The great Indian startups juggernaut heads for tier 2 and 3 cities

By Ajay Ramasubramaniam

The (r)evolution of the Indian startup ecosystem goes beyond the usual suspects i.e, Mumbai, Bangalore and NCR. We are increasingly hearing of startup stories from the Tier-2 and Tier-3 cities of India, solving more local problems at scale, ranging across healthcare, education, agriculture, financial services etc. At the same time, we have seen a number of cases, wherein people have quit an urban-life, and gone back to their roots, for a variety of reasons ranging across family, better lifestyle etc., and are building deep tech ventures in artificial intelligence, internet of things etc.

We have been making a conscious effort to find such high potential startups in tier 2 and 3 cities and have created different platforms such as bootcamps, accelerators, pitch sesisons etc for them to showcase and validate their startup, as well as interact with prospective customers and investors. Our programs take us to these new and emerging ecosystems producing several more entrepreneurs, and adding to jobs in the knowledge economy. We have seen an increasingly growing percentage of startups from these emerging hubs apply to our annual programs coming from cities like Kochi, Manipur, Coimbatore, Jaipur, Chandigarh, Lucknow, Indore, Ahmedabad to name some.

We see the Government funded incubators or Technology Business Incubators, as the Department of Science and Technology calls it, as one of the bigger factors triggering the emergence of startup culture in these Tier-2 and Tier-3 cities. These incubators are bringing together several support mechanisms that are helping startups tide through the early challenges of starting up by providing access to mentors, interns, seed funds (grants / equity), test labs etc. Most of these incubators are focussed on specific themes, which allows building a good peer ecosystem of founders and talent, which automatically enables a local thematic ecosystem. Eg. The Forge Accelerator in Coimbatore is known for IOT solutions in the Agricultural sector. Likewise, the erstwhile Startup Village in Kochi was known for successful hardware startups that were able to raise money early on.

Also, the emergence of co-working spaces in Tier-2 and Tier-3 cities has played its role in catalysing the local ecosystem. NASSCOM Warehouse, 91 Springboard, Venture Catalysts are some of the names that come to mind straight away. Someone like 91 Springboard in particular, counts “community building” as one of its prime takeaways for their members. This goes a long way in building a startup culture.

While it is difficult to bracket cities and the type of startups that form the ecosystem, we are seeing Tier-2 and Tier-3 startups to be solving more localized problems, compared to startups in large metros, which are solving larger problems. At the same time, several Tier-2 and Tier-3 cities in India are growing fast, and in particular cities with IT hubs, that are seeing a more urbane demography which has stayed elsewhere before, demand more urban consumer tech solutions, such as hyperlocal, product discovery, online deliveries, ride sharing etc. Many startups are catering to this need, and there definitely exist an opportunity to be able to scale to similar markets.

We have been fortunate to work with startups from Tier-2 and Tier-3 cities, and while they do have their cost advantages (salaries, access to talent, rentals) and time-to-market advantages (with MVP or as a test market), they do face several challenges when it comes to scaling. One of the more common challenges is around access to larger pool of talent. Also, given the size of India as a market, many of these startups are at sea when they initially move to larger cities such as Mumbai, Bangalore and NCR. There exist a huge opportunity to create bridging programs with established incubators and accelerators in Tier-1 cities, that helps ease startups from Tier-2 and Tier-3 cities into major markets, once they are ready to expand.

We believe that for India to become a world-class startup hub, there is a need to go to these emerging startup hubs, and promote growth of high potential startups and enable them to become a job creation engine for their local ecosystem over a period of time. Under our programs Next BIG Idea and empoWer, we have made a conscious effort to continuously select some great applications from cities such as Manipur, Mangalore, Kochi and Ahmedabad. Government-run programs such as Atal Innovation Mission that is forming a large advisory pool of mentors will aid many such startups from the emerging startup centres – as they may not normally have access to subject matter experts. Several State Governments are operating startup programs that are providing mentorship and support, in addition to access to seed funds and grants, making it easier for entrepreneurs to start up. Local incubators, accelerators, co-working spaces and enablers continue to remain the backbone of the ecosystem, leading to the emergence of startups in Tier-2 and Tier-3 startups.

Ajay Ramasubramaniam is Director — India, Zone Startups, which is a part of Ryerson Futures Network that operates accelerator programs around the World under the brand Zone Startups.