal in the Indian context and what is currently prevailing in the two start-up hubs, the former being better-off relative to the latter. Given this, an exploration of the factors which contribute to the existence of gaps became necessary. Accordingly, stepwise (backward elimination) logistic regression analysis was carried out, to ascertain the ecosystem components which differentiate the ideal ecosystem from the prevailing two ecosystems. The analysis revealed that ER, MR, SC and EI accounted for the overall gap between the ideal ecosystem and the two prevailing ecosystems. That is, education and research institutions, market, supportive culture and effective interactions are lacking in the prevailing ecosystems compared to the ideal ecosystem, as defined by the Delphi experts. Given the above, efforts to fill the ecosystem gap must focus on promoting the effective role of education and research institutions, size of markets, cultural support, and level of interactions, to promote the growth and maturity of two ecosystems. Future policy interventions must aim at addressing these gaps, for the promotion of start-up ecosystems in Bangalore and Hyderabad.

Chapter 8 Summary and conclusions 8.1 Backdrop Technology start-ups are often considered an important source of innovation, productivity growth and employment. They nurture innovations because they can be the source as well as the outcome of innovations. Often, they generate new knowledge intensive products and services. As a result, they have the potential to accelerate the rate of structural change of an economy. Overall, they can make a decisive difference to an economy in terms of their contributions to GDP, employment and exports. However, the rate of emergence as well as survival and success of tech start-ups would largely depend on the strength and vibrancy of an entrepreneurial ecosystem. Fast growing tech start-ups tend to improve their chances of survival and success when inserted in an entrepreneurial ecosystem that encourages business development and innovation. Therefore, fostering of entrepreneurial ecosystems is seen as a potential economic policy issue for increasing regional prosperity and economic growth. The transition towards the start-up ecosystem based economic growth is considered a fundamental systemic change that is recognized and performed well only in a few locations, particularly Silicon Valley and Israel. However, of late, new start-up ecosystems have started emerging globally, while the older ones are attaining maturity. In the global start-up landscape, India is recognized as one of the potential sources of tech start-ups, and it is currently ranked third globally, both in terms of number of start-ups and successful start-up exits. Within India, Bangalore has been considered “one of the global hotspots” for tech start-ups whereas Hyderabad has been considered one of the “fast emerging tech start-up hubs” in India. The rate at which a region can generate tech start-ups and the rate at which these generated start-ups can survive and succeed would depend on the strength and maturity of an entrepreneurial ecosystem, which would vary from one region to another even within a nation, due to differences in regional policy, local culture, concentration of firms, educational institutions determining the availability and quality of human resources, size of markets, and financiers, among others. Of course, national policy initiatives for nurturing tech start-ups in India, and regional policy initiatives in Bangalore and Hyderabad have emerged only recently, subsequent to the rapid growth of tech start-ups leading to a visible emergence of tech start-up hubs across the country, in the last one decade or so.

https://doi.org/10.1515/9783110679359-008

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Chapter 8 Summary and conclusions

It is against this backdrop that the present study has attempted to ascertain and comprehend the entrepreneurial ecosystems of Bangalore in Karnataka state and of Hyderabad in Telangana state, with the following objectives: – To ascertain and validate the components of an ideal ecosystem for technology start-ups in the Indian context, – To perform an in-depth synthesis of the existing ecosystem for technology start-ups in Bangalore and Hyderabad, the two most promising start-up hubs in India, and – To make an assessment of the gap between the ideal and the existing ecosystems, and come out with recommendations for creating an ideal ecosystem for tech start-up promotion in the country. To achieve these objectives, we have surveyed empirical literature, on the one hand, and thereby interacted with the “identified entrepreneurial ecosystem stakeholders” in both Bangalore and Hyderabad, on the other. While the literature survey primarily covered published journal research papers and research reports of national and international organizations, Delphi technique was used as the methodology for stage-wise interactions with the stakeholders in Bangalore and Hyderabad ecosystems.

8.2 Entrepreneurial ecosystem: Global trends Technology entrepreneurship forms the base for tech start-ups. A tech start-up invariably is innovation driven, and therefore, a product/service emerging from such a startup will have technology content in it. Given this, a tech start-up is one which has neither a pre-defined product nor a pre-defined market, at the outset. For the purpose of this study, by adopting the EU and the US DOL definitions, we mapped to identify a sub set of industry types that can be classified as technology industries and services. Accordingly, we defined tech start-ups as those start-ups which emerge in identified technology manufacturing industries (NIC Industry codes 21, 26 and 30.3) and technology service industries (NIC codes 59 to 63 and 72) in India. An entrepreneurial ecosystem is defined to comprise (i) entrepreneurs and sources of entrepreneurship, (ii) Investors or financiers, (iii) government policy, (iv) private support agencies, (v) education and research institutions, (vi) large firms, (vii) service providers and (viii) culture. The increasing significance of entrepreneurial ecosystem for tech start-ups is attributed to the fact that they are started on a small scale with limited resources, and therefore they are vulnerable from the very beginning of their entrepreneurial venture birth or even before. This is reflected in a high failure rate of tech start-ups relative to established firms. Start-ups depend on the local environment for their critical resource needs and if these needs are adequately met locally, they have a high probability of survival and success. There is empirical evidence to show that supportive entrepreneurial ecosystem has a positive impact on start-up fertility,

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117

stability and growth. Therefore, today, the frontline economies of the world are focusing more and more on how to promote and strengthen start-up ecosystems. There is no single unique entrepreneurial ecosystem to emulate in the global economy, though quite often reference is made to Silicon Valley and Israel. These two ecosystems are not identical but distinctly different from each other. However, both contain some common components which encourage the blossoming of entrepreneurial activity in their respective regions. Empirical studies, mostly conducted in the 2010s with respect to different entrepreneurial ecosystems in the world, have identified 12 key elements with respect to their role and importance in an entrepreneurial ecosystem for nurturing tech start-ups. A description on each of these elements is in order. First and foremost, entrepreneurship and sources of entrepreneurship form the core of the ecosystem, for birth, survival, growth and exit of start-ups. Secondly, existence of a market for tech start-ups is essential, which would include early adopters of start-up products/services, repeatable customers, customer networks, and MNCs. Thirdly, the availability of finance in the form of risk capital at different stages of start-up lifecycle is crucial. Availability of Seed funds, Angels, Venture Capital, Private Equities, debt instruments and public capital markets for Initial Public Offerings (IPOs) is essential. Fourthly, human resources in the form of technical personnel, managerial talent, and miscellaneous labour force form another element. Fifthly, education and research institutions which generate graduate and non-graduate workforce, technical and managerial talent, entrepreneurial training and technological innovations for institute-industry technology transfer are another vital element. Sixthly, government has an indispensable role to play in the ecosystem in the form of laws and regulations for new ventures and labour, fiscal and financial incentives, venture capital, property rights, exits and promotion of public research institutions. Seventhly, large companies, particularly MNCs form an important element in the ecosystem as they play multiple roles: they can be the customers for tech start-ups, sources of start-up entrepreneurship, promote tech start-ups through their own Accelerators, sources of technical and managerial workforce, financiers, technology providers, and finally, can be the acquirers of these start-ups. Eighthly, Mentors, both business and technology, occupy an important role in the ecosystem, as they guide and mentor the creation of start-ups, ensure their survival, stability, success, growth and finally guide their exits. Thus, they play an important role throughout the lifecycle of start-ups. Ninthly, support institutions in the form of Accelerators, Business Incubators, Co-working spaces, soft infrastructure in the form of professionals, namely, lawyers and accountants, and hard infrastructure in the form of telecommunications, transportation, and logistics form another essential component of the ecosystem. Tenthly, prevailing local culture has a profound influence on tech start-ups. Local culture has to be supportive in the form of risk tolerance, appreciation of failures as a stepping stone for success,

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support for innovation, creativity, drive and hunger for achievements, respect for risk taking and wealth creation. Next, media has a crucial role to play in influencing local talent for tech entrepreneurship. The media can publicize start-up creations, its pre-requisites, support system available, its unique offerings, learnings out of failures, and achievements of success. Periodic reporting of these items can add vibrancy to the ecosystem. Finally, immigration of talent can boost sources of entrepreneurship, human resources, mentors, financiers, support networks, etc. All these elements together form the entrepreneurial ecosystem for tech start-ups, and their availability, quality, and interactions together would decisively determine the level of maturity and vibrancy of an ecosystem. While empirical studies have examined and identified a broad list of elements in an entrepreneurial ecosystem, not many of them has looked at the interrelationships between the identified elements, and their relative importance. Further, there is hardly any study which has explored the evolution of entrepreneurial ecosystems. It is based on the identification of these research gaps, apart from the identification of broad ecosystem elements, that this study has been conducted with respect to the evolution, structure and components of ecosystems of Bangalore and Hyderabad, the role that these components play in different stages of the lifecycle of tech start-ups, and ascertain the gap that these ecosystems have relative to an ideal ecosystem feasible in the Indian context.

8.3 Entrepreneurial ecosystem – Method of empirical investigation and results 8.3.1 Empirical methodology To interact with the stakeholders of entrepreneurial ecosystem, to understand and define an ideal ecosystem, to explore the evolution, structure and components of currently prevailing ecosystems in Bangalore and Hyderabad, and finally to ascertain and estimate the gap between the ideal and the prevailing ecosystems, we adopted Delphi methodology. Accordingly, we identified 51 Delphi experts in Bangalore and 38 Delphi experts in Hyderabad, covering the various ecosystem elements identified from the literature, to interact with them in four sequential stages. In the first round, we interacted with an open-ended questionnaire with these 51 Delphi experts in Bangalore and 38 Delphi experts in Hyderabad. Based on the summary of first-round discussions, we devised a structured questionnaire (containing 108 ecosystem related questions) for the second round of interactions and sent to each Delphi expert (through e-mail) in both the cities. The number of Delphi experts who responded positively by returning the completely filled-out questionnaire was 51 in Bangalore but the number decreased to 30 in

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Hyderabad. At this stage itself, we found convergence occurring for a larger part of the questionnaire: consensus was achieved for about 60% of the questions in Bangalore and 57% of the questions in Hyderabad. With a revised questionnaire (which included the summary responses for all the questions obtained in the second round), we approached all the 51 experts in Bangalore (with 43 questions) and 30 experts in Hyderabad (with 46 questions) (through e-mails) requesting them to reconsider their responses, based on the summary responses posed, to enable convergence for those questions for which convergence was not achieved in the second round. Only 44 experts in Bangalore and 22 experts in Hyderabad responded. The degree of convergence improved from about 60% to about 75% in Bangalore and from about 57% to about 69%. Thus, the degree of convergence achieved was more in Bangalore compared to Hyderabad. The literature survey and the consensus achieved at the end of second and third rounds of interactions with the Delphi experts formed the basis for understanding and analysing (i) an ideal ecosystem structure, its components and its role in different stages of start-up lifecycle, (ii) evolution of ecosystems as it occurred over a period of time in Bangalore and Hyderabad, and (iii) prevailing ecosystem structure, its components and its role in different stages of start-up lifecycle in Bangalore and Hyderabad. Our final task was to ascertain the gap between what is ideal and what is prevailing in the two ecosystems, and identify the components responsible for the gap. Therefore, we devised a new common questionnaire for the fourth and the final round of interactions. Only 34 experts in Bangalore and 14 experts in Hyderabad responded. These responses formed the basis for carrying out the gap analysis. We conducted t tests and ANOVA followed by Tukey’s HSD test to ascertain the gap between the ideal and the prevailing ecosystems as well as between the two ecosystems of Bangalore and Hyderabad. Finally, we carried out stepwise (backward elimination) logistic regression analysis to find out the ecosystem components responsible for the gap.

8.3.2 Empirical analysis results There are nine core issues related to an ideal ecosystem for tech start-ups, namely, (i) sources of entrepreneurship, (ii) finance, (iii) market, (iv) human resources, (v) support structure, (vi) mentorship, (vii) policy, (viii) culture, and (ix) media. These core issues are either generated directly or promoted indirectly by four key elements/components, namely, (a) large firms (both domestic and MNCs), (b) education and research institutions, (c) regional and national governments, and (d) tech start-ups operating in different stages of their lifecycle. These four supportive elements/components broadly fall under the Triple Helix Model consisting of Industry-Academia-Government. Thus, the

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Triple Helix Model forms the foundation for an entrepreneurial ecosystem for tech start-ups. It is the triple-helix interaction involving personnel circulation, information circulation and product circulation which generates/promotes an entrepreneurial ecosystem. Such an ecosystem structure comprises tech start-ups and prospective tech start-ups as the nucleus with two outer layers. The first outer layer comprises indispensable (primary) components: (i) Sources of finance such as Seed Funds, Angel Investors, Venture Capitalists, Private Equities and Investment Bankers, (ii) Market, (iii) Human Resources, (iv) Support system comprising Accelerators, Business Incubators and Co-working Spaces, and common facility centres or common technology platforms/laboratories, and (v) Business and Technology Mentors. The second and outer most layer comprises supplementary (secondary) components such as (i) supportive local culture, and (ii) supportive media. Primary components are those without which an ecosystem will not come into being or sustain or be effective, whereas secondary components are those which play only a supportive role. The role of primary components begins in the pre-emergence to emergence stage, proceeds to the setting up and operations stage, and culminates in the success and expansion stage leading to the start-up growth into a medium or large company or exit in the form of merger and acquisition by another firm. Thus, each identified component plays, directly or indirectly, multiple roles in the (i) preemergence to emergence, (ii) emergence to survival and stability, (iii) stability to expansion and growth – stages of lifecycle of tech start-ups. The adequacy, quality and interactions between the nine ecosystem components ensure its vibrancy and maturity in a dynamic economic environment. The evolution of entrepreneurial ecosystem in both Bangalore and Hyderabad can be broadly identified under three different phases over a period of time, since 1947 till late 2000s. In the first phase, both the cities witnessed the emergence of “Triple Helix” comprising university-industry-government and their interactions leading to the growth of a modern manufacturing industry cluster, during late1940s to mid-1980s. In the Triple-Helix model, the State (national government) played a dominant role, driving industry and academia for national/regional development, resembling what Etzkowitz and Leydesdorff have proposed as a ‘statist’ model (2000). This marked the first phase in the evolution of an entrepreneurial ecosystem in both the cities. The transition from the first phase to the second phase characterized by the growth of IT/BT industries cluster occurred rather smoothly and spontaneously since the mid-1980s till mid-1990s in Bangalore. Liberalization of State control, and positive response from the Industry (particularly MNCs) led to the growing importance and role of both industry and academia. Thus, in the Triple-Helix model, all the three partners, namely, State, Academia and Industry seemed to emerge equally important resembling a ‘laissez-faire’ model proposed by

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Etzkowitz and Leydesdorff (2000). The role of industry shifted increasingly from CPSUs to MNCs and domestic IT firms. But, in Hyderabad, the transition from the first phase to the second phase was neither smooth nor spontaneous. It was the explicit initiative taken by the State (regional government) since the late 1990s for the transformation of the city towards the creation of a knowledge society and the positive response from the IT MNCs duly supported by domestic IT firms, which led to the emergence and growth of an IT cluster in the subsequent decade. Further, unlike Bangalore, Hyderabad had experienced an early growth of pharmaceutical industries and a higher concentration of BT industries, in 1980s as well as 1990s prior to the emergence and growth of IT industries. The State (regional government instead of national government) continued to be the dominant partner with industry and academia playing supportive roles, implying that the ‘statist model’ continued to be relevant for Hyderabad even in the second phase. However, the role of industry shifted from CPSUs to MNCs and domestic private firms, and the role of academia got strengthened with the augmentation of private sector academic institutions. The further transition from the second phase to the third phase, again, took place smoothly and spontaneously since the late-1990s in Bangalore, with more and more MNCs locating their R&D affiliates in the city. This, supplemented by the already established public funded R&D institutions, facilitated the emergence of a R&D affiliates’ cluster. This led to increasing interactions through partnerships and networking initiatives between MNC R&D affiliates and IT industry development centres, academia and government agencies. As a result of all this, Bangalore may be considered to be in the process of witnessing, what Etzkowitz and Leydesdorff (2000) have proposed, a ‘balanced’ Triple-Helix model. Though Hyderabad, similar to Bangalore, started to attract MNCs to locate their R&D affiliates, it is still in the process of catching up with Bangalore as a R&D centres’ cluster. Given this, Hyderabad might take some more time to witness a ‘balanced’ Triple-Helix model. It is the “Triple-Helix” of university-industry-government interactions which generates knowledge and innovations leading to the emergence of technology-based start-ups and other ecosystem components. Both Bangalore and Hyderabad have witnessed the emergence of these components in varying degrees, from the Triple-Helix interactions. Given this, it is appropriate to understand the structure and role of entrepreneurial ecosystems in the two tech start-up hubs. The structure of an ideal ecosystem defined in the Indian context holds good for both Bangalore and Hyderabad. The triple helix model consisting of industryuniversity-government and its interactions formed the base for the entrepreneurial ecosystems in both the cities. Within this, the entrepreneurship for tech start-ups forms the nucleus of an entrepreneurial ecosystem, since every other component or stakeholder in the ecosystem is driven towards the creation and success of entrepreneurship for tech start-ups and the whole ecosystem, in turn, is driven by entrepreneurship.

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Thus, both the ecosystems are defined in terms of a nucleus comprising tech start-up entrepreneurs and prospective entrepreneurs, surrounded by two outer layers. The first outer layer comprises five primary components such as, sources of finance such as seed funders, angel investors, venture capitalists and private equities, markets, human resources, technology and business mentors, and support system consisting of accelerators, business incubators and co-working spaces plus common facility centres or common technology platforms/laboratories. The second layer comprises two supplementary components such as supportive local culture and supportive media. In addition, weather occupies an important supportive role in the ecosystem in Bangalore. This broadly defines the structure of the entrepreneurial ecosystem and its components, as it currently prevails in the two cities. Each identified component plays, directly or indirectly, multiple roles in varying forms in three different lifecycle stages of tech start-ups, namely, (i) preemergence to emergence, (ii) emergence to survival and stability, and (iii) stability to success and growth. The adequacy, quality and interactions between the ecosystem components ensure its vibrancy in both Bangalore and Hyderabad, though the former appears to have a lead against the latter. However, the vibrancy of both the ecosystems is largely confined to the first two stages of lifecycle of tech start-ups and with respect to the third stage of expansion and growth it is only mildly vibrant in Bangalore but yet to emerge in Hyderabad. Given this, both the ecosystems are only moderately matured and may take, at least, a decade more to attain maturity. With the above understanding, we explored and analysed the gap between the ideal ecosystem and the prevailing ecosystems of Bangalore and Hyderabad. It is appropriate to note that the ideal ecosystems as identified by the Delhi experts in both Bangalore and Hyderabad are found to be largely similar implying that the Delphi experts of both the ecosystems have converged in identifying the importance and adequacy of ecosystem components for a vibrant entrepreneurial ecosystem in the Indian context. But there exists a gap between what is considered ideal in the Indian context and what is currently prevailing in the two start-up hubs, as revealed by ANOVA and Tukey’s HSD (post-hoc) test. An exploration of the factors which contribute to the existence of gaps by means of stepwise (backward elimination) logistic regression analysis revealed that education and research institutions (ER), market (MR), supportive culture (SC) and effective interactions (EI) accounted for the overall gap between the ideal ecosystem and the two prevailing ecosystems.

8.4 Inferences and conclusions Entrepreneurial ecosystems in Bangalore and Hyderabad have been evolving over a decade or so since early 2000s, the base for which was started forming immediately after India’s independence, thanks to public policy initiatives followed by positive responses from industry and academia. It is the triple-helix model comprising

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government-industry-academia which laid the foundation in the form of three distinct clusters in a sequence, namely, (i) Modern industrial cluster, (ii) IT/BT industries clusters, and (iii) R&D affiliates cluster. These three clusters ensured the spring up of all ecosystem components gradually and steadily. The ideal ecosystem structure in the Indian context, which has been ascertained from the Delphi experts in both the start-up hubs, has proved valid with respect to both Bangalore and Hyderabad. All the identified ecosystem components have found to be existing in varying degrees in both the currently prevailing ecosystems, and they do interact with one another for the benefit of tech start-ups. These components play a facilitating role in different stages of lifecycle of tech start-ups in both the ecosystems. The support system ensures that a prospective entrepreneur is able to get access to many of these components as a package or at one place. The active virtual as well as real “social networks” further strengthen the efficacy of ecosystems. This enables a steady emergence and sustenance of a growing number of tech start-ups, resulting in a growing number of “Cockroaches”. However, what is not yet visibly emerging is the success and accelerated growth of tech start-ups (in the form of “Unicorns”) leading to their IPO or M&A by large firms. Therefore, today though the entrepreneurial ecosystems of both Bangalore and Hyderabad can be considered vibrant, the vibrancy is largely confined to the first two stages of start-up lifecycle. Broadly, ecosystem for start-ups is understood to progress through four different stages of evolution: (i) Nascent, (ii) Evolving, (iii) Mature, and (iv) Self-sustainable (Cukier, et al., 2016). Considering that the vibrancy of Bangalore and Hyderabad entrepreneurial ecosystems are largely confined to the first two of the three stages of start-up lifecycle, it is appropriate to conclude that both the ecosystems for tech start-ups are still “evolving” and therefore, can be classified as “moderately matured”. As observed earlier, the gradual and steady scaling up of a large number of tech start-ups (in the third stage), induced by their success and growth (in the second stage) in the form of “transformation of Cockroaches into Unicorns” is yet to take place in a big and visible way. This is precisely reflected in as well as attributed to the ecosystem gap ascertained with respect to both the start-up hubs. The ecosystem gap caused by markets and interactions is a reflection of or a responsible factor for the lack of vibrancy in the third stage. At the same time, this can be attributed to inadequate role played by education and research institutions as well as lack of supportive culture prevailing in the ecosystem.

8.5 Policy recommendations This calls for “gap-filling initiatives” from both government and industry. However, the reason for the existence of ecosystem gaps might be due to the fact that both

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Bangalore and Hyderabad ecosystems are relatively young, as both are utmost about a decade old, if not less. For that matter, tech start-ups and their ecosystems started attracting the attention of empirical researchers and policy makers globally only in the early part of the previous decade. In India, policy makers (national as well as regional) have introduced start-up promotion initiatives only recently, and it would take more time to make an impact on the ecosystems for tech start-up growth. Perhaps, it is due to this factor that Delphi experts in both the start-up hubs have largely converged to state that it would take about 10 years for the two ecosystems to mature. At the same time, the recent policy initiatives for promoting start-up ecosystems introduced by the national and two (Karnataka and Telangana) state governments are of significance in this regard. The Government of India through the InterMinisterial Committee for MSMEs (Ministry of MSMEs, 2013) and an exclusive Startup India Action Plan (Department of Industrial Policy and Promotion, 2016) has proposed several policy initiatives to promote start-up ecosystems, with a focus on (i) strengthening the sources of finance in terms of angel investors, early stage venture capital, public funding of early stage venture capital, (ii) creation of India Inclusive Innovation Fund, (iii) promoting TBIs through premier engineering education institutions in the Public and Private sectors, (iv) fiscal concessions through tax holidays for the initial three years, (v) promotion of Industry-Academia partnerships, and (vi) easing of business regulations for the creation and operation of start-ups. The two state government policies for start-up promotion are very much in line with the national policies. The effectiveness with which these public policies will be implemented and the degree of response that private (market) forces will provide to complement, will largely determine the speed at which the two ecosystems will develop towards maturity in the future. However, we would like to make some specific policy recommendations, keeping in view the ecosystem components (ER, MR, SC and EI) which are found to be lacking and responsible for the gap between the ideal ecosystem and the prevailing ecosystems in Bangalore and Hyderabad. (i) Education and research institutions Education and Research Institutions (ERIs) can play multiple roles in an entrepreneurial ecosystem such as (i) generation of entrepreneurship for tech start-ups, (ii) setting up and promotion of incubation centres for nurturing tech entrepreneurship, (iii) provision of human resources for the stability and success of tech startups, (iv) seed capital for encouraging emergence and early stage operations of tech start-ups, (v) early market support in the form of early product adopters of tech start-ups in niche areas, and (vi) techno-business mentorship through their faculty. However, there is hardly any higher education/research institution in Bangalore or Hyderabad, which has displayed all or majority of these features in their respective

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entrepreneurial ecosystems, for nurturing tech start-ups. This could be largely attributed to under-exploited industry-institute interactions in India including the two entrepreneurial ecosystems. This is why, education and research institutions account for the gap between the ideal and the prevailing two ecosystems. To overcome this gap, we make the following policy recommendations: – Industry-based summer internships (to the extent of three months in the initial year/s and the entire final semester up to six months) to be made mandatory for all engineering, management and science graduate as well as postgraduate degree students. Ideas generated out of such internships be funded by a special grant (created through collaborative efforts involving academic institutes, industry associations, and the regional government) for developing a Proof of Concept and prototype development. A ‘subsistence allowance’ for about two years may be given to those prospective entrepreneurs who attempt at tech start-up creation, right from graduation/post-graduation. – Faculty members who interact with industry for generating (i) projects, (ii) practice-oriented papers, and (iii) patents must be given equal weightage as much as those faculty members who publish research papers through theoretical contributions, in their evaluations for a promotion. – Explicit emphasis should be laid on “commercialization of innovations and technology transfer” from lab to industry through appropriate academic incentives, for both students and faculty. – To facilitate the above, every higher education and research institution must be encouraged to “periodically” conduct “structured networking events” to bring together students with entrepreneurial enthusiasm, faculty who generate patents, financiers involving angels, VCs and PEs, MNCs (domestic and foreign), external technology and business mentors, external TBIs/Accelerators/Co-working spaces, prospective and operational tech start-up owners, print and electronic media representatives, and policy makers on a common platform. The innovation achievements of the institution must be show-cased in such events for wide publicity and “appropriate marketing”. (ii) Market The size of the market is still evolving for tech start-ups in both Bangalore and Hyderabad, as analysed and inferred earlier. That is why, the vibrancy of the ecosystems is largely visible with respect to the first two stages of lifecycle of tech start-ups, namely, stage of emergence and stage of survival and stability, whereas stage of success and growth is yet to emerge in a big and visible way. Given this, we propose the following recommendations: – A greater initiative must emerge from the national and regional governments to facilitate tech start-up marketing. In any economy, particularly in developing economies, government, in the form of public procurement, is the largest consumer of goods and services. It is imperative to provide a “level playing field”

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to tech start-ups vis-a-vis the experienced entrepreneurs/companies in public procurement. Typically, whenever a tender is floated by a Government organization or by a PSU, the eligibility condition specifies either “prior experience” or “prior turnover”. Such a stipulation prohibits/impedes Start-ups from participating in such tenders. The Start-up India Action Plan 2016 has proposed to exempt Start-ups (in the manufacturing sector) from the criteria of “prior experience/turnover” without any relaxation in quality standards or technical parameters. The Start-ups must demonstrate requisite capability to execute the project as per the requirements and should have their own manufacturing facility in India. Further, the policy initiatives should comprise the following dimensions: – Opportunities be given to tech start-ups based on (i) merit of the solution offered, and a venture’s ability to execute, (ii) opportunity which is time bound, in terms of end result and payments, (iii) opportunity distribution should not be based on years of existence, funding a company had, and its tie ups with other large companies for infrastructure, – Incentivize large and medium enterprises for giving market opportunities to tech start-ups in terms of (i) pilot opportunities, (ii) market inputs with solution refinement, (iii) adoption by the companies, and (iv) joint Go-ToMarket opportunities, – Incentivize government and private organizations in breaking up the large solution into modular components, so that (i) tech start-ups that are great in each area can contribute that piece, (ii) behemoths are avoided, and (iii) they share their problem statements and ideations for research and startup collaboration, – Incentivize Open Source Technology base, so that (i) future is not dominated by one private player, (ii) the rest of the talented young Indians can contribute and develop that technology and create competitive differentiation for India and possibly, for the rest of the world, – Incentivize tech start-ups that trigger multiple start-ups and SMEs. This policy must be implemented as early as possible. This will provide the muchneeded marketing boost for tech start-ups not only for their emergence but also for their stability and sustenance, as well as for success and growth. – At the higher education institute level, the earlier proposed periodical “structured networking events” for all the start-up ecosystem components on a common platform, would help in obtaining early product adopters, as well as for achieving sustenance and stability, leading to an early success and growth of tech start-ups. – Each state should develop a “tech start-up portal” for showcasing the tech start-ups which have emerged, survived and achieved stability for further

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penetration of markets, national and international, for success through an accelerated growth. – An exclusive emphasis should be laid on promoting inter-firm relationships through “PSUs/MNCs-Start-up linkages”, for facilitating the market expansion of the latter. Industry associations such as India Electronic and Semiconductor Association (IESA), NASSCOM, Manufacturers Association of Information Technology (MAIT), The Indus Entrepreneurs (TiE) chapters must be involved in linking PSUs/MNCs with tech start-ups. (iii) Culture Indian culture is largely averse to uncertainty and risk-taking. The society as a whole is largely reflected in the “middle-class values” of obtaining a secured job at the earliest, and achieve career progression over a period of time. This is observed in the higher education and research institutions where peer pressure for placement in secure jobs with predictable monthly incomes is still a social force preventing many Indians from pursuing the entrepreneurial path. For Indian students, the concern of re-paying student loans (as majority of them is from middle or lower middle-class families) is particularly pertinent and, more often than not, lead to conventional career choices in a job market which is challenged by increasing redundancy of jobs due to technological advances. The tolerance of failure is still low in Indian society (Danish Agency for Science, Technology and Innovation, 2016). However, due to incessant migration to cities by educated youths (with either work experience or venture creation/funding experience with higher technical and/or managerial qualifications, mostly from abroad) is slowly and steadily changing the cultural aversion towards entrepreneurship. To fasten the process of “nurturing entrepreneurial culture”, there is a strong need for introducing entrepreneurship and start-up education at a much earlier stage in the education system to inculcate curiosity, creativity and innovation impetus in the students. Further, the “structured networking events”, described earlier, to bring all the ecosystem components on a common platform periodically, will also contribute positively to entrepreneurial generation from the education and research institutions, gradually and steadily. (iv) Interactions While various ecosystem components have emerged and are operating in both the start-up hubs, the level of interactions between these components may not be adequate enough to support the emergence, survival and stability, success and growth of tech start-ups. Though both the tech start-up hubs have emerged over a period of time, thanks to the foundation laid in the form of a modern industrial cluster, followed by an IT/BT cluster and a R&D centres’ cluster, the various components may not be interacting with one another as much as that would be required. The Triple Helix – Academia, Government and Industry – must forge an alliance to bring all

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the ecosystem components on a common platform not only in education and research institutions, but also in large companies including MNCs as well as in government organizations. This would enable “physical networking” leading to a steady increase in the level of interactions. The earlier proposed “tech start-up portal” must contain a database of not only start-ups but also (i) Financiers (comprising, seed funders, angel investors, high networth individuals, venture capitalists, private equities, investment funds, etc.) (ii) market providers (early product adopters, opportunities for national and international marketing, etc.), (iii) provision for registration of talented prospective employees, (iv) support system comprising Accelerators, Technology Business Incubators, Co-working spaces, prototype development centres, other service providers such as accountants, lawyers, registration requirements, etc.), (v) business and technology mentorship providers, (vi) electronic and print media journalists, who have an exclusive focus on start-ups, apart from a provision for registration of prospective entrepreneurs with a rough sketch of their ideas. This would facilitate “virtual networking” thereby encouraging higher levels of interactions. Further, it is imperative to ensure that ecosystem promotion initiatives elsewhere in the country through policy interventions by national and regional governments must focus on nurturing and promoting adequately the ideal ecosystem structure defined and the components identified in this study. This would accelerate the rate of emergence of tech start-ups, their stability and survival, leading to their success and growth, at the regional as well as national level.

8.6 Major contributions This research study has made four important research contributions to literature. These are described as follows: Firstly, the evolution of an entrepreneurial ecosystem in a technologically vibrant innovation cluster (Bangalore), which is comparable to a developed economy cluster as well as in a fast-emerging innovation cluster (Hyderabad) within an emerging economy (India) is historically explored and analysed. The critical factors which led to the laying of an ecosystem foundation gradually and steadily over a period of almost six decades in three different phases, along with other supportive factors are brought out. This brings out clearly that ecosystem development is an evolving process overtime. But it will neither evolve naturally nor can it be built by design. As argued by Isenberg (2011), they are usually the result of intelligent evolution (a process that blends the invisible hand of markets and deliberate helping hand of public policies). Secondly, the unique features and elements involved in the development of Bangalore and Hyderabad entrepreneurial ecosystems are revealed. An entrepreneurial ecosystem is unique as it is the result of hundreds of elements interacting in highly

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complex and idiosyncratic ways, as brought out by the present study. Therefore, it is neither desirable nor feasible to replicate Bangalore and Hyderabad even within India. What is important is to ascertain and understand the critical components of an entrepreneurial ecosystem, without which an ecosystem might not emerge, even if it emerges it may not survive, and even if it survives, it will not be effective or successful. Thirdly, the critical components of Bangalore and Hyderabad entrepreneurial ecosystems and their respective roles in nurturing tech start-ups over three stages of their lifecycle are discussed and analysed. An entrepreneurial ecosystem for tech start-ups comprises some core and indispensable components supported by some supplementary components within the triple-helix model comprising GovernmentIndustry-Academia. In such a system, start-up entrepreneurs and prospective startup entrepreneurs form the nucleus, financiers (in the form of seed funds/angels/ VCs/PEs), markets, human resources, support systems (in the form of accelerators/ business incubators/co-working spaces), business and technology mentors form the indispensable primary components. These primary components have to be supplemented adequately by secondary components such as supportive culture, and supportive media. This would ensure that there will be adequate vibrancy in the ecosystem for its further growth. Fourthly, the inadequacies existing in the two prevailing ecosystems, namely, Bangalore and Hyderabad of Indian economy are probed and analysed. The role played by education and research institutions, the size of markets, the kind of cultural support that exists, and the degree of interactions between the various ecosystem components are found to be inadequate and therefore are responsible for the gap between the two prevailing ecosystems on the one hand, and the ideal ecosystem, on the other.

8.7 Limitations and scope for future work The present study is confined to two of the entrepreneurial ecosystems for tech startups in India. Thus, it has left out other prominent ecosystems such as National Capital Region (NCR) – Delhi, Mumbai, Chennai, Pune, Ahmedabad and others. The results obtained from Bangalore and Hyderabad may not be generalizable in the larger country context, which is a major limitation of the study. If a country-wide understanding of the entrepreneurial ecosystem has to emerge, it is imperative to cover all the important ecosystems prevailing, at least, in the Tier-1 cities of the country. Further, several Tier-2 cities such as Mysore, Hubli, Mangalore, Coimbatore, Madurai, Trichy, Kochi, Visakhapatnam, Vijayawada, Jaipur, Lucknow, Bhopal, etc. may hold promise for promotion as the future ecosystems for tech start-up growth. But the present study has not examined and therefore not able to throw light on any of these Tier-II cities of the country. It will be appropriate to ascertain

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their potential for start-up growth and take adequate steps for their promotion at the earliest. The study has not covered failed entrepreneurs (but for one), failed financiers, personnel who exited from tech start-ups due to either start-up failure or due to other factors, and mentors who exited from their roles, etc. Had we covered these exited/failed stakeholders of entrepreneurial ecosystem for tech start-ups, we might have got a more comprehensive view of the limitations of an entrepreneurial ecosystem for tech start-ups. This is another limitation of the present study, which may be taken up for research exploration in the future. Finally, to further strengthen the frontline ecosystems of India such as Bangalore, NCR-Delhi, Mumbai, Hyderabad, Chennai, Pune, etc. it may be appropriate to conduct a comparative study with the globally reputed start-up ecosystems such as Silicon Valley and Israel. But the present study has not been able to bring out a comparative perspective of Bangalore and Hyderabad with that of Silicon Valley and Israel, due to non-availability of adequate data, which is another limitation of the present study. These issues may be considered for further research in the future.

List of figures Figure 1.1 Figure 2.1 Figure 2.2 Figure 3.1 Figure 3.2 Figure 4.1 Figure 4.2 Figure 4.3 Figure 5.1 Figure 5.2 Figure 6.1 Figure 6.2 Figure 6.3

Location of start-up hubs in India 15 Ecosystem for new generation start-ups in India 25 Competence bloc for the generation of start-ups 34 Research process of the study 38 Delphi technique implementation: Four rounds of interaction 41 Entrepreneurial ecosystem for tech start-ups – core issues and supportive components 61 Ideal entrepreneurial ecosystem for tech start-ups: Structure and components 64 Ecosystem components influencing lifecycle stages of tech start-ups 65 Phases in the evolution of entrepreneurial ecosystem for tech start-ups in Bangalore 74 Phases in the evolution of entrepreneurial ecosystem for tech start-ups in Hyderabad 79 Entrepreneurial ecosystem for tech start-ups in Bangalore: Structure and components 83 Entrepreneurial ecosystem for tech start-ups in Hyderabad: Structure and components 89 Ecosystem components in the nurturing of tech start-ups through their lifecycle: Bangalore and Hyderabad 94

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List of tables Table 1.1 Table 1.2 Table 1.3 Table 1.4 Table 1.5 Table 2.1 Table 2.2 Table 3.1

High-technology industries 4 List of NAICS codes for high-tech Industries 5 Classification of high technology manufacturing industries in India 7 Classification of high technology services in India 7 Sector-wise composition of tech and non-tech start-ups in India 13 Generic factors that shape entrepreneurial ecosystems 28 Components and their roles in an entrepreneurial ecosystem 31 Proposed composition of entrepreneurial ecosystem stakeholders for interactions: Bangalore/Hyderabad 43 Table 3.2 Actual composition of entrepreneurial ecosystem stakeholders in Bangalore: First round of interaction 44 Table 3.3 Actual composition of entrepreneurial ecosystem stakeholders in Hyderabad: First round of interaction 44 Table 3.4 Delphi round-4 questionnaire: Ecosystem domains and explanatory variables 50 Table 7.1 Ideal ecosystem and ecosystems of Bangalore and Hyderabad: Descriptive statistics 101 Table 7.2 Correlation coefficients between the variables 101 Table 7.3 Two-sample t test: Ideal (Bangalore) vs. Ideal (Hyderabad) 102 Table 7.4 Two-sample t test: Bangalore vs. Hyderabad 103 Table 7.5 Two-sample t test: Ideal (Bangalore) vs. Bangalore 104 Table 7.6 Two-sample t test: Ideal (Hyderabad) vs. Hyderabad 104 Table 7.7 One-way ANOVA results 105 Table 7.8 Tukey’s HSD test results 106 Table 7.9 Descriptive statistics of variables: Ideal vs. Real 109 Table 7.10 Correlation coefficients between the variables for ideal ecosystem 110 Table 7.11 Correlation coefficients between the variables for prevailing ecosystems of Bangalore and Hyderabad 111 Table 7.12 Stepwise (backward elimination) logistic regression analysis results 112

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Appendix 1 Open ended questions on start-up ecosystem – What is a tech start-up? – What are the characteristics of a tech start-up? – On the basis of sectoral classification – Type of products and services – Science, engineering, mathematics-based products and services – Entrepreneurial qualifications – What are the components of an ideal ecosystem for tech start-ups? – Entrepreneurs and sources of entrepreneurship – Investors or financiers, comprising Angel Investors (AIs), Private Equities (PEs), Venture Capital Funds (VCFs) – Government driven polices and institutions – Private support agencies in the form of incubators and/or accelerators, apart from mentors – Educational and research institutions – Large domestic/foreign companies, which can provide direct or indirect support to new ventures – Service providers of various kinds/common facilities or support services – Culture and related support system – Scope and size of the market – Supportive media – Which of these components are most important for an effective ecosystem? – Rank them in the order of importance – What determines the effectiveness of an ecosystem for tech start-ups? – Quality of components – Availability of components – Interaction among components

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Appendix 1

– Does Bangalore/Hyderabad have the best eco-system? – Why Bangalore/Hyderabad has emerged as the top city for tech start-ups in India? – What are the significant components of the ecosystem for tech start-ups in Bangalore/Hyderabad? – Which components are lacking or have weaker presence in Bangalore/ Hyderabad? – How do these components/elements interact with one another in the case of Bangalore/Hyderabad?

Appendix 2 Questionnaire for second-round and third-round interactions: A study of the ecosystem for tech start-ups in Bangalore and Hyderabad Section I: Profile of Delphi Experts – – – – – – – – –

Name: Qualifications (from graduation onwards): Current position: Affiliation: Work experience (in current position): Previous industry work experience (if relevant): Previous start-up founding experience (if relevant): Previous academic experience (if relevant): Originally from: (i) Bangalore/Hyderabad (ii) Karnataka/Telangana/AP (iii) South India (other than Karnataka/Telangana/AP) (iv) Rest of India (v) Abroad – Age:

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Appendix 2

Section II: Tech start-ups (Please tick (✓) appropriately)

Strongly agree It is important to distinguish between (i) Start-ups, (ii) Tech start-ups, and (iii) High-tech start-ups Tech start-ups are different from high-tech start-ups Tech start-ups merely use an established or already tested technology for business E-Commerce companies are not high-tech startups, as they are using already established technology and therefore, only tech start-ups High-tech start-ups are businesses emerged from or based on technologically innovated products or product based services High-tech start-ups have the following characteristics: –

They can come up in any sector in an economy

–

They would cover either products or productbased services

–

They are science or engineering based

–

Their founder qualification need not be tech degree based, but Top Management Team must comprise tech-degree qualification. But the founder must have a strong technology appreciation and competence for technology application to business

The entry barriers are higher for product start-ups relative to product-based service start-ups In any start-up ecosystem product-based service start-ups would account for a substantial majority in relation to pure product start-ups

Agree Does Disagree Strongly not disagree matter

Appendix 2

139

(continued) Strongly agree

Tech start-ups emerge from diverse sources of entrepreneurship such as (i) Educational institutions, (ii) Large Firms (MNCs/PSUs/Private Firms), (iii) TBIs/Accelerators/Co-Working Spaces, (iv) Start-ups, (v) R&D Organizations, (vi) NRI entrepreneurs or MNC employees In the start-up population, tech start-ups would form a larger share whereas high-tech start-ups would form a miniscule minority in any ecosystem for start-ups

Agree Does Disagree Strongly not disagree matter

140

Appendix 2

Section III: Components of ecosystem for tech start-ups (Please tick (✓) appropriately) Strongly agree Entrepreneurs and sources of entrepreneurship form the nucleus of ecosystem for tech start-ups Funding and finance available from seed funders/angel investors/VCs/PEs constitute an important pillar of ecosystem for tech start-ups Adequate availability of human capital/workforce (from higher education institutions) is an essential component of the ecosystem Accessible-local, regional or internationalmarkets (as early adopters of the products/ services of tech start-ups) is another vital pillar of the ecosystem for tech start-ups Support systems for nurturing and promoting tech start-ups comprising co-working spaces, accelerators, Technology Business Incubators are an important component of the ecosystem Mentors have a decisive role to play in the ecosystem Mentors are of two kinds: (i) Technology Mentors, (ii) Business Mentors A more crucial role of Technology Mentors (TMs) is up to development of a prototype of a product or service from an idea, but less thereafter The role of Business Mentors (BMs) is to mainly carry the prototype of a product or service to the market, for launching a start-up Both TMs and BMs play an equally crucial role in the survival and stability and success and growth stages of a tech start-up Large firms (either MNCs or domestic firms) are an indispensable component of the ecosystem for tech start-ups

Agree Does not matter

Disagree Strongly disagree

Appendix 2

141

(continued) Strongly agree

Large firms can be nurturers of start-up ideas in the pre-emergence stage Large firms can be early adopters of start-up products/services in the initial stage of operations Large firms can be acquirers of start-ups in the later stage of lifecycle Educational and Research Institutions are important pillars of ecosystem as they are sources of entrepreneurship and provide the much-needed human capital/workforce for emergence and growth of tech start-ups Government policy and regulatory framework are important pillars of ecosystem for tech start-ups, as they determine (i) ease of doing business, (ii) tax incentives, (iii) business friendly legislation/policies A clearly defined exit policy is important for promoting start-ups Common facility centres for testing product prototypes/designs or common lab facilities for testing, form another component of ecosystem Presence of strong IP regime is essential for start-up emergence and growth Presence of culture favourable to risk taking or experimenting of ideas, is very essential in the ecosystem for promotion of tech start-ups High quality and efficient urban infrastructure is an essential component of the ecosystem for tech start-ups Supportive media to diffuse information relating to ecosystem components, support activities and start-ups can play a crucial role It is essential to prioritize the components of ecosystem for tech start-ups in terms of their relative importance, for ecosystem nurturing

Agree Does not matter

Disagree Strongly disagree

142

Appendix 2

(continued) Strongly agree

It is enough if components are broadly prioritized based on their (i) primary importance and (ii) secondary importance, for ecosystem nurturing The effectiveness of an ecosystem for tech start-ups would depend on the availability of its components in adequate quantity The effectiveness of an ecosystem for tech start-ups would depend on the quality of its components The effectiveness of an ecosystem for tech start-ups would depend on the level of interaction between its components The availability of ecosystem components followed by the level of interactions between them would determine and enhance its quality, therefore (i) availability, (ii) interaction, and (iii) quality are the important determinants of ecosystem effectiveness for tech start-ups The ready availability of all components of an ecosystem for tech start-ups referred above, in adequate quantity, with high levels of interaction, and with high quality can be considered an ideal ecosystem An ecosystem which has all the components of an ideal ecosystem for tech start-ups as listed above can be considered highly matured A highly matured – ideal – ecosystem will be vibrant in all the three stages of a start-up lifecycle (i) Stage of emergence (where ideas are translated into prototype/product design, then to product testing and to launching start-up), (ii) Setting up of start-up and launching its operations (which would determine its survival and stability), and (iii) Success and growth (which would lead to its scaling up through VCs/PEs or going public or get acquired by large firms)

Agree Does not matter

Disagree Strongly disagree

Appendix 2

143

Section IV: Growth accelerators and challenges for tech start-ups: Pre-emergence stage (Please tick (✓) appropriately) Strongly agree Ensuring that idea of prospective start-up founder/s has a potential for translation into a viable business model is the biggest challenge Participating in various start-up promotion activities for making self-assessment is the first major step in start-up formulation/founding Participation in various start-up promotion activities is beneficial to prospective start-up founder/s as it facilitates their “net-working” within ecosystem Accessing Technology Mentors to seek guidance for translating an idea into a prototype development/business plan is the next major step Accessing Business Mentors for introducing the prototype as a product in the market or implementing a business plan as a start-up is the next major challenge Availing seed funds either by making use of past savings or from friends and relatives or external seed funders is equally crucial Co-working spaces, Accelerators and Incubators do address crucial needs of pre-emergence stage for prospective start-ups in an ideal ecosystem Accessing “early adopters” of start-up products/ services for “customer testing” is the final challenge faced by prospective start-up founder/s The support, direct or indirect, from large firms for nurturing start-ups can play a decisive role in the pre-emergence stage The support from the government as an “early adopter” of start-up products/services is essential in the pre-emergence stage

Agree Does not matter

Disagree Strongly disagree

144

Appendix 2

Section V: Growth accelerators and challenges for tech start-ups: Setting up and operations stage (Please tick (✓) appropriately) Strongly agree The roles of both technology and business mentors assume equal importance in the stage of start-up emergence, as they have to fine tune their products/services to meet customer expectations after start-up operations are set in motion The role of seed funders ceases and that of angel investors/VCs sets in In this stage, a start-up would start production and operations and start generating revenue, and go for Series A financing (from Angels/VCs) The role of “early adopters” (irrespective of whether they are large firms or the government) continues to be very relevant particularly at the beginning of this stage The role of higher education institutions is important as the supplier of talent for start-ups Co-working spaces, Accelerators and Incubators address crucial needs for start-ups in an ideal ecosystem A start-up has to register with Registrar of Companies at this stage Registration of a start-up can be done in either India or abroad Registration of start-ups in India is a tedious process and time consuming Registration abroad, particularly in a country like Singapore, is easy and is advantageous Market, funding and talent are three decisive accelerators of a start-up This is the stage in which survival and stability of a start-up is determined

Agree Does not matter

Disagree Strongly disagree

Appendix 2

145

Section VI: Growth accelerators and challenges for tech start-ups: Success and growth stage (Please tick (✓) appropriately) Strongly agree The role of Technology and Business Mentors subsides in this stage The stability and advancement of business of start-ups would lead to a higher valuation, enabling them to raise successive rounds of financing (Series B, Series C, etc.) from either VCs or Private Equity Funds This is the stage where start-ups register success and growth leading to their scaling up The scaling up of start-ups is generally done by repeated raising of resources from VCs/PEs followed by going public (IPO) The role of stock exchanges favourable to start-ups is crucial to promote successful start-ups to go public The alternative for scaling up is to scout for and realize acquisition by large firms (preferably, MNCs) Large firms (including MNCs) generally scout for start-ups which complement their businesses, for collaboration and subsequently for acquisition, in matured ecosystems The role of higher education institutions assumes more importance here as the supplier of talent for start-up growth and scaling-up The start-ups are “firmly on the saddle” with respect to (i) market, (ii) funding and (iii) talent, in this phase of their lifecycle The active vibrancy in terms of repeated success and growth of start-ups leading to their scalability would mark the complete maturity of the ecosystem for tech start-ups

Agree Does not matter

Disagree Strongly disagree

146

Appendix 2

Section VII: Ecosystem for tech start-ups in Bangalore/Hyderabad (Please tick (✓) appropriately) Strongly agree Bangalore/Hyderabad has the best ecosystem for tech start-ups in India Present status of ecosystem of Bangalore/Hyderabad is due to: –

Weather

–

Concentration of PSUs

–

Concentration of Higher Education Institutions and talent pool

–

Concentration of MNCs and tech workforce availability

–

Pro-active government policy, regulations and support

–

Presence of successful start-ups

–

Increased availability of funding (Seed funds, VCs, PEs, AIs)

–

Market accessibility

–

Cross-cultural migration of talent

–

Gradual but steady emergence of support system (Accelerators/TBIs, Co-working space, etc.)

–

Supportive culture

–

Effective media

The State Government is currently proactively in favour of start-ups There is adequate number of entrepreneurs and sources of entrepreneurship for start-ups in the city Availability of finance from seed funders, Angel Investors, VCs and PEs for different stages of emergence and growth of start-ups is adequate

Agree

Does not matter

Disagree

Strongly disagree

Appendix 2

147

Disagree

Strongly disagree

(continued) Strongly agree The market support – local as well as global – for start-ups in (i) preemergence, (ii) setting-up, and (iii) success and growth stages in the form of early as well as late adopters is adequate in the city The concentration of higher education institutions in the city is good enough to generate the much needed talent pool for the emergence and growth of start-ups There is an adequate number of Co-working spaces, Accelerators and TBIs operating in the city for the emergence and growth of start-ups The city has “high-quality” Technology Mentors as well as Business Mentors in adequate numbers The presence of large domestic/foreign companies in the city ensures availability of direct and indirect support to the emergence and growth of start-ups The city has a strong support system in the form of common design/prototype development centres and common lab facilities, as well as professional services The city has an adequate culture of encouraging “risk-taking and experimenting”, particularly among the youngsters High quality and efficient urban infrastructure is lacking in the city’s ecosystem for start-ups The media in the city is fully supportive and plays a constructive role for the promotion of start-ups

Agree

Does not matter

148

Appendix 2

(continued) Strongly agree

Agree

Does not matter

Disagree

Strongly disagree

The level of interaction between the components of ecosystem for start-ups in Bangalore/Hyderabad is adequate The level of interaction between the components of the ecosystem in Bangalore/Hyderabad would improve spontaneously over the period and no explicit interference is necessary Setting up a high-tech product start-up is much more challenging than initiating a tech product based service start-up In the current city start-up population, technology and product based service start-ups account for a substantial majority whereas high-tech and product start-ups account for a miniscule minority None of I stage I and II the three only stages stages only

All the three stages

The start-up ecosystem in Bangalore/ Hyderabad is vibrant with respect to THREE STAGES: (i) Pre-emergence stage, (ii) Survival and stability stage, (iii) Growth and success stage Fully

Highly

Moderately Less than Hardly moderately

 years

 years  years

Given the strength and availability of components of the ecosystem, Bangalore/Hyderabad ecosystem can be considered to be matured

Given the current status of maturity of the ecosystem in Bangalore/Hyderabad, it will be fully matured after

 years

 years

Appendix 3 Fourth-round Questionnaire: Ecosystem for Tech Start-ups – ideal/best possible in India and that prevails in Bangalore and Hyderabad – Given the current business and policy environment in our country, what is the best (ideal) ecosystem that you can think of, for technology-based start-ups in our country? What should it contain? How important can it be, in terms of contribution to the ecosystem for tech start-ups? – Given your response for the best (ideal) ecosystem, what is your response for the Bangalore/Hyderabad ecosystem for the same aspects (in terms of their presence and importance)? Entrepreneurs and sources of entrepreneurs Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Adequate number of start-ups in the Pre-Emergence stage Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Adequate number of start-up failures in the Pre-Emergence stage Ecosystem

Very Low Presence

Ideal (best) Bangalore/Hyderabad

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Low Moderate Presence Presence

High Very High Presence Presence

150

Appendix 3

Adequate number of start-ups in the Emergence Stage Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Adequate number of start-up failures in the Emergence Stage Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Adequate number of start-ups in the Survival and Stabilization Stage Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Adequate number of start-up failures in the Survival and Stabilization Stage Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Adequate number of start-ups in the Successful Stage Ecosystem

Ideal (best) Bangalore/Hyderabad

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Appendix 3

151

Adequate number of start-up failures in the Successful Stage Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Concentration of Large Firms (including MNCs, PSUs, and domestic private firms) (which will be the sources of start-up entrepreneurship, start-up personnel, start-up market support, start-up nurturing, and start-up acquisitions) Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Concentratifloaton of Higher Education and Research Institutions (which will be the sources of start-up entrepreneurship, start-up personnel, and possibly, start-up market support) Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Pro-active Government Policy (for industry and infrastructure) Ecosystem

Ideal (best) Bangalore/Hyderabad

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

152

Appendix 3

Availability of financial support for nurturing start-up ideas (Seed Funds) Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Availability of financial support for start-up emergence (Angel Investors) Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Availability of financial support for start-up survival and stability (VCs) Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Availability of financial support for start-up expansion and growth (VCs/Private Equities) Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Availability of market support (in the form of adequate presence of early product/service adopters) Ecosystem

Ideal (best) Bangalore/Hyderabad

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Appendix 3

153

Accessible market – local as well as global (for the emergence, stability, expansion and growth of start-ups) Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Availability of talented workforce (through cross-cultural migration, apart from locally concentrated educational and research institutions, large firms, and start-ups) Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Availability of Technology and Business Mentors Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Availability of support system (Accelerators/Co-working Spaces/Technology Business Incubators) Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

The presence of a strong common support system (design/prototype development centres and laboratory facilities, apart from professional services) Ecosystem

Ideal (best) Bangalore/Hyderabad

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

154

Appendix 3

Supportive culture for experimenting and risk taking Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Effective media for diffusing start-up ecosystem related information (among the stakeholders on a continuous basis) Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Favourable and conducive weather for entrepreneurship Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

Effective and adequate interactions (among stakeholders of start-up ecosystem when required) Ecosystem

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

Ideal (best) Bangalore/Hyderabad

High quality, adequate, reliable and efficient public infrastructure Ecosystem

Ideal (best) Bangalore/Hyderabad

Very Low Presence

Low Moderate Presence Presence

High Very High Presence Presence

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Index Acceleration 8 Accelerators 8, 10, 24, 25, 42, 54, 61, 63, 96 Accelerators, Business Incubators and Coworking Spaces 99, 120, 122 Ahmedabad 13, 129 Analysis of Variance (ANOVA) 48, 105, 114, 119, 122 Andhra Pradesh 78 Angel investors 8, 9, 24, 42, 52, 59, 63, 85, 97, 99, 120, 122, 128 Angels 52, 61, 85, 91, 117, 125, 129 Assocham 12, 13 Australia 26 Bangalore 2, 11, 12, 14–17, 38–40, 42, 43, 45–49, 51–53, 55–60, 68, 69, 71–73, 77, 78, 80–82, 84–88, 90–93, 95–103, 105, 107, 113–116, 118–125, 128–130 Bhopal 129 Boston 1 Boulder 24 Brazil 21 BT 68, 73, 76–78, 80, 82, 88, 90, 121 B2B 13, 54, 66 B2C 54 Business incubators 8, 63, 96 California 40, 95 Chennai 12, 129, 130 China 27 Climate 87 Cluster 78, 123 Cockroaches 97, 98, 100, 123 Coimbatore 129 Commercialization 5, 34, 54, 84, 114, 125 Competence bloc 34, 35 Components 67 Co-working Spaces 45, 54, 62, 63, 96 Culture 2, 7, 8, 20, 21, 26, 27, 29, 35, 50, 56, 61–63, 67, 77, 81, 87, 92, 99, 100, 107, 116, 117, 119, 120, 122, 127, 129 Customers 34 Data sources 37 Delhi 129

https://doi.org/10.1515/9783110679359-015

Delhi-NCR 12 Delphi experts 16, 45, 46, 52, 53, 55–60, 84–88, 90–92, 98, 100, 101, 103, 114, 118, 119, 123, 124 Delphi method 38, 40 Delphi technique 16, 40, 116 Department of Labor 6 Ecosystem 1, 7–8, 12, 15, 16, 19, 20, 23, 25, 26, 30, 34–36, 45, 47, 51, 52, 56, 58, 61, 63, 66, 84, 93, 96, 100–103, 105, 107, 113, 115–119, 122, 124, 125 Ecosystem gap 107 Education and Research Institutions 2, 8, 50, 52, 100, 107, 116, 119, 124, 125, 129 Emergence 48, 51–53, 55, 57, 63, 66, 77, 88, 90, 93, 95, 99, 100, 113, 115, 120, 122, 125 Employment 1, 36, 51, 77, 115 Entity 5 Entrepreneurial ecosystem 2, 14, 18, 19, 23, 26, 27, 34–40, 47, 48, 51–55, 63, 67, 68, 72, 73, 77, 78, 82, 88, 99, 100, 115–118, 120–123, 125 Entrepreneurs 7, 8, 23, 34–36, 42, 51, 93, 95 Entrepreneurship 1, 19, 20, 36, 52, 53, 61, 62, 66, 67, 81, 84, 90, 99, 116–119, 124 Entry 67 European Union 6 Evolving 98, 123 Exit 67 Expansion 66 Expansion and growth 99, 120, 122 Exploratory research 107 FDI 56, 71 Finance 7, 8, 20, 21, 23, 24, 26, 29, 35, 50, 52–54, 60–62, 66, 67, 81, 85, 90, 97, 99, 100, 107, 119 Financiers 7 Firms 8, 91, 98 Gap 36, 37, 39, 100, 101, 114, 116, 119, 122, 123, 125 Gap analysis 49 GDP 1, 36, 115

162

Index

Globalization 24 Government 7–8, 10, 12, 21–24, 26, 29, 42, 50, 56, 58, 62, 67, 70, 78, 80, 84, 100, 107, 119, 123, 128 Government organization 66 Government policy 2, 29, 72, 116 Growth 52, 55, 66, 88, 90, 117, 120

IT 68, 73, 76–78, 80, 82, 88, 90, 121 IT/BT 123, 127 Jaipur 13, 129 Japan 27 Karnataka 39, 43, 70, 72, 78, 84, 85, 96, 124 Kochi 129

High-tech 6 High technology 7 High technology services 7 High-tech start-up 25 Hubli 129 Human capital 8, 23, 24, 26, 35 Human resources 27, 29, 50, 53, 54, 59, 61–63, 66, 67, 81, 85, 86, 90–92, 97, 99, 100, 115, 118–120, 122, 129 Hyderabad 2, 11, 12, 14–17, 38–40, 42, 43, 45–49, 51–53, 55–60, 68, 73, 75–78, 80–82, 88, 91–93, 95–105, 107, 113–116, 118–125, 128–130

Large 91, 98 Large companies 23 Large enterprise 29, 35, 50, 54, 100 Large firms 24, 29, 52, 59–62, 66, 67, 90, 91, 107, 116, 119, 123 Legislation 20 Lifecycle 51, 52, 55, 60, 85, 92, 93, 96–100, 117, 119, 120, 122, 123, 125 Logistic regression 107 London 24 Lucknow 129

ICT 11, 12, 24 Ideal 2, 14, 15 Ideal ecosystem 15, 16, 37–40, 49, 51, 56, 57, 62, 63, 100–102, 105, 107, 112, 114, 116, 122, 123, 129 Ideal entrepreneurial ecosystem 52, 66, 67 IISc Bangalore 10 IIT 9, 10 Incubators 8–10, 24 Incubators/accelerators 26 India 6–7, 21, 39, 70, 77, 84, 87, 96, 115, 116, 124 Indian Institute of Science (IISc) 69, 70, 84 Industry 11, 123 Information and communication technologies 1 Initial Public Offerings (IPOs) 60, 66, 98, 117, 123 Innovation 1, 11, 34, 35, 51, 56, 115, 118, 125 Innovators 34, 35 Institution 7, 11, 21 Intellectual Property (IP) 5, 56, 67, 84, 88 Investors 13 IP regime 66 Israel 19, 21, 68, 115, 117, 130

Madurai 129 Mangalore 129 Manufacturing 1, 7, 78, 92 Manufacturing industries 88 Market 7, 8, 10, 20–21, 23, 26, 27, 29, 35, 50, 53, 54, 60–63, 67, 81, 84–86, 90, 91, 97, 99, 100, 107, 112, 115, 117, 119, 120, 122, 125, 128, 129 Media 26, 42, 50, 56, 61–63, 67, 81, 87, 88, 92, 93, 99, 100, 107, 112, 118–120, 122, 128, 129 Medium Enterprises Sector 9 Mentoring 8 Mentors 7, 8, 10, 13, 23, 24, 26, 27, 42, 55, 56, 59, 60, 62, 63, 66, 85, 87, 91, 92, 97, 99, 107, 113, 117, 118, 120, 122, 125, 129 Mentorship 30, 50, 61, 67, 81, 84, 95, 100, 119, 124, 128 Methodology 37, 38 Micro Enterprises Sector 9 MIT 80 MNC 25, 45, 55, 56, 60, 61, 66, 67, 70–71, 73, 77, 78, 80, 82, 84–87, 90–92, 95–97, 117, 119–121, 125, 127, 128 Mumbai 12, 129, 130

Index

Mysore 129 Nascent 98, 123 NASSCOM 12, 25, 96, 127 National Industrial Classification (NIC) 6, 116 NCR-Delhi 130 Network 20, 26, 27, 29, 117, 123 New ventures 8, 34, 42 NIT 9 OECD 18 Operations 67 Organization 7, 8, 20 Pakistan 30 Patent 6, 10 Policies 10 Policy 7–9, 11, 12, 20, 26, 35, 56, 61, 66, 67, 70, 81, 119, 124 Private Equities (PEs) 8, 13, 20, 24, 42, 52, 55, 57, 63, 66, 85, 86, 91, 98, 99, 117, 120, 122, 125, 128, 129 Productivity 51, 115 Pune 13, 77, 129, 130 RAND Corporation 40 R&D 6, 11, 35, 70, 71, 73, 75, 77, 78, 82, 85, 95, 127 R&D affiliates 80–82, 88, 121, 123 R&D centres 90 R&D institutions 25, 80, 84, 88, 91 Research gaps 37 Research institutions 27 Research objectives 37, 38 Research organizations 8 Role 36, 82 Scalable business 3 Scale up 3 Scaling up 57, 86 Scope 37, 38 Self-sustainable 98, 123 Seoul 27 Services 1 SIDBI 9 Silicon Valley (SV) 1, 19, 23, 39, 68, 71, 72, 95, 115, 117, 130

163

Singapore 8, 26, 59, 70, 96 Small businesses 2 Small Enterprises Sector 9 Small and Medium Enterprises (SMEs) 24, 25, 69, 73, 78, 88, 126 Small-Scale Industries (SSI) 69, 75 South Korea 27 Stability 51 Stage 57 Stage of emergence 57 Stage of success and growth 57 Stage of survival and stability 57 Stanford 23 Start-up 1, 7–14, 16, 18, 19, 21, 24–26, 30, 42, 48, 52, 53, 55, 59, 60, 66, 68, 85, 88, 90, 92, 93, 96–98, 107, 123, 126, 128 Start-up ecosystem 11, 21, 23, 25, 26, 47, 87, 117 Start-up hubs 47, 48, 123, 127 Structure 36, 48, 67, 82, 99 Success and accelerated growth 57 Success and growth 63, 93, 95, 125 Support networks 118 Support structure 61, 119 Support systems 100, 107, 129 Survival 51, 53, 55, 57, 115, 117 Survival and stability 63, 93, 95, 97, 99, 100, 113, 120, 122, 125 TBIs/Accelerators/Co-working spaces 125 Technology 1 Technology Business Incubators (TBIs) 9, 11, 25, 42, 45, 54, 55, 62, 84, 85, 88, 92, 113, 124 Technology entrepreneurship 2, 116 Technology start-up 3, 6, 12, 48, 53, 55 Technology venture 2 Tech start-up 8, 13, 14, 16, 37, 45, 51, 54, 56–60, 62, 63, 66–68, 78, 81, 82, 84–86, 88, 90–93, 95–100, 113, 115–120, 122–127 Telangana 43, 78, 96, 124 Telangana state 11, 39 T-Hub 11, 77, 90 Tokyo 27 Trichy 129 Triple Helix 73, 78, 81, 85, 91, 99, 107, 120, 121, 127

164

Index

Triple Helix Model 62, 67, 80–82, 88, 119–122 Tukey’s HSD 105, 114 Tukey’s HSD (post-hoc) test 122 Unicorns 97, 98, 100, 123 University 7, 8, 22, 24, 42, 84 USA 40, 95, 96 Venture Capital Funds (VCFs) 8, 20, 24, 86

Venture capitalists 13, 42, 52, 59, 63, 99, 120, 122, 128 Venture Capital (VC) 9, 22–24, 29, 34, 52, 55, 57, 61, 66, 72, 85, 86, 91, 97, 117, 125, 129 Vijayawada 129 Visakhapatnam 129 Weather 2, 50, 72, 87, 92, 99, 100, 107, 112, 122 World Bank 76