At the India Global Innovation Connect (IGIC) 2024, BV Naidu, Chairman of the Karnataka Digital Economy Mission (KDEM), shared his insights on India’s remarkable journey in IT services and the burgeoning startup ecosystem. He emphasized Karnataka’s pivotal role in this transformation, highlighting its impressive track record and future potential.
BV Naidu pointed out that India, recognized globally for its excellence in IT services, is now making significant strides in electronics manufacturing and product development. The startup ecosystem, which was virtually non-existent during the early days of India’s IT journey, has now exploded, “‘I’ve always believed that India has made a fantastic journey in IT services and is well-recognized across the world. In electronics, we are now making significant progress, especially in manufacturing and product development. Manufacturing has started to move here, and startups are rapidly growing. When we began our IT journey, we didn’t have many startups in India. We mostly heard about what was happening in Silicon Valley, which was our only yardstick for success. Quickly, we caught up in the startup ecosystem. As you know, there are now more than 70,000 startups across the country, with over 30,000 in Bangalore and Karnataka alone,” said Naidu.
Evolution of Karnataka’s Startup Ecosystem
BV Naidu attributed this growth to three key factors:
- Mature IT Services Sector: Karnataka’s long-standing history in IT services, contributing around $180 billion, has created a mature professional environment.
- Digital Transformation: India’s world-leading digitization initiatives, including the ubiquitous digital payment system UPI and widespread internet penetration, have created immense opportunities.
- Government-Industry Collaboration: The synergy between the government and industry in Karnataka has fostered a conducive environment for startups to thrive.
Driving Innovation and Investment
Naidu highlighted the unprecedented scale of digital transactions in India, with 14 billion transactions valued at $60 billion occurring in a single month. This digital revolution, coupled with a vast population equipped with smartphones, has paved the way for significant innovation opportunities. He noted that the government’s focus on grassroots technology development and IP creation has borne fruit, even with limited initial investment.
“Necessity is the mother of invention. This principle has greatly helped us. As the country with the largest population, we face unique social, rural, and urban problems. Every problem presents an opportunity. Our startups have seized these opportunities and achieved great success. This is why we now have 105 unicorns in India, with around 48 to 51 based in Bangalore alone.
No one initially thought that Bangalore could produce so many unicorns. Now, we are aiming for 150 unicorns from Bangalore. The answer to whether this is possible is yes, because in Karnataka, the government and industry work closely together,” added Naidu.
He also went on to credit this success to the robust partnership between the government and industry, exemplified by initiatives like KDEM, which embodies this collaborative spirit. “If you look at the KDEM logo, it represents two hands coming together—one for the industry and the other for the government. This symbolizes the collaboration that makes a difference. The success of Karnataka stems from the fantastic cooperation and strong relationship between the government and industry. This partnership led to the creation of KDEM by the industry,:” commented Naidu.
Pioneering Programs and Seed Funding Mentioned by BV Naidu
Naidu also discussed Karnataka’s various initiatives to support startups, including the Elevate program. He highlighted the importance of seed capital for deep technology, an area where Bangalore has been a pioneer. Investments in deep tech have proven highly successful, attracting global interest and quick exits for startups. “We spent around 160 crores on grants for proof of concept, which might seem small. However, additional grants are coming from the Government of India to IIT incubators. You can see the transformation taking place, especially in space technology. For example, IIT Chennai developed a private spacecraft, entirely designed there, with grants from the Government of India,” said Naidu
He further added: “The cooperation between the Government of India and state governments is crucial, even if the grants aren’t as extensive. Another key aspect is seed capital. A few years ago, there was no seed capital for deep technology. Investors were reluctant to fund deep tech ventures. However, we began investing in deep technology in Bangalore eight years ago. This includes technology for silicon IPs, automating verification processes in silicon, aerospace, Bellatrix, and cybersecurity.”
Naidu observed that seed investments in deep technology have proven very successful, often providing quick exits. “Some companies have achieved exits in less than 18 months. For instance, companies from Israel and Apple have acquired startups from Bangalore, including a silicon IP company. This success extends beyond deep tech; we’ve seen phenomenal growth in FinTech, D2C brands, and e-commerce. This is a tremendous opportunity,” he said.
Addressing foreign investors, Naidu emphasized the immense opportunities in India’s startup ecosystem. He encouraged overseas investors to explore co-GP roles in Indian funds to leverage local expertise in identifying promising startups. He described this as the era of cross-border funds, urging global investors to seize the opportunities presented by India’s dynamic digital economy.
“To the overseas investors among us: if you’re not investing in India, you’re missing out. I’ve spoken with several investors, and we’ve successfully attracted investments from the Middle East and the West. Many funds have come in and have become very successful, yielding substantial returns. I’ve also been in talks with investors from Japan, Korea, and Taiwan. These investors haven’t yet experienced the opportunities in India, but they should come and see what is happening here,” urged Naidu to investors.
Expanding Beyond Bangalore
KDEM is also focused on replicating Bangalore’s success across other regions in Karnataka. Initiatives like the Beyond Bangalore Cluster Seed Funds aim to stimulate local innovation and entrepreneurship in cities like Mysore, Mangalore, and Hubli. Additionally, Karnataka has established an accelerator network to support startups, providing access to markets, investors, and mentors.
Naidu concluded with a vision for India’s digital economy, expecting it to reach $1 trillion by 2026 and $5 trillion by 2030. This ambitious growth can be achieved through continued foreign investment and robust government support, ensuring that the model pioneered in Bangalore can serve as a blueprint for the entire country.
