Back to Bangalore

A FAVOURITE PARLOUR game among Indian venture capitalists is to fantasise about being in a ménage-à-trois with a technologist from Bengaluru and a businessman from Delhi, a cross-cultural venture surely destined for an IPO. “The Bangalorean engineer may not wear the pants in this relationship, but he is the reason we are all here,” says a partner at a VC firm in Bengaluru that invests in early growth stage companies. The baseline perception of Bengaluru as the infotech hub of India falls short of evaluating its potential for further greatness. Bengaluru, like Silicon Valley, is an idea. It is a confederacy of visionaries looking beyond profitability. It is a story where the underdog triumphs and where failure is a rite of passage. It is home to a man worth $1.5 billion who drives a Toyota Innova. It is where Mercedes- Benz comes to shop for a startup that can tell them which of their showroom walk-ins are prospective customers. It is that bastion of creativity which can leave the most hidebound businessman from Mumbai with a sense of giddy discovery.

In a recent report by Jones Lang LeSalle (JLL), a global investment management company, Bengaluru has been ranked the most dynamic city in the world, ahead of Ho Chi Minh City, Silicon Valley, Shanghai, London, Austin and others. The City Momentum Index, a weighted average of various economic, social and real estate parameters, measures a city’s ability to embrace rapid change in order to compete in the world. Other Indian cities in the list are Hyderabad at the 5th position, Pune at 13, Chennai at 18, Delhi at 23 and Mumbai at 25. Bengaluru emerged on top despite the fact that Indian startups, especially B2C ecommerce companies, were starved for funds in 2016, with funding almost halving from $7.6 billion the previous year to $3.8 billion. Obviously, adoption of technology, innovation and the digital economy seem to be driving the dynamism of the top cities of the world. “With technology becoming central to all business, Bengaluru is witnessing a diversification in occupier base. What was an IT-oriented city is transforming into a wholesome corporate centre,” says Ashutosh Limaye, national research director at JLL.

It is more than a corporate centre. Bengaluru is shaping the arc of India’s progress by fostering the convergence of key ideas for the future. Ask bankers from Mumbai who regularly decamp to the garden city to discuss the way forward for banking services. With the unbundling of credit, payments and identity verification, the banking sector is at a crossroads where it can either embrace innovation that aims to serve the unserved millions or lose to fintech companies. “No other group of Indian CEOs is as worried today as the heads of banks. Their world will change more in the next five years than it has in the last 50. Bengaluru is at the centre of the effort to build the digital infrastructure for this new banking paradigm,” says Sharad Sharma, co-founder of iSPIRT, a software product think tank, and former Yahoo India CEO. He is not just talking about the fintech startup sector that has received over $1.3 billion in the past three years to change the way we use money—NCR has a lion’s share of this burgeoning segment, with the likes of Paytm, Mobikwik, Faircent and PayU India headquartered there. Bengaluru, says Sharma, has a culture of getting together to build things for the public good. Aadhaar started in 2009 with ex-Infosys CEO Nandan Nilekani bringing together a team of Silicon Valley veterans and young investment bankers in an apartment on Sarjapur Road and it is today the basis for a multi-layered data infrastructure spanning across services from paperless identity verification or eKYC to cashless payments. Two years ago, the National Payments Corporation of India (NPCI), the umbrella organisation for all retail payments, launched the United Payments Interface (UPI), a mobile-first system that makes peer-to-peer money transfers possible on the cheapest of phones and enables inter-operability between banks. Today, there are dozens of banking apps built on the UPI platform, including Bhim, which was jointly developed by the NCPI and Juspay, a payments tech company based in Koramangala. The Aadhaar platform will, additionally, introduce an electronic consent layer to allow users to selectively share their personal data, such as employment records and bank statements, to get credit and to digitally sign for it.

Sharma and his colleagues at iSPIRT refer to this entire digital paradigm based on Aadhaar as ‘India Stack’, and its APIs are grabbing everyone’s attention—from Bill Gates to thriving young Valley entrepreneurs who are astounded at the scale and the sophistication of the project. In a recent, much-shared article in The Washington Post, Vivek Wadhwa, a columnist and a professor at Carnegie Mellon University of Engineering in Silicon Valley, wrote: ‘India may have leapfrogged the US technology industry with built a digital infrastructure that will soon process billions more transactions than bitcoin ever has. With this, India will skip two generations of financial technologies and build something as monumental as China’s Great Wall and America’s interstate highways.’

The reason Bengaluru is at the heart of this wave of change, argues Sharad Sharma, is that it is home to technologists with the missionary zeal to build public infrastructure. “Take Dr Sridhar Mitta and Subroto Bagchi at Wipro R&D who worked to get AT&T to bring the source code of UNIX to India. They could have kept their legal framework that gave comfort to AT&T to themselves. Instead they shared this framework for the benefit of the industry. Pioneers like Dr Mitta have shaped the culture of Bengaluru,” says Sharma, who moved from the Valley to Bengaluru in 2004, enthused by an ambitious presentation by the then Infosys CEO, Nilekani. Bengaluru dreamed big, but lived simple, never forgetting its middle-class values. While NCR has emerged as Bengaluru’s cognate in the north—according to NASSCOM, of a total of about 5,600 Indian startups, Bengaluru is home to 27 per cent and Delhi and Mumbai to 23 per cent each—the culture of each city, Sharma says, is palpably unique. “An uncle who worked in the Railways once told me that although Mumbai had two zonal centres—Western and Central—they each were run very differently. It is the same story with Delhi and Bengaluru,” he says.

“Bengaluru is unpretentious and culturally open, unlike Delhi and Chennai. It has the best mentorship ecosystem in the country and it attracts top-class talent, especially in core tech areas like artificial intelligence and data analytics,” says V Balakrishnan, former Infosys CFO and Chairman, Exfinity Venture Partners, an early-stage fund that invests in B2B startups. So when Exfinity-funded Mad Street Den, an AI company headquartered in Chennai, ran into a wall trying to hire talent locally, he advised them to set up a Bengaluru office. “Bengaluru is the ideal place to be for engineering-driven startups. And such startups have a low cost of survival, which could keep them in business for a lot longer,” says Amit Somani, who lived and worked in the Valley for 14 years before moving to Delhi as product head at MakeMyTrip and finally to Bengaluru in 2007. “In Delhi, most startups are driven by a dhanda attitude. In Bengaluru, there are people actually thinking about how to change the world,” says Somani, Managing Partner at Prime Venture Partners, an early-stage VC firm that works closely with its portfolio companies, insisting that they be based in Bengaluru. MakeMyTrip’s founders had deep roots in Delhi, but as the company scaled up, talk of setting up a Bengaluru office was inevitable, says Somani. The travel company opened an R&D centre here last year, following in the footsteps of other Indian startups like Quikr, Cleartax, Helpchat and Razorpay that made a beeline for Bengaluru.

With the infotech and IT-enabled services (IT-ITes) industry’s growth slowing, more engineers with a decade of experience behind them are likely to start up, some of them hopefully in the under-served B2B space. As per data from venture capital tracking firm Tracxn, ex-Infosys and ex- Wipro employees have founded 867 and 685 companies respectively. Bengaluru could yet become an incubator of mythic proportions. Consider this. There are anywhere between 50 and 100 IT/ITes companies in Bengaluru employing over 5,000 people, 200 others that employ about 3,000, 2,500 with 1,000-3,000 employees and a great many other smaller companies. The 35 million sq ft of commercial real estate available in the city is not nearly enough to meet demand and other than a few strained ecommerce companies like Flipkart who are scaling back on their office space plans, everyone seems to want a bigger slice of Bengaluru. Pockmarked roads, acute water scarcity and legendary traffic jams are not about to deter them from crowding this unlikely paradise, a nowheresville whose only virtue is its unceasing cycle of talent inflow and enterprise.

IF COST ARBITRAGE put Bengaluru on the map as an outsourcing hub for MNCs, it has once again become their preferred destination, this time for setting up R&D captives. Of the 1,000-plus Global Inhouse Centres (GICs) in India, about 600 are R&D centres, almost half of which—including those of Target, Walmart, Lowe’s, Time Inc, Goldman Sachs and Visa—are located in Bengaluru. “About 200 of them have crossed the threshold where they have realised that they can get more value for their dollar by hiring and training top class talent in areas like stochastic modelling to build future-proof technology,” says KS Viswanathan, Vice-President, Industry Initiatives, NASSCOM, Bengaluru. “At Societe Generale’s Global Solutions Centre in Bengaluru, a few hundred engineers are working on how to reduce loan processing time from 28 days to 28 hours. Walmart’s Bengaluru team is busy figuring out how to reward a genuine buyer by preferring her over others shopping online for the same product. Target has deployed more than half its Bengaluru workforce towards developing a forecasting model for merchandising. And at Time Inc India, a wholly owned subsidiary of Time, nearly a thousand people are at work improving web and circulation analytics for all the magazines in its stable,” he says.

The R&D centres may be grooming a generation of specialist engineers to bridge the few talent gaps Bengaluru has. The city is, by far, the only place in India that can boast a workforce of 300,000 semiconductor engineers, a number that can rival that of Silicon Valley’s, the birthplace of the semiconductor industry. “The Indian semiconductor industry generates $35 billion in revenue annually. About half the work involves high-level design and architecture, the remaining is routine entry-level work like testing and verification. We are moving up the value chain, taking on core design work and generating more IP than ever,” says K Krishnamoorthy, chairman of the India Electronics and Semiconductor Association (IESA). While design-led electronics manufacturing is still a distant dream for India, the industry has matured enough to launch a small semiconductor startup movement, the most famous of them, Cosmic Circuits, making a successful exit in 2013 with US-based Cadence Design System acquiring it. “Back in the 1980s, the reason Texas Instruments (TI) set up an office in Bengaluru was talent. Bengaluru had an electronics ecosystem even then, thanks to institutions like HAL (Hindustan Aeronautics Ltd), DRDO (Defence Research and Development Organisation) and BEL (Bharat Electrical Ltd). In fact, the inside joke was that TI was just ITI (Indian Telephone Industries Ltd) minus the ‘I’, since its first employees were all ex-ITI,” says Krishnamoorthy.

The more things change, the more they remain the same. Bengaluru’s perennial attraction— talent—now combined with a high per capita income (Rs 2.7 lakh a year, only slightly behind Delhi), cosmopolitan culture and a readiness to try new technology has made it the best testing ground—and therefore incubator—for new ideas. It has proved to be a strategic geography for Big Basket, Urban Ladder, Uber and Zoomcar and it is a dream market for new category-creating startups like Licious, which is disrupting the way India buys meat. It is here, in the thick of things, that ineffably Bangalorean ideas are born and snaffled up by venture capitalists. If one stepped back to catch a breath, one would see that all of this— the birth of a new world, the gold rush, the aggression, the fury, the crash—has happened here before. And it will happen again.

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