The past couple of years have deflected some well-deserved attention towards Tier II and III cities of India: both the needs of the consumers in Bharat and the many startups that are popping up in the non-metros.
According to YourStory Research, investors have begun showing a real interest in startups based out of Tier II and III cities, with the number of deals and the quantum of funding seeing steady growth.
In 2016, investments in startups from Bharat stood at just $42 million, which saw a tenfold rise to $447.64 million in 2018. Similarly, the number of deals too have doubled: from 32 in 2016 to 63 in 2018. Within the first few months of 2019, the startups had raised $165 million across 18 deals.
A reason behind this thrust in recent times is the fact that startups in Bharat are clued in on what the users need in the region—which is seeing rapid smartphone and internet adoption—and are innovating for problems unique to the hinterlands.
A quick look at YourStory’s database of funded startups reveals that startups in smaller cities are coming up with interesting solutions to problems that affect most parts of India. But this is not to say they are shying away from sectors like ecommerce or fintech. In fact, there are just as many startups in sectors like ecommerce and SaaS as there are in edtech and healthtech, which tackle the more pressing gaps in small-town India.
Increased number of accelerators and funds
There is no doubt that there is a need and the impassioned will to address it with startups in Bharat. But entrepreneurs lack the sort of mentorship and the relatively easy access to funding that their counterparts in the cities have.
To change this status quo, several accelerators and funds are being set up in the region. The IIM-K alumni fund, for instance, while not particularly working only with startups in Bharat, has been set up in Kerala’s Kozhikode.
AIM Smart City Accelerator, born out of Ashoka University in Sonipat, Haryana, in 2016, was launched to empower startups primarily working in three domains – healthcare, sanitation, and waste management. However, like other accelerators, it also offers the same mentorship and support to startups from Tier II and III cities in India.
These accelerators offer crucial support that is missing in Bharat: mentorship, backing in terms of product design, access to professional network, an office space, market strategy, and fundraising.
Increased government push
While different states have already established their startup policies and focus, there will be increased activity from the government.
In a conversation with YourStory, Padmaja Ruparel, President and Co-founder at IAN and Founding Partner said, “Whether it is the blockchain and AI push in Kanpur or the fintech push in Visakhapatnam, the government have ensured that startups become mainstream in India, even in the smaller towns.”
IAN itself has invested Rs 40 crore in 10 startups from cities like Nagpur, Belgaum, Kochi, Madurai, and Ahmedabad. This year, many of the plans and policies will see fruition.
Kerala Startup Mission for one is looking to bring investors, mentors, and has been conducting several events and sessions to bring Kerala-based startups to the forefront.
Andhra Pradesh and Rajasthan are among the many states that are focussed on conducting different events and mentorship sessions to bring their entrepreneurs to the forefront and make the ecosystem attractive enough to retain them in their state.
Growing consumption patterns
Last year, we saw that a number of products were launched in Tier II and III cities first. Flipkart launched 2GUD in August 2019 as a platform for selling refurbished goods. 2GUD has served close to a million customers from over 3,000 towns, with about 60-65 percent of the orders coming from Tier II and III markets.
Amazon says more than 80 percent of global sellers on its platform belong to Tier II and III cities, with many coming from manufacturing zones like Surat, Ludhiana, and Lucknow.
Vinod Murali, Managing Partner, Alteria Capital, had said earlier that in a broader scheme of things, Tier II and III cities are where most startups are headed. But in order to succeed in these markets, they need to pace themselves.
At present, startups in the space are just starting to bloom and grow, but the market they are addressing is vast and holds much potential as more of Bharat comes online. With technology developing at breakneck speed and vernacular content becoming a preoccupation for startups and investors alike, 2020 may just be the year that small-town startups will finally have their spot in the limelight.