Bangalore isn't world's back office any more; it's mecca of start-ups in India. Here's why

Bangalore has been ranked 15th in a global Startup Ecosystem Ranking for 2015 by US-based Compass, a provider of automated reporting and benchmarking software, making it the mecca of startups in India.

The city, long known as the Silicon Valley of India, has moved up four notches in two years, the rating company said, reinforcing the belief that the city is by far the best for technology entrepreneurs  in India.

The original global tech mecca, Silicon Valley, which houses 14,000 to 19,000 startups and 1.7 to 2.2 million high-tech workers, tops the ranking, with New York City, Los Angeles, Boston and Tel Aviv following.

The ranking has been done on five parameters: 1) performance on the funding and exit valuations of startups; 2) funding on VC investment and the time it takes to raise capital; 3) talent on the quality of technical talent, its availability and cost; 4) market reach and the ease of reaching customers in international markets and 5) startup experience.

According to Compass, the startup ecosystems which made the biggest leaps over the last two years are New York, Austin, Bangalore, Singapore, and Chicago. The last ranking was done in 2012. New York City made a significant leap from position 5 to 2 while Austin, Texas, stood at 14th spot, whereas three years ago they didn’t even crack the top 20. Bangalore moved from 19 to 15, Singapore from 17 to 10, Berlin from 15 to 9, and Chicago from 10 to 7.

The rater has, however, an important caveat that it doesn’t include startup ecosystems from China, Taiwan, Japan, and South Korea due to the language barrier.

Here are the key takeaways from the report:

# Transformation of Bangalore: Bangalore has witnessed an explosive growth in startups in the last few years, says the report terming it an unexpected development. “For the last couple of decades, Bangalore has been mostly an outsourcing center, hardly characterized for the innovative culture required for creating new technology startups,” it said. However, it “has transformed itself into a high octane environment that offers early-stage startups the opportunity to turn into billion dollar companies”. Bangalore has approximately 3,100 to 4,900 active startups, making it the largest ecosystem in India.

# Youthful ecosystem: The city also boasts an incredibly youthful startup ecosystem, with the youngest average founders’ age of all the top 20 ecosystems, the report says. “With a median age of 28.5 years, Bangalore is home to the youngest entrepreneurs in the region (12% below regional and 21% below Silicon Valley average)” it notes.

# Funding scenario better: Bangalore stands second in growth in VC investments with a four-time increase. Berlin tops with 12-fold increase, followed by Boston (3.7x), Amsterdam (2x), and Seattle (2x). Bangalore is on the 6th slot globally as far as start-up funding is concerned. Moreover, seed funding growth is the fastest in Bangalore, with a 53 percent increase in the last two years. The city is followed by Sydney (33%), and Austin (30%). At $2.256 bilion, venture capital deployed in Bangalore in 2014 was 7th among all startup ecosystems. It is also the fifth strongest ecosystem in the world. On the whole, Bangalore is better placed relatively when it comes to funding.

# The importance of Flipkart: According to the report success stories such as Flipkart and InMobi are part of the unicorn club with valuations beyond $1 billion. “Their success helps recirculate wealth and expertise back into the ecosystem. This in turn increases the attention of the international investor community who are eager to find high potential, under-valued new startup,” it said. Flipkart, which was set up just 8 years ago and disrupted the retail segment big time, has managed to raise $3.4 billion until now from investors including global majors such as DST Global, Tiger Global and Naspers.

# Cheap talent galore, but low quality: The report notes that Bangalore has a solid pipeline of cost-efficient talent. The city is ranked 17 on this parameter. The average time taken for hiring is the second lowest in the city and salaries are below $40,000 annually. This is 47 percent and 64 percent cheaper than Asia-Pacific and Silicon Valley average. These are hugely beneficial for Bangalore-based startups. “However, the analysis also suggests the average quality of the local talent is not yet on par with the elite startup ecosystems around the world,” the report added. In fact, it says the quality is the lowest globally.