From student entrepreneurs to mature startups: Kerala’s transformation as a startup hub

Several entrepreneurs who moved out of the state are now coming back to Kerala, either shifting base or moving back to begin their second venture here.

Atom Startups

Back in 2012, five robotics engineers from Kerala received a call from Seattle from Amazon after their pitched their product – a drone that can fly up to an hour with a payload of 2-3kg – to Jeff Bezos to be used for Prime Air delivery service.

Years before startups, or even drones, became buzzwords, this small student startup ‘Techjeeva’ from Kerala was set to disrupt the robotics space. And they aren’t the only one. For a long time now, Kerala has had a vibrant startup ecosystem, but all this was largely among students and colleges.

But for a student startup to become a successful unicorn, or even reach a series A level, a lot more support is required, especially from the government.

“I started as a student entrepreneur where "startup" was not a buzz word back in 2011. Looking back, during our ideation stage we couldn't find a mentor in our space. Grants were also not there for student entrepreneurs to build their prototype. We also struggled in terms of connects at that point,” says Thejus Joseph Baby, co-founder of Techjeeva, who now works in Hyderabad.

Cut to now.

Several entrepreneurs, who moved out of the state even before starting their ventures are now coming back to Kerala, either shifting base here or moving back to Kerala to begin their second venture.

Dr Saji Gopinath, CEO of Kerala Startup Mission says that Kerala had a trend where a young entrepreneur based from here would start in Kerala when he was young and then move to a larger city to scale up – mostly Bengaluru – after gaining some traction. But Saji says that at present, the state is seeing reverse migration.

“At least half a dozen startups or entrepreneurs have moved back in last 3-4 months. Entrepreneurs who made it big in first venture and exited them are coming back and starting their next venture here. There is now a tendency for people to come back,” he adds.

This brings to mind the question of why entrepreneurs are now deciding to move back to the state.

Over the past year or two, the startup ecosystem in Kerala has begun maturing. It has started moving from being a student entrepreneurship state to one that houses mature startups.

And even for student entrepreneurs, Thejus says that he has been observing a drastic change in support for student entrepreneurs in terms of grants, mentors and connects.

One of the main reasons seems to be infrastructure issues and lack of space in metros such as Bengaluru. Shihab Muhammed, who was the co-founder of Freshdesk moved back to Kerala after resigning from the company to co-found SurveySparrow in Kerala.

“Personal reasons apart, all the big cities are becoming very polluted with infrastructure problems and traffic and other such things. Kochi on the other hand is maturing and I think for any business with a long-term view, Kochi is a good choice,” he says.

He believes that smaller cities are where startups will rise from. Kochi, Hyderabad and Pune, according to him, is where the future is.

Afsal Salu, founder of Delyver which was acquired by BigBasket also moved back to Kochi for his second venture ‘Best Doc’ from Bengaluru after having spent nearly 10 years there. He also believes that Kerala offers lesser distraction and better work life balance. And more importantly, he says that Kerala has a good talent pool at an affordable price.

“I had to take much more risk investing capital in Kerala because I wasn’t sure if the talent pool is good enough. But I have seen that the talent pool is as good as Bengaluru minus the exposure part. Meaning in terms of skills and abilities as good as Bengaluru but not exposed to fast evolving changes in the ecosystem. The speed of execution here has been as good as Bengaluru and we have found good engineers at an affordable price,” he adds.

Shihab also agrees. He says that the running cost compared to a city like Chennai is 20-30% lesser and when compared to Bengaluru, Kerala offers 40% lower labour cost, which has been one of the triggers for him in terms of his business.

And of course, its always good to be back to your roots, as both Afsal and Shihab say.

KSUM

Kerala Startup Mission (KSUM), the nodal agency of Government of Kerala for entrepreneurship development and incubation activities in the state has also been aggressively pushing for a reform in the startup scene of the state.

“Kerala ecosystem is not very new. It has been there for quite some time but has grown over the years. The major change happening over the past one year or so is that the companies here have matured. They have been seeing higher levels of revenue, traction and have even gotten funding,” says Saji Gopinath.

One of the most important moves by the government has been constituting a fund of funds to attract investors and VCs to the state. Instead of calling it an exclusive Kerala startup fund, what the government has done is that it has selected three venture capitalist firms and invested in their existing funds as a limited partner (LP). An external investor in a fund is called an LP.

And the state has come up with a policy where it invests up to 25% in an existing fund, but with the condition that the VC has to invest back at least twice that amount into a Kerala-based startup or an entrepreneur who is a Keralite.

The state has already constituted its first tranche and Mumbai-based Unicorn India Ventures has already invested in 8 Kerala-based startups. “Fund of Funds model gives us more flexibility to invest in companies and bring more commitment. It is a one-of-a-kind model that is working very successfully. Kerala govt has been one of the most forthcoming with respect to startup initiatives. For those who want to start ventures, having government support really helps and those who set up elsewhere are now moving back to take advantage of the startup-friendly policies,” says Anil Joshi, Managing Partner, Unicorn India Ventures.

KSUM is also setting a large startup space in Kochi, which will be a 13-acre campus with about 200,000 square feet of space for startups. Saji says that this will be ready in 3-4 months and once its open, he expects a lot more companies and entrepreneurs to come back to Kerala.

“The campus can provide close to 5000-8000 seats. We already have close to 120 startups working in the campus across electronics, bio-tech and other sectors,” Saji adds.

While the larger focus at KSUM is on tech startups, it is creating incubators in specific verticals as well. The state already houses a large electronic hardware incubator in Kochi, a bio-tech incubator in Kochi, and one mobile app accelerator set up in partnership with Internet and Mobile Association of India (IAMAI) in Kozhikode. There are incubators in Trivandrum, Kannur, Kasargod and one coming up in Palakkad.

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It is also working with cancer research organisation to create an incubator that focuses on cancer technology and one with Indian Space Research Organisation (ISRO) for space and aero-tech startups. It is also supporting incubators inside colleges such as NIIT, IIM, etc.

But while the startup ecosystem is definitely growing in the state, there is still a long way for it to go before it can come close to being the next Bengaluru.

Saji says that lack of large industries in the state is one major challenge as there is no immediate corporate customer unlike a Mumbai or Bengaluru. However, KSUM is addressing that by looking outside the state and partnering with business within the country and abroad. The state too, is positioning itself as a customer. It is also looking to attract investment into the state. In fact, Saji says that a large Japanese company will be soon setting up a global development centre in the state.

And while KSUM and the government is off to a very good start, Anil Joshi says that the challenge will be to ensure that they continue the support. “It tends to happen that many initiatives taken by the government are stopped midway without completing a cycle. In my view, the government should continue their initiatives till a time when even if they dont do much and focus on just infrastructure, it would not hamper growth in the state,” Anil says.

But Afsal believes that it’s not purely the responsibility of the government to build the startup ecosystem. The government only acts as a catalyst. VCs, angel investors and successful entrepreneurs from the state can contribute a lot more, he says.

“Even if they aren’t in the state, using social media they can reach out to aspiring entrepreneurs. Once they identify good ideas and entrepreneurs, they can play a very importance role in connecting to the ecosystem as well as to the bigwigs of the industry,” Afsal says.

And while Afsal and a bunch of seasoned entrepreneurs are doing their bit in this respect, with more support from the industry as well, the state can join Pune and Hyderabad in becoming the next hub for startups.