Hyderabad’s funding ecosystem gaining currency slowly | Hyderabad News
“We realised that lifesciences (the fund’s focus initially) is more like deeptech which takes years to monetise. We also realised it is quite challenging to build an R&D focused lifesciences company out of India and decided to shift focus to sectors like healthcare and agritech more from the tech angle, which is where Bengaluru was ahead of cities like Hyderabad and Chennai,” explains Sarath Naru, founder & managing partner, VenturEast.
Today, VenturEast has a team of four in Hyderabad.
ILabs, which was founded by serial investor Srini Raju, started with offices in Hyderabad and Chennai in 2000 but its growth stage investment arm, Peepul Capital, grew in Chennai.
Even homegrown Anthill Ventures, that invests in early stage companies in media, urban and health tech, is set to have a presence in Bengaluru to expand its network, says its founder CEO Prasad Vanga.
Srini Raju points out that initially most funds were in Mumbai but as talent started moving to Bengaluru, funds too followed them as Mumbai was becoming expensive.
When he set up iLabs he was prepared to travel around the country in search of opportunities. “As Mumbai and Bengaluru had many investment fi rms, I thought having a base in Hyderabad and Chennai will help get us visibility. It worked well because whoever wanted to invest in these companies from Hyderabad and Chennai would ask us if we would like to be their co-investor… in fact, my fi rst fi ve investments were with SoftBank,” he adds.
Why did early bird Hyderabad’s funding ecosystem fail to take off?
As only a handful of funds and investment fi rms grew in Hyderabad in the last two decades, many investors feel one of the key missing ingredients has been the lack of a mature funding ecosystem.
“When it comes to funding activity, Hyderabad has lacked in a big way because I don’t see too many players here. If you look at the data it’s pretty clear that 60-70% of the capital goes to Bengaluru and Delhi NCR followed by Chennai,” says Mahesh Parasuraman, co-founder and partner, Amicus Capital Partners.
Ramesh Loganathan, head of CIE at IIIT Hyderabad, one of the city’s earliest incubators, pointed out that an ‘informal channel’ where investors can connect with startups at a very early stage, is missing in Hyderabad.
“An average investor in Bengaluru will meet no less than 40-50 startups a month and a lot of it is informal meetings happening in coffee shops or small events… whereas a startup in Hyderabad gets to meet an investor only through scheduled meetings. These investors don’t make an effort to understand the informal pulse of any other city due to which these informal channels do not exist,” he explains.
Will Covid bring down funding barriers?
Capital becomes a key concern for startups and if they have to schedule a meeting, catch a fl ight to go meet investors in other cities it is so much more difficult than having to ride to investor offices in their own city,” adds Avishek Gupta, MD and CEO, Caspian Debt.
While agreeing that so far, the struggle for Hyderabad’s startups has been more about lack of adequate capital vis-à-vis say Bengaluru, which has several PE and VC players, Sashi Reddi, founder and managing partner, SRI Capital, feels Covid-19 is all set to change the “capital equation” as a lot of investors are not seeing distance as a factor anymore.
“Today investors are getting onto virtual meetings with startups and don’t need to travel to different cities. This will ease the access to capital,” Reddi adds.
Here Gupta adds that if the Telangana government could engage more with the investor community, the way they have with startups, and encourage them to set up offices here by offering some sops, it would help.
T government gearing up to play matchmaker
Jayesh Ranjan, principal secretary, ITE&C department, Telangana, however, feels the funding ecosystem need not necessarily be in Hyderabad for ensuring a healthy funding pipeline as investors are willing to travel all over the world to fi nd the right kind of startups with good products and capable solutions.
He says the Telangana government is starting an initiative that will curate startups for investors. “Our `investor connect’ programme will make startups available as a ready reckoner so that investors can pick and choose based on their preferred categories. It will be like creating marketplace for investing in startups,” explains T-Hub vice president Panneer Selvam, adding that creating a good funding pipeline for Telangana’s startups will be one of the most important focus areas.
Why hasn’t Hyderabad scored high on money & talent so far?
Things may be looking up but the city still has a lot of catching up to do, primarily because of historical reasons.
“Globally, most of the entrepreneurs gravitate towards Silicon Valley in US and in India, it is Bengaluru. While there is no doubt that Hyderabad offers great quality of living and infrastructure, this attracts MNCs to have offices here and also people for employment. But for a startup, it is not about less traffic or weather, it is about how quickly they can get hi-tech talent and Bengaluru has that,” Raju says.
Raju explains that successful startup ecosystems are ones where talent fl ocks to set up ventures. He and Gupta feel that historically, talent from this region has migrated to the US, a trend that continues till date, due to which the city also loses out on a chunk of its key human resources.
“If you look at traditional industries of Hyderabad, it has been pharma or real estate. These kinds of entrepreneurs or investors like to see visible infrastructure projects rather than startups or tech players. Though there are a few tech companies coming out of the city…it does not have the fl ow of people and capital like Bengaluru does…,” Prasad of Anthill Ventures adds.
Also, he feels that entrepreneurs from Hyderabad are less articulate as compared to their peers from Bengaluru or Mumbai and this is an area that needs improvement.
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