New Delhi and its satellite cities are becoming hothouses for startups by some measures, encroaching on a title long-held by Bangalore.
While data on the exact number of startups launched per city in India isn’t available, venture capital activity in the National Capital Region, which includes Gurgaon and Noida, has been rising steadily in recent years.
Venture investments into NCR-based startups went from $38 million in 2009 to $96 million in 2012. Overall 2012 was a muted year for the industry. Investments into NCR startups had hit a record of $200 million in 2011, according to Chennai data firm Venture Intelligence.
Overall, venture capital activity has fallen in India in recent months as India’s economy has slowed and Indian companies haven’t grown as rapidly as previously expected.
Historically, Bangalore has been the hub of startup activity in India, especially for information-technology companies, earning it the nickname of India’s Silicon Valley. The southern city is home to India’s largest IT companies like Infosys Ltd. 500209.BY +0.08% and Wipro Ltd. 507685.BY -0.13%, which hire tens of thousands of techies. They act as a breeding ground for entrepreneurs.
But in recent years, even technology and internet firms have set up shop in other cities, particularly NCR, to benefit from lower rents and a wide consumer base. Online marketplace Snapdeal.com, travel website MakeMyTrip India Ltd., and mobile software company One 97, are among some of the prominent companies based in NCR.
Certainly, Bangalore is still ruling the roost – last year startups based in that city got $146 million in funding, versus $96 million in Delhi.
But even venture investors say the wind is moving north.
Many investors and incubators are now based in Delhi and Gurgaon, making it easier for entrepreneurs to get capital and mentorship, says Sunil Goyal, founder YourNest Angel Fund, an investor based in Gurgaon managing 18 million.
This area is attractive also because of its ready office infrastructure – particularly in Gurgaon and Noida — affordable rents, and a large pool of young college graduates, including from the prestigious Indian Institute of Technology, Delhi.
Experts say that the presence of large technology and telecom companies like Microsoft Corp MSFT +0.57%Bharti Airtel Ltd. 532454.BY +2.89%, Ericsson India Pvt., and HCL Technologies Ltd. 532281.BY -1.77% attracts a lot of job seekers to Delhi, some of whom have entrepreneurial ambitions.
The presence of internet majors like jobs site Naukri.com 532777.BY -0.20% and Makemytrip.com has also helped create an environment that is conducive for building startups, says Mukund Mohan, an adviser at Microsoft’s startup mentorship program in Bangalore.
NCR’s large population (16.75 million in Delhi and 1.5 million in Noida and Gurgaon) makes the area attractive for startups in consumer services sectors like e-commerce, healthcare and education.
“I was very sure that Delhi was the place to start my business,” said R. Narayan, who last year founded Power2SME in Gurgaon which helps small and medium-sized businesses to buy goods from suppliers. Mr. Narayan says being in NCR gives him access to a vast number of customers in states like Punjab, Rajasthan and Uttar Pradesh.
Sudhir Sethi, founder of IDG Ventures India, a $150 million venture fund based in Bangalore, agrees.
“Since the consumer is next to you, your marketing cost goes down,” Mr. Sethi said.
Earlier this month, IDG Ventures opened its office in Delhi. “We are putting our money where our mouth is,” said Mr. Sethi.