Is Chennai really not so hot for start-ups?

What is it that Chennai lacks that other cities, particularly Bengaluru, Mumbai or Delhi, have that excites start-ups?

Pose this question to entrepreneurs and others associated with the ecosystem in Chennai, and they are immediately on the defensive. It is not as if Chennai does not have its share of exciting entrepreneurs or promising start-ups. It has IIT-Madras around which is evolving an ecosystem of incubators, mentors and start-ups. It has an active angel network – the Chennai Angels and a Keiretsu Forum. This US-headquartered global angel network group, recently opened a chapter in Chennai, its first in India.

The city has its share of entrepreneurs who are doing things differently. There is no dearth of icons. There is also a healthy network of angel investors – wealthy individuals who have the money and drive to invest in start-ups and the time and expertise to mentor them.

There is Murugavel Janakiraman, who founded Bharatmatrimony.com , which became the leading online matrimonial classifieds site and ensured a near complete shift away of such classifieds from newspapers. Bharatmatrimony has got investments from the likes of Yahoo! and Canaan Partners, and is looking at an IPO anytime now.

Then there is Sridhar Vembu, an unconventional entrepreneur who started Zoho, a software product company that offers Software as a service (SaaS). Sridhar does not believe in either getting external funding or getting his company listed on the exchanges. Or, even obtaining loans from banks. And, by all accounts, Zoho is an exciting place to work in.

Girish Mathrubootham, who cut his teeth at Zoho, is CEO and Founder, Freshdesk, which is a cloud-based customer support platform. It has attracted investments from global VC firms such as Accel Partners, Tiger Global Management and Google Capital.

Or even consider Kalpathi S Suresh, who again did something that Chennai was not quite known for. An IIT-Madras alumnus with a Master’s from the US, Suresh started his own venture, an IT and IT training firm, in the early 1990s. He listed it on the exchanges, bought out another company, sold one arm of his venture and then subsequently sold his venture. This, at a time when Chennai was not known for such acts.

Suresh then dabbled in real estate, sold that business too and has started a venture capital firm with his two brothers. The family is into the full value chain of the entertainment business – production, distribution and exhibition of movies. Suresh is part of the Chennai Angel Network and maintains a low profile, like many other Chennai entrepreneurs.

Despite all this, what ails Chennai? Part of the problem is historic. Madras, as Chennai was known, was the premier business city of the South with large, well-established and diversified family-owned groups. The city’s DNA is about being conservative, not wanting to fail, maintaining a low profile and getting into a state of contentment quite easily. There is also the issue of preferring more control than looking for growth, as growth would mean raising capital by diluting the stake. All these are the very antithesis of what entrepreneurs are all about. They are aggressive, even brash, ambitious, not worried about failure and always daring to do things differently.

Sarath Naru, Managing Partner, Ventureast, an early- to growth-stage venture capital firm based out of Chennai, has some interesting statistics to share: Bengaluru leads in terms of angel investors and angel-funded companies; Chennai is way behind. More than 220 angel investors reside in Bengaluru, around 210 in Mumbai but only about 50 in Chennai. The number of companies that received angel funding in Bengaluru and Mumbai was twice that in Chennai between January 2010 and January 2015. Even in terms of incubators, there are only four in Chennai to 12 in Delhi, nine in Bengaluru and five in Mumbai.

As Gopal Srinivasan, Chairman and Managing Director, TVS Capital Funds, a venture capital firm, points out: “Entrepreneurship is all about risk taking. There are bound to be failures, but our culture does not allow it.” The problem is, he adds, “we are able to look at the current state and are satisfied with it.” He is quite blunt when he says the city does not have a dream. Don’t rock the boat is a widely prevalent feeling. “We are mistaking humility for the lack of ambition. Gandhiji was a humble man, but he had no lack of ambition,” he argues. Srinivasan, a scion of the TVS family, one of the oldest business families in the country, broke with tradition to nurture entrepreneurs and start-ups. His VC firm is one of the few such based in Chennai.

The number of start-ups in Chennai and Tamil Nadu is far greater than what is widely known. But, says R Ramaraj, an angel investor and advisor to VC firms, “what we are missing is enough capital availability.” That too, at the seed stage. Compare this with other cities like Bengaluru, says Ramaraj, where there is a lot more activity.

One of the things that helps at the early stage of a start-up is mentorship and go-to-market strategies. “What I think is missing is the buzz. Buzz happens only when there are notable exits or large funding. Our entrepreneurs aren’t showcasing themselves. There haven’t also been too many large second-round fund raises,” he says.

K Ganesh, a serial entrepreneur, angel investor and mentor to start-ups, tries to put things in perspective when he says that it takes time for cities to evolve. “Every city will not suddenly grow up and bloom. One needs to be patient,” he adds. Ganesh, who hails from Tamil Nadu but has made Bengaluru his home and started his ventures in India’s Silicon Valley, identifies Chennai’s problem: it has more to do with attitude.

Typically, people from Chennai are happier working for others than taking risks. You go to Delhi and you will find a lot of people from Tamil Nadu in government service, he adds.

He points out that Bengaluru benefited a lot from the reverse migration of Indians who had worked abroad, particularly in Silicon Valley, and of having a large number of expatriates, mainly because of the weather. “Chennai sends a lot of youngsters to the US, but when they come back, most of them prefer to settle down and work in Bengaluru,” says Ganesh.

Avnish Bajaj, Managing Director, Matrix Partners India, feels Chennai’s days are yet to come. Bengaluru’s growth as a hub for entrepreneurs can be traced to the outsourcing boom – after all two of the top four Indian IT companies are headquartered there.

This resulted in global companies such as Amazon and Google setting up base in Bengaluru. Start-ups like Flipkart and data analytics firm Mu Sigma are also based there.

Even Mumbai was a laggard as far as the ecosystem was concerned, with Bengaluru and Delhi clearly in the lead. It was only after IIT-Bombay stepped in and became active in nurturing entrepreneurs and creating an ecosystem that things started looking up. It helped that Mumbai is the country’s financial capital and hence most of the VCs are based here. In Chennai, says Bajaj, neither of these two played out. He feels the next wave of start-ups will be in the SaaS space and it is here that companies like Zoho may be able to set an example for the city.

Yogendra Vasupal, co-founder of Chennai-based Stayzilla, an online accommodation booking website, feels Chennai lags behind other cities in having a more heterogeneous character. It is much more difficult to survive without knowledge of the local language in Chennai than in other cities. That is a hindrance to attracting talent. This also explains Stayzilla’s opening of a Bengaluru office recently.

Not all is lost for Chennai. As Ganesh says, even in the US, there are only two areas – Silicon Valley and Boston – that are known for start-ups, while others are still trying to make a mark. Also, India is an ecosystem where multiple hubs will flourish, not one Silicon Valley. Each cluster will have its own character and culture, intricate support mechanisms and type of start-ups. Chennai, though late off the blocks, may still hope to make a match of it.