The Karnataka Startup Module: Lessons Beyond Bengaluru

India, currently ranking as the world's third-largest startup hub following the US and the UK, boasts an impressive tally of 119,611 DPIIT-recognized startups spanning across 56 diverse industrial sectors. Among these ventures are 111 unicorns and 5 decacorns, signaling India's ascent as a global powerhouse of innovation and entrepreneurship. Over the years, the landscape has witnessed a meteoric rise in accelerators and incubators, soaring from a mere 20 in the early 2000s to a staggering 763 by 2023, a testament to the nation's burgeoning startup culture.

In this vast landscape of India’s Startup Economy, Karnataka stands as an evidence to the entrepreneurial spirit pulsating through the state. At the heart of this phenomenon lies Bengaluru, fondly known as "India's Start-Up Capital," a city pulsating with creativity and entrepreneurial fervor.

Karnataka: A Leading Force in India's Startup Landscape

Karnataka stands as a towering figure in India's startup landscape, claiming the title of the nation's second-largest startup economy. Karnataka's forward-thinking approach spearheads this achievement, evident in its pioneering multi sector startup policy initiated in 2015. 

Bolstering this policy is the Karnataka State Industrial & Infrastructure Development Corporation, a key player in supporting over 135 startups through equity participation, spanning both traditional sectors like steel and textiles, as well as emerging fields such as IT and aerospace. 

Karnataka's unwavering dedication to fostering innovation shines through its remarkable performance in national rankings, securing the top spot in NITI Aayog's India Innovation Index 2022 and earning accolades as the Best Performer in DPIIT state rankings. 

At the heart of Karnataka's entrepreneurial vibrancy lies its dynamic ecosystem, marked by rapid growth and innovation, boasting a staggering 12,851 DPIIT-recognised startups and 53 unicorns. This fertile ground for entrepreneurial endeavours is further nurtured by 140 accelerators and incubators, playing a pivotal role in propelling startups towards success.

Moreover, Karnataka leads the nation in the IT services sector, with the largest number of startups in the country. Its capital city, Bengaluru, shines as the epitome of startup vibrancy, earning the title of "India's Start-Up Capital." Bengaluru's entrepreneurial landscape is marked by diversity and inclusivity, with a record-breaking number of women-led startups, totalling 1,783. The city also emerges as a hotspot for innovative biotech startups and a thriving hub for educational technology.

Karnataka’s Startup Ecosystem Beyond Bengaluru

Karnataka, a trailblazer in India's startup arena, extends its influence beyond Bengaluru, its capital, by establishing three designated startup clusters. These clusters serve as dynamic ecosystems fostering innovation, drawing investments, and creating employment opportunities.

Through the "Beyond Bengaluru" initiative, the Karnataka government dedicates support to elevate Mangaluru, Mysuru, and Hubballi-Dharwad-Belagavi into thriving startup hubs. Bolstering Karnataka's standing as an innovation powerhouse, the state claimed the top spot in India's Innovation Index 2022.

With India boasting the world's third-largest startup base, Karnataka proudly holds the second-highest number of startups in the country. Notably, Mangaluru emerges as a focal point for fintech, IT, engineering, healthcare, and food processing startups, while Mysuru and Hubballi-Dharwad-Belagavi cater to a diverse range of industries, from cybersecurity and aerospace to AI and textiles. This flourishing startup ecosystem owes its success to a blend of factors, including a skilled workforce, supportive policies, robust infrastructure, and a vibrant entrepreneurial culture, consolidating Karnataka's position as a premier startup destination in India.

Policy Push To Shape Entrepreneurship Based Growth

The state government of Karnataka has implemented several initiatives to bolster the growth of the startup sector. The Karnataka Start-up Policy 2015-20 laid the groundwork by establishing a dedicated Start-up Cell to cater to the needs of the rapidly expanding startup ecosystem. Building upon this foundation, the policy was revised in 2022 with the launch of the Karnataka Start-up Policy 2022-27, placing a heightened emphasis on nurturing emerging startups.

Complementing these policies are robust frameworks such as the i4 (IT, ITES, Innovation Incentives) Policy, BT (Biotech) Millennium Policy, ESDM Policy, and KAVGC Policy, which provide a solid foundation for the state's ecosystem to flourish. Additionally, the Global Innovation Alliance-Market Access Programme (GIA-MAP), inaugurated in 2022, aims to forge connections between mature and growth-stage companies in Karnataka with leading startup ecosystems worldwide.

Notably, in a significant move to further support entrepreneurship, the government announced in the 2023-24 state budget its plans to establish "INNOVERSE," a world-class incubation center equipped with cutting-edge facilities, representing an investment of INR 500 million.

From Fostering To Funding: A 5-Year Startup Policy for Future

Under Karnataka's state policies, startups stand to benefit from a plethora of incentives designed to foster growth and innovation. The Karnataka Start-up Policy 2022-27 offers significant support, including full reimbursement of annual State GST (SGST) for startups incubated within Karnataka (excluding Bengaluru), subject to certain conditions. Additionally, startups can access funding through the Idea2PoC Grant-in-aid Scheme - ELEVATE, providing up to INR 5 million to assist in developing ideas to a proof-of-concept stage.

Moreover, a venture capital fund of INR 1 billion is allocated to support emerging innovative and deep tech startups, with 25 percent earmarked specifically for women-led startups. Fiscal assistance is also provided, with startups eligible for a 50 percent reimbursement of processing fees for establishing regulatory sandboxes. Furthermore, the Beyond Bengaluru Cluster Seed Fund aids growth-stage startups outside Bengaluru's urban district.

Facilitation support is extended to private entities setting up new incubation centers, with a one-time capital grant of up to 50 percent or INR 5 million (whichever is lower) for Fixed Cost Investment. Additionally, startups can avail themselves of marketing cost reimbursement, patent filing cost reimbursements, and quality certification cost reimbursement, each tailored to support their growth and development within the state.

What Next For Karnataka’s Startup Entrepreneurs

To solidify Karnataka's position as a hub for innovation and technological advancement, the state must incentivize research and startups  in specialized industries like fintech, IT, enterprise tech, deep science, and logistics. Collaborating with startups and industry associations is vital to enhancing industrial infrastructure and fostering innovation among entrepreneurs. Skill development in specialized fields is crucial for retaining and attracting talent. Moreover, focusing on improving the state's physical infrastructure will create a more conducive environment for startups to thrive, attract investment, and contribute to economic growth. The Karnataka government can achieve this by providing more tax incentives, streamlining regulations, and enhancing access to capital to encourage businesses to establish their base outside of Bengaluru. This approach will promote inclusive and distributed growth across the state, alleviating congestion in a single city and ensuring broader economic development.

Source: All the data and information presented in this article originate from a Deloitte Report.

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