There is an alley going towards the washroom at Starbucks in Powai. Both male and female entrepreneurs have pitched their ideas to me while waiting their turn to use the loo. That is the kind of exuberance that existed back then,” said investor Sanjay Mehta, recalling the heady days of Mumbai’s startup ecosystem 2-3 years ago. “Now, you get into Starbucks, conduct your meetings, get out. You may say hello but it’s not like people are going to chase you or talk to you or pitch an idea while you are on the way to the washroom.”
India’s financial capital had found its startup bearings in its northeastern Powai suburb—home to the Indian Institute of Technology, Bombay and the plush Hiranandani housing communities. Complementing the clusters of luxurious residential towers evolved a thriving settlement with commercial buildings, restaurants,international cafés, and premier schools and colleges.
Those were high-spirited days for India’s startup ecosystem. Global investors parachuted in with bags of money to give to potential entrepreneurs having bright ideas. Ecommerce hotshot Flipkart had grown to become a billion-dollar company and had launched a battle with the world’s mightiest online retailer, Amazon. Uber was being held back by Ola, India’s largest taxi-hailing company that was started by two graduates of IIT-Bombay at Powai’s Kailash Complex. Ola later moved to neighbouring Andheri and then to Bengaluru.
Powai, about a half hour from India’s second-busiest airport, greatly benefitted from its proximity to the premier engineering school. “The ecosystem really sparkled in 2013-2014. By 2012-end, Flipkart was the buzzword and students in the campus had started ordering from Flipkart,” recalled Advitiya Sharma, an IIT-Bombay alumnus and a former chief executive of Housing who now runs education startup Genius.
Flipkart and the Powai-born Ola and Housing provided inspiration to young students to dream the entrepreneurial dream. Then, as 2015 progressed, the ecosystem began to flounder. Competition intensified and the market started punishing bad ideas and poor execution. Investors began pressurising their portfolio companies to shape up and turned off the money tap. Powai bore the brunt of it.
Shifting Goalposts
One by one, Powai’s celebrated startups ran into trouble. Housing, TinyOwl, Taskbob, Purple Squirrel, GrocShop—all capital-intensive internet startups—and many others pulled down the shutters or went on the block. A sense of loss is evident in the voices and stories of investors, entrepreneurs and mentors here.
“In 2014-2015 I could afford to (spend loads on technology) because my focus was not on profitability but on scaling up and acquiring talent at whatever price I could,” said Aseem Khare, founder of home services startup Taskbob that ceased operations in January. “But now, given that everything is so dependent on profitability, every founder is focussed on reducing costs and, hence, people are shifting out.”
Sasha Mirchandani, managing director of Kae Capital, blamed a concentration of too many poor ideas. “There were a lot of me-toos. Typically, one model takes off and then everybody jumps on. So at one point, you would had six companies from IITBombay doing the same thing.”
Investors may have to share the blame as well. Industry stakeholders cringe at how investors rushed in with large bags of capital during 2014-2015 so they would not miss clinching the next big Indian startup. Until reality set in, they said, investors did not pause to assess trouble spots related to follow-on funding for their portfolio companies or opportunities to sell their investments.
Saurabh Saxena, CEO of Powai-based food-tech firm Holachef, believes the depression set in when the dialogue shifted from scaling up business to profitability. “The strength to think of an idea and go about executing it comes from the fact that you know that at a certain level funding will be given. Suddenly if you take out that variable, what happens?,” said Saxena. “Our orders have gone down in Powai. A lot of guys from Housing (and other Powai startups) used to order from us. Now there is no one. It is impacting our business,” he joked.
Curse of High Rents
Startup clusters in other cities, including in Bengaluru, are not immune to those same problems. Powai, though, shoulders additional burdens that have made it tougher for companies there to sustain.
“Mumbai is pricier and more brutal. Setting up an office in Mumbai is probably 30% more expensive than setting up an office in Bengaluru,” said Zishaan Hayath, Co-Founder of Powai-based ed-tech startup Topper who also runs Powai Lake Ventures, an angel investment group. “What kills you is the salary costs of people who have to live in Bombay since rentals are slightly higher.” That could explain the 68% drop in startups founded in Mumbai last year, to 448 as against 1,372 in 2015, as per data from researcher Tracxn. Over the last 3 years, more than 160 Mumbai startups ceased operations. At Rs 125 per sq.ft., monthly office rents in Powai are much higher than rates at Bengaluru’s startup clusters Koramangala and HSR Layout, according to real estate consultancy JJL India. High costs across Mumbai have forced several companies to move out. Ola relocated to Bengaluru in 2012, followed by Quikr, FreeCharge, Porter and Grabhouse, to name a few.
“As the company becomes larger, the cost of living and hiring becomes a problem, so we looked to shift sooner than later,” said Pranav Goel, founder of logistics aggregator Porter, which relocated to Bengaluru in 2015. “It is easier to shift when you are a smaller company… (Also), tech talent is more affordable and diverse in Bengaluru.” Last year, 480 Bengaluru startups secured funds from investors, up from 458 startups in 2015, according to Tracxn data. Only 283 Mumbai startups were able to raise money from investors last year, down from 306 startups in 2015.
Powai’s Pivot
So, are the days numbered for the Powai startup ecosystem? Far from it, believe stakeholders.
While the number of startup ideas emerging out of IIT-Bombay may have dropped—“… by at least half,” said the investor Sanjay Mehta, based on pitches he receives—Holachef’s Saxena insists the quality of the ideas has improved. Mehta is a member of Mumbai Angels as well as Indian Angel Network.
“People are now coming up with ground level problems that they want to solve…. Mere technology efficiency is not going to create a business, particularly in India. Startup ideas nowadays are around areas like agro-farming, which are grass roots level ideas. That’s a distinct change where one is no longer thinking of a marketplace kind of idea,” Saxena said.
According to Anand Kusre, professorin-charge at IIT-Bombay’s Centre for Entrepreneurship, new startup ideas emerging from the institute “cover a wide spectrum including robotics, nanotechnology, clean-tech, energy, medical devices, logistics and biotechnology.”
Robotics firm Janyu Technologies is among those. The startup, founded by three IIT-Bombay students last year, has developed a robot capable of detecting and diffusing mines. It has received an order for trial from the Central Reserve Police Force and expressions of interest from the Northern Command of the Indian Army and Jammu and Kashmir police. “We wanted to make it a modular multi-mission platform that can be used by all (defence) forces. We have made it very easy to configure,” said CEO Sai Hemanth Manchella.
Janyu was incubated at IITBombay’s Society for Innovation and Entrepreneurship and received support from the institute’s Centre of Entrepreneurship as well as the National Centre of Excellence in Technology for Internal Security—an interdisciplinary team of IIT-Bombay—for developing and financing the prototype.
Mehta agreed that “when it comes to the quality of startup pitches and ideas, I would say there is a 100% improvement as far as IIT-Bombay goes. What we were seeing in 2014-2015 and even early 2016 was all froth… Now, I see far more mature entrepreneurs going deep in technology with focus on Intellectual Property.” As Ajeet Khurana, an investor and adviser to Kalaari Capital, put it, while Powai may have lost some of its magnetism, it along with Mumbai “remain one of the hottest places (for India’s startup ecosystem, though) not as hot as last year.”
Hub or Not?
Investors and entrepreneurs are divided over whether Powai should be reignited as a startup hub.
“I am a believer in having one hub in the country,” said Hayath. “One of the agendas of the Startup India programme should have been to pick one city—clearly, Bengaluru is the leader now so it becomes the default choice—and facilitate some incentives to make everyone move there.”
He added: “(Powai) was a great experiment. We have had our share of successes and failures and learnt from them. There is no point in recreating another hub. If I had the energy to create a startup hub, I would rather dedicate it to augment that in one place, which currently is Bengaluru.”
Some entrepreneurs, though, believe it’s not time to say goodbye to Powai just yet. “Some really good ideas, interesting ideas are coming up, where you can see that if an idea of that sort was built, it will actually help solve basic ground-level problems. They may not necessarily be explosive growth ideas, but rather slow and steady infrastructural growth ideas,” said Saxena.
He is one of several entrepreneurs who believe that the haze around the Powai startup ecosystem will clear.
“In Mumbai, businesses take a lot of time to evolve because customers take time to get used to services and, therefore, traction is not too high. But at the same time, the market is large and customers, once acquired, are more loyal,” said Taskbob’s Khare. “The Mumbai ecosystem is going through a patchy phase right now,” he said.
“In the next 2-3 years, it will reach a stage where entrepreneurs will come here looking for good growth given that there are too many startups in Bengaluru and one may just want to start elsewhere and get market leadership.”
Source: The Economic Times
