Bangalore’s now the 2nd best funded startup hub in the world, outside the US

US-based Compass, formerly known as Startup Genome, has rated the world’s top tech hubs on five counts: funding, market reach, talent, experience, and performance of startups. Overall, Bangalore came 15th in its latest ranking of ecosystems – up four places from Startup Genome’s last global ecosystem ranking in 2012.

With US$2.25 billion in funding last year, Bangalore now ranks 6th among startup ecosystems for access to venture capital. Only four US tech hubs – Silicon Valley, New York, Boston, Los Angeles – and Tel Aviv in Israel are ahead of Bangalore in terms of VC investment and time to raise capital. This is one of the findings in the Compass report released today on the top 20 startup ecosystems in the world.

Delhi, which has seen a surge of startup activity over the last couple of years, hasn’t made the cut yet. Nor has Mumbai, which is the other main startup hub in India. Compass data shows that Delhi and Mumbai are still lagging in early stage investment, which involves high risk capital.

Bangalore scored high not only in funding but also in performance, which is determined by the number of startups, their valuations, and growth rates. It came 10th in this column, one spot above Singapore.

Low in exits, high on seed rounds

Not everything was rosy for Bangalore, which is still an immature ecosystem. It got only a 0.2 percent slice of the exit pie in the last two years, with Silicon Valley taking the lion’s share, followed by London, Los Angeles, and Tel Aviv. Exits are important to keep investors interested, but rising valuations made up for low exit volume in Bangalore.

As Bjoern Lasse Herrmann, founder and CEO of Compass, explains to Tech in Asia:

For a relatively young, fast-growing ecosystem, the sum of valuations is larger than the sum of exit valuations, because the latter is by definition a lagging indicator. The large number of startups and their performance helped Bangalore rank higher.

The Compass report notes that Bangalore used to be mostly an outsourcing center, “hardly characterized for the innovative culture required for creating new technology startups.” So it surprised many to see its explosive growth as a startup hub in the last few years. But there’s no stopping it now. In the last quarter, US$740 million of VC funding came in.

The ecosystems with the most growth in funding in the last three years were Berlin (12x), Bangalore (4x), and Boston (3.7x). But of all the ecosystems, Bangalore had the highest rise in seed rounds – a clear indicator of future growth potential. Boston, in contrast to Bangalore, had more exits and stronger late stage funding, but a steady fall in seed rounds each year, suggesting a future decline.

“Bangalore also boasts an incredibly youthful startup ecosystem, with the youngest average founders’ age of all the top 20 ecosystems,” says the Compass report. A study by the National Association of Software and Service Companies (Nasscom) last year found the average age of startup founders in India to be 32, with three-quarters of them being 35 or below.

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