Beyond metros

The top three start-up hubs in India house approximately 60% of the country's new-age ventures, with Bengaluru, the National Capital Region (NCR) and Mumbai house having a share of 25%, 21% and 14% respectively, shows a Nasscom report. Even funding is concentrated in these areas. Together they account for 80% of $13.88 billion collectively raised by Indian start-ups across 864 deals, as per YourStory Research. 

SoftBank, Tencent, Naspers and Sequoia were some of the biggest investors. Bengaluru attracted maximum funding, accumulating $5.12 billion, thanks to the funding surge in December 2018 that witnessed Swiggy getting $1 billion and BYJU's bagging $540 million. 

Start-ups in NCR collectively cornered $4.80 billion and those in Mumbai received $1.07 billion. Chennai, home to software-as-a-service (SaaS) unicorn Freshworks, received $544 million in funding. Start-ups in Hyderabad, Jaipur and Pune received $406 million, $229 million and $192 million, respectively.

Moreover, Bengaluru, it appears, has the third highest number of technology-led start-ups in the world, behind the Silicon Valley in the US and London in the UK, says the Nasscom report.

Experts point out that for the start-up ecosystem to thrive in the long-term, multiple hubs, especially in the non-metros, are required. Says Pankaj Karna, managing director, Maple Capital Advisors, “Multiple hubs encourage the right level of start-up activity which is good, and eventually drives in greater amount of start-up capital from both within and outside the country.”

Start-ups in non-metros face several challenges starting from limited access to talented resources, customers, clients and vendors as well as to mentors and advisors, says Girish Shivani, executive director and fund manager, YourNest Venture Capital. “The non-metros see a dearth of investor interface and investor networks, starting from angel investors. There is also the other problem of market readiness. In the past, start-ups like Grofers and Zomato had to halt operations in smaller cities owing to lack of market readiness,” adds Shivani.

But the advantages that non-metros have over big start-up hubs are also numerous. “Firstly, the local talent can be effectively utilised without relocation to metros. The costs involved in setting up a business in a smaller city are lower, and entrepreneurs can access new virgin territories,” says Shivani.

Moreover, emerging cities like Lucknow, Surat, Chandigarh, Jaipur, Coimbatore are untapped markets owing to the purchasing power of their citizens. “Tier-II and -III cities account for 45% of India's consumption and will add 30% of affluent households by 2025, which positions them as a market for both budget and premium products and services,” says Rabindra Shrestha, managing partner, Prestellar Ventures.

Experts feel for investors, mentors and other stakeholders to appreciate start-ups, innovative ideas and business models holds greater credence than the geography. Says Karna, “Investors look at the right entrepreneur and the right idea which addresses real problems and is scalable. Despite being in Jaipur, CarDekho has attracted significant funding.”

CarDekho, the automobile classifieds platform, recently raised $110 million in a series C round from Sequoia India, Hillhouse Capital, Axis Bank and others. CarDekho is now valued at $400-500 million and according to CB Insights, is predicted to soon attain the $1 billion Unicorn tag. However, it is worth noting that CarDekho was established in 2008, whereas Bengaluru-based Swiggy was able to raise adequate funding to achieve the Unicorn status in less than five years of operations.

To raise funds, certain ventures like Ahmedabad-based food and consumer products marketplace SaleBhai.com are eyeing an initial public offering (IPO). “An IPO opens up a plethora of options to gather funds at a later stage. These include investments from private equity, follow-on issue, etc, which come into the picture once you are listed,” says Vishwavijay Singh, co-founder, SaleBhai.com.

To boost the ecosystem in non-metros, creation of incubation centres in key leading educational institutions could trigger an apt environment, says Karna. “Moreover, improving the infrastructure in smaller towns also provides an impetus to the ecosystem,” feels Shivani.