Kerala startup ecosystem seeing reverse migration of entrepreneurs

Kerala startups attracted $60-70 million investment last year, according to Kerala Startup Mission

Successful entrepreneurs looking for their next venture are flocking towards Kerala as they look to make most of the relatively lower cost of operations and skilled manpower available in the southern state that has an evolving startup ecosystem with focus on latest technology.

At least 20 companies would have returned to Kerala in the last six months, according to Saji Gopinath, CEO of Kerala Startup Mission (KSUM), the government wing which takes initiatives to build up a pipeline of startups in the state.

"It is either Keralites coming back to the state after starting in other cities or successful Keralite founders starting second companies after having their first ventures in other cities and there are also some companies from Bengaluru and Hyderabad coming down to Kerala," Gopinath said.

Afsal Salu, founder of Bigbasket-acquired Delyver, Shihab Muhammad, one of the three co-founders of FreshDesk, Sivasankar, co-founder of Waybeo, Deena Jacob, co-founder of Taxi4Sure, are some of them.

Gopinath attributes this 'reverse-migration' to support ecosystem developed for scaled-up startups, infrastructure, and setting up a fund of funds. 

Earlier the state focused on school-college startup schemes, but now it has started to cater to the scaled-up startup support ecosystem. 

"The state government has opened up accessibility to various departments and started purchasing almost Rs 20 million from the startups. Infrastructure in the state has also developed compared to the previous year," Gopinath said.

The state government offers rent subsidy, platforms for business meets and business connecting events, among other ways to support to scaled-up companies. KSUM has been building a pipeline in the last four to five years.

But most importantly, the state government set up fund of funds with the KSUM, building from the previous method of offering small grants and incentives to the startups. The government has tied up with investors to invest in the fund and the fund will, in turn, invest double of that amount into Kerala-based startups. 

The state government and Mumbai-based Unicorn India Ventures started with a fund in which the state government invested around Rs 100 million, and Unicorn was expected to invest another around Rs 100 million.

"However, given the potential of the companies in the state, Unicorn India Ventures has committed around Rs 250 million, exceeding the investment targets," said Anil Joshi, one of the founders of Unicorn India Ventures. 

Unicorn has so far invested in companies including Clootrack, Genrobotics, Open, Perfit, Sectorqube, Inntot etc.

"Within a few months - they identified eight companies. Now we have venture funds available. We have conducted evangelisation programmes for angel funds, through Indian Angel Network, we have a new set of investors who like the Kerala companies. As per information, close to $60-70 million was invested in Kerala last year," said Gopinath.

The state government is planning to come up with a larger fund of around Rs 1 billion to support the ecosystem. The investors have said the government can bring in one-third of the amount, while the investors will contribute a larger share of the fund, which has made KSUM ambitious about the funding part.

There are over 2,000 startups in Kerala according to the first proper survey of such companies, Gopinath said. 

Kerala is developing Kozhikode as a hub for mobile application companies, Kannur for companies that have technology for traditional industries, hardware startups are cropping up in Kochi and newer-age technology like blockchain and space-related industry are being developed in Thiruvananthapuram, through incubators.

Shihab Muhammad, who left Freshdesk and started SurveySparrow to bring to life surveys through modern, simple technology, says the available talent may be raw and might take time to develop, but it is advantageous in terms of cost. 

"When it comes to salary, Bengaluru is equal to Texas. In Kerala, there is an advantage of at least 30-40 per cent and we expect with the ecosystem developed, more Venture Capitalists will come to Kerala," he said.

Afsal Salu, the founder of Delyver which was acquired by BigBasket, agrees with Muhammad. 

"In the last two years, we have been seen a growth in startup ecosystem in Kerala. I am also an angel investor and we have seen a lot of improvement in terms of quality of startups in the state," he said.

Shameel Abdulla, co-founder and CEO of ClootTrack Software Labs, who earlier developed Jiffstore Softwarde Labs which was acquired by PepperTap, says that the cost difference between the cities in Kerala and locations like Bengaluru is also true in terms of real estate. 

"The workspace in Kerala is at least 25 per cent lower compared to the major cities and the state government is developing more space for the startups. The ecosystem is also developing faster and could see major changes in the near future," he said.