'Easier to set up a software company than a chicken farm': Kerala's quiet startup revolution

Earlier this month, the Central government came out with Ease of Doing Business ranking of states, where Kerala slipped to 28th rank from 21st.
For representational purposes
For representational purposes

KOCHI: Earlier this month, the Central government came out with Ease of Doing Business ranking of states, where Kerala slipped to 28th rank from 21st. Yet another report on the best startup ecosystem in the country, the States Startup Ranking 2019, saw Kerala ranked alongside Karnataka as the top performer in the category!

This might come across as an irony. While one list says Kerala is among the worst hosts for business, the other claims it has one of the most nurturing ecosystems for promoting entrepreneurship via startups. Kerala being ranked alongside Karnataka and Bengaluru, regarded as India’s Silicon Valley, for the second year in a row is the icing on the cake.

How is it possible for one of the worst business environments in the country to have the best ecosystems for startup ventures?

There is a story behind why startups Kerala have won laurels for innovation recently. Last month, Cherthala-based Techgentsia Software Technologies Pvt Ltd’s product Vconsol, an indigenous video conferencing solution, was declared the winner of the Central government’s ‘Innovation Challenge for Development of Video Conferencing Solution’.

Similarly, in July, The Aditya, India’s first solar-powered ferry boat by Kerala startup NavAlt Solar, received a global honour – the Gustave Trouve Award, the world’s only international awards exclusively for electric boats.

Saji Gopinath deserves most of the credit for facilitating all this. Saji’s team has been spearheading it all since he took over as the CEO of Kerala Startup Mission (KSUM) in 2017. He stepped down from the post a few days ago after a memorable stint. Alongside Ashok Kurian Panjikaran, head, business development of KSUM, Saji was named ‘Startup Champions of the State’.

“The number of startups is doubling every year and Kerala startups today account for around 10 per cent of DPIIT (Department for Promotion of Industry and Internal Trade)-registered startups in India. Many of them have been recognised globally for their unique products and have established businesses even outside India,” he says.

According to him, some of Kerala’s incubators like Bionest and Maker Village placed themselves as industry leaders by winning national honours both for incubation as well as for the companies they helped make.

It’s reckoned Kerala has a total of 2,900 startups that collectively sourced external funding of Rs 1,500 crore since 2016, a figure that is seemingly low. Robin Alex Panicker, chief product officer of Finotes, who is also a keen observer of the startup sector in the state, explains why Kerala is ranked at the bottom in 'ease of doing' business' while faring at the top in the startup sector.

“It is easier to set up a software company in Kerala than a chicken farm. This also explains the wide variation in the two rankings,” he says.

"What's pulling down the industries' in Kerala is not the workers, but the officers from panchayat level to upwards, who have a hostile attitude towards industries and entrepreneurs," adds Panicker.  On the other hand, startup entrepreneurs require a minimum number of permissions to set up their ventures. "Moreover, the startups get various timely information and handholding from KSUM from time to time."

To Kerala's advantage, right now, technology startups are more important than chicken farms as the force multiplier is higher for the latter in terms of jobs and wealth creation. "Since data connectivity, human resource and electricity are vital for technological startups, there is a huge scope for them in Kerala." When compared to other startups, these are more compact, he adds.

Panicker points out Kerala's startup ecosystem has also come a long way in terms of funding. “Today it is possible to sell software products all over the world while sitting in Kerala. Also, compared to other states, we can make world-class software with very little investment here,” he says.

Shifting base?

It is normal for startups from Kerala to want to relocate to Tier one and two cities like Bengaluru or Mumbai once it grows in size. This may be because it is easier to get funding and customers in big cities where most of the angel investors, venture capital funds and private equity investors are based.Panicker says, though some Kerala startups have expanded or relocated to the big metros, the trend is reversing now.

“With many Malayalis coming back and investing in startups, this trend is visible even in major incubation hubs like Kozhikode, Kochi and Thiruvananthapuram. Even in smaller towns, it is no different. For example, Techgensia, the Alappuzha-based tech-startup.”

Ground-level upliftment is key

Still, Kerala has a long way to go, he reckons. Red-tapism and the attitude of the officials right from the panchayat to the bureaucratic level may need some correction. S R Nair, startup mentor, points out that some of the biggest startups in the country, like Byju’s founded by Byju Raveendran (valued at $5.4 billion or Rs 38,500 crore), ID Fresh Food (P C Mustafa) and Big Basket (Hari Nair), did not germinate in Kerala. “All three are Malayalis, but they set shop outside Kerala,” he said.  

With all due credit to the founders, this makes us wonder why a great number of startups in Kerala still do not attract the funding from angel investors and VCs. “Kerala startups must get into the radar of big investors, which it hasn’t until now,” says Nair. “For example, I know two fintech startups in Kochi with excellent business propositions. Had they been in Mumbai or Bengaluru, they would have been up there by now. In spite of the great value they deliver, they still await scale-up funds,” he says.

According to Nair, it is not always the business model that helps them with this. Instead, networking, good mentors and positive PR are crucial to the success of a startup. “Also, startup founders hold a false pride which makes them possessive and unwilling to share. The result? They stay in cocoons, forever,” he says.

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