Small town startups are ignored and subjected to investor bias, say entrepreneurs at TiE Global Summit

Tier II and Tier III entrepreneurs feel the investor community is unfairly focused on the top ten cities. There is an emerging, motivated India beyond that, they say. 

It is often said that there are two Indias — one that lives in the top ten cities, and Bharat that lives in the hundreds of small towns beyond them.

According to the last Census, more than 70 percent of India resides in rural and semi-urban areas, or what is sometimes referred to as the ‘emerging India’. It consists of Tier II, III and IV towns that hold tremendous promise, boast enormous talent and skill, but are often devoid of opportunities, support, and capital.

Startups running out of these emerging centres are, by their own admission, “ignored” by investors, and left on their own to build companies. There is a definite “demand-supply deficit” that haunts them. “Most VCs tend to invest in tech-enabled businesses. The real need is in 90 percent of the non-tech companies,” says an investor.

While great ideas are always on offer, entrepreneurs face investor bias and battle limited resources that prevent them from building large, scalable ventures out of small-town India. But, that ought to change.

Stakeholders — entrepreneurs, investors, government — gathered at the TiE Global Summit in Mumbai to do a SWOT analysis of the startup ecosystem in emerging India.

The panel opined that startups in small-town India are “hungry” for success.

Apoorv Sharma, Co-founder and President, Venture Catalysts, says: “Data shows that 40 percent of the startup incubators are located in emerging towns. But, there is a disconnect between startups and investors. If they are given enough opportunities, there will be collaborations happening, and an ecosystem will take shape.”

“There are some good startups coming out of Jaipur, Lucknow, and so on. Some centres which were neglected earlier are now being revived,” says Apoorv.

Venture Catalysts has invested in startups across eight emerging towns in India, and will take that up to 50 in the next couple of years. It is only by empowering millions of entrepreneurs that India would be able to create jobs for its 120 million youth who are expected to join the workforce in the next few years.

Small town spirit

Are small-town entrepreneurs more focused? Yes, many tend to think.

Madan Padaki, Co-founder & CEO, 1Bridge (which connects rural consumers with other rural and urban suppliers through an assisted-commerce platform), says:

“There’s more resilient entrepreneurial spirit in rural India than elsewhere. They are just ready to emerge. But, we don’t understand rural India yet. We don’t know its aspirations.”

Aspirations it has! They’re only waiting to be uncovered.

Take WittyFeed, for instance. This Indore-based content startup gets 60 percent of its traffic from outside Indore. Every third American is on WittyFeed, it says.

Vinay Singhal, Co-Founder & CEO, WittyFeed, says: “A young man in Indore decides what an American will read when he wakes up the next morning. This is possible. There is an India beyond Delhi, Mumbai and Bengaluru. There is an ecosystem and community. It only needs some support.”

Vinay says why compare small towns startups and entrepreneurs with those in big cities and metros? “Let’s build global companies and benchmark ourselves with the best in the world,” he says.

He uses a definitive cricket analogy to underscore the availability of rich talent in semi-urban and rural India. “Agar saare Tendulkar Mumbai se hi aayenge, toh Dhoni ko Ranchi se kaun layega?”

That is the support and the access to “world-class facilities” small town entrepreneurs require. In an earlier conversation with YourStory, TiE Global Chairman Suhas Patil had echoed similar sentiments. He said, “Entrepreneurs are motivated. They do not need any motivation. It comes to who they are connected with in the ecosystem. To get early money, either angel funding or government grants, is one of the most difficult things for entrepreneurs.”

Small town bias?

Some entrepreneurs allege a “strong investor bias” against small-town startups.

“VCs are only looking at IIT and IIM degrees,” says WittyFeed’s Vinay. “But, the potential is in the idea, the customer, the motivation which an entrepreneur brings. It is not just in the background,” he adds.

Apoorv concurs. He says, “There is some bias, that’s right. Some towns have been ignored completely. But that is now changing. We are going to Tier III and even Tier IV locations.”

According to Venture Catalysts, several startups in non-traditional locations are creating up new investment avenues. Traditionally, investors looked at fintech, health tech and other tech-led verticals. “But, there is an emergence of good FMCG and F&B startups in places like Kolkata, Ahmedabad, etc,” says Apoorv.

Moreover, running a startup in Indore or Lucknow or Jaipur is far more cost-effective than operating in Bengaluru or Mumbai. Not only that, small town startups fetch more loyalties from their employees. “Because there is a dearth of opportunities, if you train your staff well, they will deliver good, loyal service for the long-term,” says Vinay.

Government support

Most small town entrepreneurs — and their communities — are banking on the government to foster the development of startup ecosystems in these areas. The government has the access, the decision-making power, and the resources to drive transformation.

States like Andhra Pradesh are being hailed by the investor and entrepreneurial community for being a torchbearer of the Startup India and Digital India missions. The government, in essence, could mentor startups in rural areas.

Valli Kumari, CEO, Andhra Pradesh Innovation Society, says: “Grassroot innovation is being honoured with government support. We are ready to test all innovative products. We are mentoring startups. We have incubation centres, both state-led and privately managed.”

The Andhra Pradesh Innovation Society has connected various startups, even in Tier II and Tier III cities, to tourism or water departments in the state. Their products and services are now being sampled by the government.

Members at TiE reckon the prevalent perception that “global companies cannot be built out of India” needs to change. The startup ecosystem needs to find, nurture, and unleash its Dhoni on the world.