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The recent Economic Survey famously noted that the national capital was now India’s biggest startup hub. A business-friendly locale and the whole hurly-burly has helped Delhi quietly supersede Bengaluru. But there’s more to it than meets the eye: while Delhi, and even much smaller cities, are mushrooming in startup activity, funding remains heavily skewed towards Bengaluru and elite alumni founders, shows a Mint analysis.

At least 5,354 startups were founded in Delhi during 2019-21, against Bengaluru’s 4,998. Before 2019, Delhi’s numbers were decked up only with help from satellite cities Gurugram and Noida, but now the capital leads on its own. “Delhi is also thriving because of its hinterland (NCR as well as other north Indian cities), from where huge high-quality talent is coming," said Padmaja Ruparel, co-founder of Indian Angel Network, a large angel investor group, and a founding partner at IAN Fund.

Smaller cities are rising, too, due to the location-agnostic working model during the pandemic. The top six cities had less than 40% of the startups founded in 2021, down from 53% in 2016. But their sustainability is in question as work-from-home fades away. “They may not scale beyond a point as there is not enough tech talent available there," said Madhur Singhal, managing partner at Praxis Global Alliance. “Those startups ultimately gravitate towards the nearest large city."

Bengaluru is still a winner in funding. Startups there raised $17 billion during 2019-21, while Delhi-NCR got just about $7 billion. “In Delhi, the scene has just started and it’s just a matter of time," said Mohit Sharma, co-founder and CEO of Oye! Rickshaw, a Delhi-based micro-mobility company.

Alma mater matters?

Whichever city your company is born in, your résumé still matters. Since 2015, founders from prominent colleges—the likes of IITs and IIMs—have cornered almost 60% of the funding in 15 major cities, despite accounting for just 4.8% of the startups. The skew may only be rising.

This is true for Delhi, too. The city has India’s best internet penetration, and boasts of incubation centres and high engineering enrolments. But even in India’s new startup capital, 64% of the funding went to elite alumni founders since 2015.

Founders aren’t necessarily bothered. Sharma, an IIT Delhi alumnus, said: “Starting a company has nothing to do with your degree, it just opens the doors easily. The manoeuvring or the distance you have to run completely depends on your grit, passion, idea, and market timing."

Anand Achyut, the non-IITian founder of Wonderslate Technologies, said founders from smaller institutes can also perform well with a unique idea, and if the product gets acceptance.

Thriving segments

The shift of startups away from Bengaluru coincided with the covid-19 lockdowns, which sent prospective founders packing to their hometowns. This also reflects in the nature of the startups being founded. The pandemic has pushed consumers to go online and created a demand for technology startups.

“Look at the kind of [digital] adoption that has happened, and when consumer behaviour changes, it opens up new opportunities for innovation, disruption and building startups," said Ruparel.

Lapping up the opportunity, startups in education technology, or “edtech", have flocked up. Both Delhi NCR and Bengaluru saw nearly a 10% rise in such companies being founded between 2016-18 and 2019-21, even when most sectors recorded a slump due to the pandemic. Healthtech and fintech registered a 17% and 1.4% growth, respectively, in Delhi NCR. Delhi, being one of the most preferred investment destinations in India, has a very fertile ground for startups to emerge in a number of industry arenas.

Unicorn rush

The next step, then, is to hope for more equity in funding opportunities for ordinary Indians raring to start up. India got a record 42 unicorns in 2021, and has already added another 10 in 2022 so far. This has largely been fuelled by fintech firms, which had a lion’s share of 22% in unicorns as on 21 February, Praxis data showed. But the unicorns are still stationed in Bengaluru, not Delhi, yet.

With the concentration of fintech firms in Bengaluru, the region is often touted as a unicorn hub. Among “soonicorns", too, or “soon-to-be-unicorns", Bengaluru maintains its lead with 20, double of Delhi-NCR.

This could be because Bengaluru’s ecosystem started sooner, but Delhi is likely to follow suit, said Singhal. At a pan-India level, he expects the momentum in unicorn activity to carry through but some contraction in liquidity can be expected from global economic signals which could temper the deal flows in the next few months, he said.

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