Opinion: Despite Lower Ranking, Singapore, Bangalore Can Still Become Startup Hubs

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The 2017 Global Startup Ecosystem Report has listed four Asian countries in the top 20 startup ecosystems in the world. In 2015, the continent was represented by Singapore and Bangalore only. But this year, Beijing and Shanghai was added to the list.

What is more interesting, however, is that both Singapore and Bangalore have lost their positions in 2015 and was pushed down the list. Singapore now ranks 12th (10th in 2015) and Bangalore is at number 20 (previously 15).

What happened? While these changes make us think that something must have gone amiss, we should keep in mind that there are a lot of factors that were taken into consideration before the new list was produced.

Challenges for Singapore and Bangalore

One challenge Singapore faces is funding for startups. A study by Oddup shows that while seed funding and angel investors abound in the country, series B or C investors are still lacking. Another challenge is its market size since it only has a population of under 6 million.

For Bangalore, the scenario is a bit different because the main challenges it is facing are in the fields of talent and the startup ecosystem itself. On the talent front, while Bangalore has an immense amount of talent available, most of it is not industry-ready, which causes companies to spend more time training employees. But startups may not always have the time and the capacity to train talent.

The other challenge for Bangalore is funding and high valuations of companies. Since it’s been taking investors longer to recover their investments, fewer companies in the city are getting funded. In fact, only eight out of 192 fintech startups were able to secure funding in 2015.

Related: 3 Reasons Why Collaboration Between Fintech Firms and Banks Makes Sense

But they are still good places for startups

With that said, can an argument in favor of Singapore and Bangalore be made? The short answer is yes.

Singapore is number one in talent. As a result of its policies that encourage entrepreneurship, the city-state now boasts a talent pool, including engineers, of which 70 to 80 percent comes with at least two years of work experience in the startup field. This means that Singaporean talent brings more experience to the table.

Related: How Singapore Is Primed to Build Fintech Talent

Funding for startups is also getting a lot of attention from the government, which has developed its own schemes to help fund startups and improve the talent pool. One is the iJam grant, which can offer up to around US$179,000 (or S$250,000) to startups. Companies like Carousell and Trax are also examples of how the funding scenario is improving. Carousell raised US$35 million in series B funding and Trax raised US$40 million in series C funding.

On the other hand, the way the ecosystem is set in Bangalore, with investors being cautious, favors multiple mergers and acquisitions. Small companies that won’t be able to secure funding could look to sell their businesses to bigger companies, which could absorb them at more realistic valuations.

The government is also helping in terms of policy. The government of India has approved 100 percent foreign direct investments (FDI), which led to an increase of over 30 percent in FDIs last year. This will allow companies from other countries to provide funding and own up to 100 percent equity stakes in companies in India.

Until early last year, foreign companies could own only 49 percent equity in Indian companies. This not only creates funding opportunities for Indian companies but also allows for strong mentorship, which can help startups operate and scale up in an affordable and strategic manner. Another benefit of such a move will be that Indian companies could get access or exposure to international markets.

Related: Here’s How Startups Can Maintain Their Culture Despite Rapid Expansion

Affordable talent has always been a key factor for Bangalore since it costs 12 times less to hire an engineer here than it does in Silicon Valley. This allows companies like ours (BankBazaar) to hire engineering and operations staff cost-effectively. However, to ensure that the talent is industry-ready, we have approached companies that have either shut shop or recently scaled down and are helping their laid-off employees to find new jobs.

What’s in the future?

While both Singapore and Bangalore have seen their share of concerns in the technology sector, there is no doubt that they are addressing these concerns.

One thing startups need to look at is their unit economics. The goal is to have positive unit economics where the cost of acquiring a customer is less than the revenue generated. This is something that we have recently achieved in India, with revenue earned from transactions being more than the cost of acquiring the same transaction.

Apart from this, one consideration that could (and probably should) be made by Singapore and Bangalore is to dedicate more attention to the development of global products and services. While there is ample opportunity for local business and growth in the domestic markets, outreach to global markets will be a significant factor in determining growth and scalability in the coming years.

Overall, while Singapore and Bangalore may have gone down a few steps in this year’s ranking, they are poised to grow and will continue to be a hub for startups.

Related: 3 Gaps in Banking That Fintech Firms Have Filled

This article first appeared on Tech in Asia.

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