Compared to Tier 1 cities in India that saw the maximum funding, Tier 2 and Tier 3 cities funding remained stagnant. While Bangalore, Mumbai, and Delhi NCR garnered the maximum investments and taking up the lion’s share of the total country funding, the Tier 2 cities funding was negligible.
Today many entrepreneurs, angel investors, Venture capital firms, and incubators are working to scale up the start-up operations in Tier-2 cities and bring in more funds.
Many tier 2 cities such as Ahmedabad, Indore, Chandigarh, and Kochi recently organized an event powered by BIG shift, an Inc42 initiative, to celebrate the start-up system in Tier 2 cities. This platform provided nearly 400 early-stage start-ups to come together. Thirty start-ups were invited to pitch in their ideas to the mentors and investors.
New opportunities have come up in the Pandemic season for start-ups to develop new ideas, including many innovations that are now relevant in the new world order post covid.
The pandemic saw many incubators bringing together diverse partners and a shared vision of elevating the start-ups in Tier2 cities in India. The pandemic has presented new challenges and a tectonic shift on how things are done by creating a new ecosystem from which everyone can benefit.
Incubator programs like Indiarath have played a pivotal role for entrepreneurs to sustain their start-ups and diversify to other geographical locations. They have designed programs that help entrepreneurs access financial support and mentorship to build suitable business models, products, and access to the customer network.
Another key vision of this accelerator program was to create a platform with a level playing field between experts and talented founders and an unbiased approach towards sectors or geographies. This approach was to challenge the existing trend of having start-ups only in the urban areas in Tier 1 & Tier 2 cities. This led to most of the opportunities restricted only to urban areas and one of the main reasons for negligible growth in Tier2 cities start-ups.
How Incubator Programs Are Helping Entrepreneurs In Tier 2 Cities?
A typical incubator program such as Indiarath runs 24 weeks program divided into three broad categories.
- Skill development for entrepreneurs by experts through masterclass sessions. They provide inputs on handling challenging real-life situations, strategies for branding, product designing, and business remodeling.
- Dedicated Mentorships by industry experts for helping start-ups to achieve tangible results over six months.
- Connecting to global networks to build a more robust and broader market reach.
Every incubator has unique programs to support start-ups. Some incubators are a part of a large Venture capital fund, while others are part of large organizations. Certain incubators combine all types and have diverse programs that act as incubators, accelerators, and venture capital funds.
Large MNCs tap smaller Tier 2 and Tier 3 cities mentioned above like Jaipur, Rajkot, Bhubaneshwar, Ahmedabad, Bhopal, Pune for mentorship programs with the start-ups their cities.
The Indian Start-Up Market Outlook
Technology will play an even more decisive role in the new normal post covid scenario. Digitization and e-commerce are going to be the main domains that will boost the economy. While the already established traditional and conventional businesses have been laying off people, fortunately, it is the start-ups that have been the economy’s growth drivers. They have come up with unique and innovative solutions in healthcare, environment, Fintech, Retail, and OTT platforms, to name a few, and have also provided employment opportunities to many.
The Aatmanirbhar Bharat initiative pushes entrepreneurs in tier2 and tier 3 cities to adopt innovative measures to help the economy. Some of the exciting start-ups in these cities are:
It is a Jaipur-based online car portal with Ratan Tata as one of the investors.
It is a Rajkot-based tea outlet start-up. They are already present in 29 cities and 70 outlets in the country. Everyone knows India is a tea-loving nation. Venture capital funds have realized this. A similar start-up like Chaayos and Chai point raised a series A fund.
It is a Chandigarh-based start-up that has raised $5 million in series A funding. It is an autorickshaw aggregator. Now they have entered the hyperlocal delivery space, using autorickshaws as delivery channels.
It is based out of Jaipur and has an app that makes learning English easier. This app is available on the android play store and has raised $5million in funding.
Technology The Main Backbone Of New Start-Ups
The one positive aspect of start-ups is that they are extremely fast in adopting new-age technology. This gives them the kickstart and gains traction in their business today. This may not have been possible in the usual brick-and-mortar model of business. Even the Tier 2 and Tier 3 states in India, such as West Bengal and Tamil Nadu, have become significant online sellers on the eCommerce platforms.
Tier 2 And Tier 3 Cities Are Crucial For India’s Growth Story
There is a saying that never let a good crisis go to waste. One is not sure whether the pandemic is a good crisis or not. Still, it has undoubtedly opened up the world and exposed fault lines in the existing structure of society. It has emphasized the need for new solutions and the new ways in which business can be done. For these new solutions, it is only the start-ups who can do it smartly and speedily.
The covid also exposed the inability of the metro and large cities to handle emergencies, and random slashing of jobs and laying off a large number of workers has made a rethink. A large number of migrant workers do not want to go back to the Tier1 cities and prefer to play safely in their smaller towns. This has naturally opened up new opportunities in Tier 2 and Tier 3 cities. Start-ups prefer to set up infrastructure at a lower cost and at the same time access a large number of skilled workers.
The Final Takeaway
As of December 2020, the Government of India has recognized 41061 start-ups. Out of this, around 39000 start-ups have generated 4.70 lacs jobs. Presently the country is the third-largest start-up ecosystem globally and with 38 companies valued at over $1 billion. Despite the lockdown, around 12 unicorn start-ups came during this period. This number is dynamic and is expected to grow further as technology plays a significant role in unlocking the countries opportunity potential.
The support from the Government for start-ups included simplifying statutory regulations, giving income tax exemption, and setting up a 10000 crore INR fund exclusively for start-ups from SIDBI. (Small Industries Development Bank of India).
The Start-up India initiative in 2017 led to Start-up Yatra to search entrepreneurial talent in tier2 and Tier 3 cities. This exercise was conducted in 207 districts in 23 states, identifying 78346 aspirants. A total of 1424 incubation offers were given to the start-ups by the Government.
Start-ups in India have been luckier compared to other start-ups across the globe. There is dedicated support from the Government regarding policies, infrastructural support, and funds commitment. In addition to this, investments from Venture capital firms have been taking a keen interest in the Indian start-up story. Finally, the individual incubators and accelerators play a magnificent role in creating groups of entrepreneurs through intense fast-track programs that have helped them cross milestones bridges in the shortest time.