Start-up Bharat: How non-metro locations are emerging as entrepreneurial hubs

Non-metro towns are fast emerging as start-up hubs as an increasing number of founders are looking at Tier II and III locations to launch their ventures. While there are challenges, the opportunities seem to be immense

Keeros Superfoods has been in existence for a little over five years now. Based in Lucknow, the start-up makes healthy, diabetic-friendly snacks. It has even raised three rounds of funding from a mix of nearly 50 institutional and angel investors. Now, Lucknow does not feature on any map as a start-up hub. But more than 300 start-ups call it home, and investors have poured in over $1 million in ventures based in this ‘City of Nawabs’. 

Sachin Sahni, Founder of Keeros Superfoods, says that the start-up ecosystem in non-metros is rapidly changing due to a combination of public and private initiatives in which incubation centres also play an important role. “Even parents who earlier used to root for safe government jobs are opening up to the idea of their wards getting into business,” he says, highlighting the role being played by initiatives like ‘Start in UP’ in Uttar Pradesh, and the awareness wrought on by television series Shark Tank India.

Similarly, Mohit Nagaria, Founder and CEO of Jhansi-based Logout.Studio, believes it is very cost effective to launch a start-up from a non-metro city, and more often than not, the local network of founders, investors and vendors pitch in to scale the business. “We could run bootstrapped for a year before raising funds only because we were based in a non-metro city,” says Nagaria, sharing how he managed to negotiate a deal for funding with the Jhansi branch of a bank after the same bank’s Delhi branch refused to hear his pitch.

Today, many individuals in the non-metro towns want to be entrepreneurs…the last few years have seen the emergence of socalled ‘Bharat’ sectors that can be launched from Tier II/III towns and stay closer to their target audience

PAULA MARIWALA
Founding Partner ,
Aureolis Ventures; Founder ,
Stanford Angels

While these are just two instances of start-ups doing well after launching from non-metros, they are emblematic of the fact that smaller towns and cities across India are fast emerging as a destination for entrepreneurs to start building their ventures. Data from data analytics firm Tracxn shows that there are as many as 15 cities in India that have witnessed more than 100 start-ups being launched since 2020. Cities like Jaipur, Indore, Lucknow, Kochi, Coimbatore, Ghaziabad, Bhopal, Bhubaneswar and Nagpur each boast of over 200 operational start-ups. And places like Mohali, Ranchi, Guwahati, and Prayagraj, among others, also have over 50 start-ups each, perTracxn. 

The Key Drivers 

Mayur Zanwar, an Amravati-based chartered accountant who is also a founder and investor, attributes this trend of a rising number of start-ups coming from Tier II and III cities to three key drivers: heightened digital connectivity, expansion of entrepreneurial ethos in smaller cities, and the growing presence of incubator and accelerator ecosystems aimed at nurturing local start-ups and founders. 

“Utilising local opportunities and strengths, entrepreneurs in these regions frequently address distinctive challenges and requirements that are often disregarded in major metropolitan areas,” says Zanwar, who is also the president of Amravati Management Association that is organising a BharatCon24 Summit in January to further develop the ecosystem in the city.

While India has around 90 active unicorns, with almost all of them being based in metro cities, a completely different picture emerges when one takes into account soonicorns—ventures that are expected to touch the $1-billion valuation mark soon. For instance, Pune has 17 soonicorns, Ahmedabad and Indore have four each, and Surat, Thiruvananthapuram and Vadodara have two each, shows data from Tracxn.

Till a few years ago, startups were not seen as a viable long-term occupation and were shunned, especially in the non-metros. But now the society has evolved, start-ups in terms of a career choice have also been normalised

NEIHARIKA RAJIV
Co-founder
GI Ventures

“The benefits of launching a start-up from a non-metro include a massive, untapped market, less competition as compared to the metro cities—especially on digital platforms—and the increasing dependence of people on various technologies after Covid-19,” says Anitta Babu V., Co-founder of Kottayam, Kerala-based digital services start-up Digi Suvidha.

For Keeros’s Sahni, the biggest plus a Tier II or III location offers are the reduced costs of real estate and manpower, and more importantly, better employee retention. Industry participants add that gradually these locations are catching on with their Tier I peers in terms of offering stable data connectivity, uninterrupted power supply, and the availability of good quality educational institutes churning out a skilled workforce. 

“The whole process of company registration, chartered accountant and company secretary work is done inexpensively, and if it’s your hometown, it’s a definite plus… The friends and family network really helps, and things get done effectively,” says Logout’s Nagaria.

Launching a start-up, however, is, according to many, the easier part. The real challenge lies in securing the funding to scale up the business, and here, the investing community plays the most important role. So how do investors view start-ups from non-metros? 

The Money Game 

“Factors like seamless data connectivity and UPI have convinced investors of the Bharat story. The whole Bharat story is playing out well and all the investors are looking at it quite seriously,” says Paula Mariwala, Founding Partner of Aureolis Ventures, who is also the Founder of Stanford Angels, a network of Stanford University alumni in India who fund ventures as angel investors. Plus, there is also a lot of interest from high net-worth individuals from smaller towns because they want to see a start-up ecosystem flourish in their regions.   

SACHIN SAHNI
Founder
Keeros Superfoods

Getting the required funding for start-ups is often looked upon as a litmus test for such ventures. On this parameter, non-metros have started showing results. For instance, 12 non-metro cities—including Jaipur, Vadodara, Kochi, Indore and Nashik—received at least $1 million in funding in 2023. “Earlier there were not many start-ups coming from Tier II and III cities, but in the past two to three years, we have seen many of them coming from these locations,” says Apoorva Ranjan Sharma, Co-founder of Venture Catalysts, one of the largest angel networks in India. “The share of angel investors in the non-metros has also gone up. While the total number of investors is close to 4,000 on our platform, around 35-40 per cent of those are from Tier II and III cities,” he adds.

Similarly, Neiharika Rajiv, Co-founder of GI Ventures, a venture capital firm focussed on early-stage start-ups that has invested in a mix of ventures from metro and non-metro cities, says till a few years ago, start-ups were not seen as a viable long-term occupation. “It was shunned, especially in the non-metros. But now the society has evolved and start-ups in terms of a career choice has also been normalised,” she says. Her firm has invested in over 30 start-ups, with almost 60-70 per cent of them having a direct or indirect link with non-metros—either because they are based in Tier II and III locations, or because they serve non-metros.

Slight Worry, Strong Outlook 

“The biggest worry for both founders and investors is to access the right talent because there is still a lot of migration from smaller cities to bigger cities and metros,” says Mariwala, adding that the other big worry is the psychology that how will a venture scale if it’s based in a small town. “Although that thinking is changing fast.”   

The past few years have seen the emergence of start-ups in the so-called ‘Bharat’ sectors, which encompass supply chain, agriculture, handicrafts and natural products, among others. Ventures in these sectors can easily be launched from Tier II and III locations as it helps them stay closer to their target audience. “Going ahead, we will see many more sectors coming up from Tier II and III locations,” says Mariwala.

Hence, it is amply clear that the concerns around Tier II and III locations not providing an ample base to launch start-ups are largely unfounded. Going forward, these locations would not only provide a robust base for launching start-ups, but the future would also see more start-ups, incubators, and investor networks setting up shop in ‘Bharat’.