Political situation taking a toll on start up ecosystem in Tamil Nadu

The current disturbed political situation in Tamil Nadu is taking a toll on the start up ecosystem and angel investments from within the state, as in many other sectors, according to experts. 

Angel investments in Tamil Nadu has come down and some of the start ups have moved out of the city. While the political uncertainty may not have a direct impact on the start ups or the investments, the lack of proper steps to provide a conducive ecosystem is lacking in the state, while the neighbouring states are keen on this, said investor community.

"The sentiment has been down in Tamil Nadu for some time now. It has reflected in investments, especially those from Chennai-based investors into Chennai-based companies," said an angel investor on condition of anonymity.

According to data from market intelligence firm Venture Intelligence, the investments by Chennai-based investors into Chennai companies has come down from a total of nine in 2016 to five in 2017. The overall angel investments in Tamil Nadu based companies have seen a decline of 31 per cent from a total of 19 deals in 2016, which was the highest in the last five years, to 13 in 2017.

While the decline in angel investment during 2017 also affected Bengaluru, which saw decline from a five year high of 75 deals in 2016 to 45 deals in 2017, there are reasons for Tamil Nadu to be worried of, said those who closely watch the start up ecosystem in the State.

For instance, Tamil Nadu has not attracted any foreign company to set up an incubator or accelerator in Chennai, even in the areas where Chennai is said to be strong, such as automotive, healthcare, finance etc. Global figures like Apple CEO Tim Cook, Microsoft CEO Satya Nadella or Ivanka Trump businesswoman and daughter of US President Donald Trump, visited India, they went to Bengaluru and Hyderabad and nowhere near Chennai. Even Google CEO Sundar Pichai, who hails from the State, came down to Tamil Nadu once for a personal visit and not on official matters. 

Some of the big educational ventures have recently opted their operations to be based in Andhra Pradesh and not in Tamil Nadu. The State government has not come out with a start up policy so far, while the entrepreneurs in the neighbouring States of Andhra Pradesh, Telengana, Karnataka and Kerala are enjoying the policy benefits in those states and even attracting investments from the Chennai start ups.

The lack of proper recognition to the segment, especially when the investors and start ups have better alternatives in the neighbouring States, will be hurting the State.  

"Now you have alternatives close to you. A couple of companies have hugely shifted their operations to Bengaluru or elsewhere because they were not able to get what they required here. For instance, Shields square, one of the companies I have invested in, substantially moved their development to Bengaluru, since the talent required is not much available in Chennai,"said Chandu Nair, an angel investor and advisor for entrepreneurs. 

"If the government does not show visible signs of enabling, even if not providing benefits, at least providing some enabling atmosphere or enabling infrastructure, the State will see start up ecosystem under stress," said another investor. This is especially in the backdrop of the centre's move to rank the states based on the ecosystem created for the development of start-ups.

Nair says there is also a slight shift in the funding system. There are large investors like Tencent and Softbank coming in and investing huge amount in start ups, and the start up funding level has suddenly jumped manifold. Angels will continue to bet, but certain areas which are seeing huge capital infusion might be out of reach for the small investors now. In a sense, this skews the field.