Lead Story

Symbiosis in Start-Up Ecosystem: Why City Clusters Matter

Clusters, with better infrastructure, fast internet connectivity and an efficient transport system, mean that start-ups can operate with reduced overheads

Published 9 months ago on Nov 01, 2023 4 minutes Read
Illustration: Saahil Bhatia

In the bustling avenues of Shenzhen, a group of innovators huddle together in a co-working space, creating the next big product in the “Silicon Valley of Hardware”. Thousands of miles away, in the suburbs of Pune, another entrepreneur sketches plans for a fintech solution that could revolutionise India’s banking sector. These narratives, while far apart, share a common foundation: city clusters.

The Rise of City Clusters

Every entrepreneur faces multiple challenges while starting up—from finding the right test market to ensuring seamless logistics for their business. City clusters, with better infrastructure, fast internet connectivity and an efficient transport system, mean that start-ups can operate with reduced overheads and fewer logistical challenges.

Take the Pearl River Delta in China, for instance. Once a region dotted with sleepy towns, it is now a buzzing beehive of cities like Guangzhou, Shenzhen and Hong Kong, connected by state-of-the-art highways and bullet trains.

Speaking of talent, imagine having access to some of the world’s brightest minds, all in a concentrated area. Universities, engineering schools and management institutes pepper these city clusters, churning out fresh talent every year. As clusters grow, they retain talent that matures within them, enabling start-ups to hire senior professionals as well.

The Randstad region in the Netherlands is a classic example. Cities like Amsterdam, home to institutions like the University of Amsterdam and TU Delft, coupled with Rotterdam and Utrecht, provide a diverse talent pool making it a hotbed for start-ups.

Within these clusters, there is another unique phenomenon at play. Businesses, often from complementary sectors, find themselves in close quarters. This proximity sparks collaborations and partnerships that might not have been possible otherwise. As people and ideas move across companies, the whole becomes greater than the sum of its parts.

India’s City Clusters: A Closer Look

India, with its vast expanse and diverse demography, has been an ideal canvas for the rise of clusters fostering entrepreneurship. A variety of factors contribute to this growth, like the number of start-ups, availability of sources of funding, success stories, support infrastructure, government initiatives and market opportunities. Based on these factors, the following three major clusters exist in India currently.

The Delhi-NCR region: The NCR region, which includes Gurgaon and Noida, has been transformed into an entrepreneurial powerhouse. The vast number of tech parks, innovation labs and the proximity to political and regulatory power in Delhi makes this a supportive environment for start-ups.

Mumbai-Pune: While Mumbai is positioned as the financial capital, Pune offers a more serene academic ambience. This blend has led to a rich mix of fintech, entertainment-tech and edtech start-ups sprouting in this corridor. A new development has been the expansion of Mumbai itself—to include Navi Mumbai and Thane as outposts of its core central cluster.

Bangalore-Chennai IT corridor: Bangalore, often celebrated as the Silicon Valley of India, aligns closely with Chennai’s industrial and IT hubs. Both these cities have independently built up their strengths—Bangalore around ecommerce and consumer start-ups, and Chennai around SaaS.

According to Startup Genome’s ecosystem rankings in 2022, Bangalore is ranked 22nd globally, while Delhi is ranked 26th. Chennai, Pune and Mumbai have also moved up in the rankings.

Growth Drivers

While both clusters and standalone cities offer distinct advantages, city clusters do have multiple factors going in their favour. They encompass a wider range of urban and suburban zones. This translates into varying rent brackets, allowing businesses to choose spaces that fit their budget without compromising connectivity or access to amenities.

City clusters offer start-ups, particularly in manufacturing and logistics, space for scaling and expansion. They have a more robust infrastructural setup, with the larger size naturally attracting bigger investments and upgrades to transportation, utilities and digital connectivity.

Clusters usually host a range of educational institutions and skill training centres. This results in a diversified talent pool—from software geeks to management experts. They also offer employees choices in lifestyle—be it residing closer to nature or accessing recreational hubs away from the city.

As existing clusters mature, there is an opportunity for new standalone cities to take centre stage as the next frontier of growth. There are several developing ecosystems, like Hyderabad, Kochi, Jaipur and Ahmedabad. All these cities are supported by tailwinds around talent pools and infrastructural development.

Navigating the Future

The worldwide trend is clear: City clusters are not just the present but also the future of start-ups. Given their potential, governments are pumping funds into infrastructure, devising policies to boost start-up ecosystems and even redesigning urban landscapes.

However, the rapid rise of these urban clusters brings its own share of challenges. Addressing these challenges requires a multi-pronged approach.

Reserved green spaces, sustainable transportation and efficient pollution and waste management systems need to be in focus as these cities expand. It is vital that economic growth benefits all. Affordable housing, access to quality healthcare and education and job opportunities for local residents are essential.

With multiple cities in close proximity, deeper integration can be challenging. Regional governance structures need to ensure better collaboration between cities to enable a faster growth trajectory.

To summarise, it is becoming increasingly evident that city clusters have been a revolution for the entrepreneurial landscape. Their talent networks, infrastructural might and vibrant ecosystems are creating success stories from New York to Chennai. As more regions tap into their potential, the future of global entrepreneurship looks brighter than ever. 

Sanjay Nath, Co-founder and Managing Partner, Blume Ventures

Sumangal Vinjamuri, AVP (Investments team), Blume Ventures