A recent report by Primus Partners shows the rapid growth of startups in small towns especially the Tier-II and Tier-III cities and investors’ has set their eyes towards investing in these startups. The report brings to the fore that about 90 percent of startups in 2023 grew from these non-metro regions of India and garnered about 22 percent of total funding.
These small cities hold great promise as they have the resources and strong potential for entrepreneurship. India’s small towns boasts a population 171 million, 45 percent of the urban population, and contribute to about 37 percent of the country’s gross domestic product (GDP).
The report highlighted that close to 44 percent investors have backed startups from Tier-II and III cities. The funding acceleration in sub-metro startups has also risen from Rs37,500 crore in 2021 and Rs75,000 crore in 2022 to Rs1,12,500 crore in 2023.
New Study Unveils 44% Increase in Investors Backing for Tier 1, Tier 2 Startups
“Our personal perspective finds reflection in this report. Having been part of a startup journey myself as one of the co-founding team of Primus Partners, with all of us transitioning from the big 4 multinational culture to shaping our own home-grown Indian Management Consulting firm, I have personally experienced the survival and transformational pangs of growth phase of startups.” Charu Malhotra, Co-Founder & Managing Director, Primus Partners said in her foreward.
Charu added, beyond narratives of sectoral growth, challenges, and opportunities, the Report delves into human perspectives, the symphony of government initiatives, stakeholder engagement, and the transformative impact of digitalization on the startup landscape. From boardrooms to grassroots, we cover initiatives that have contributed to various domains – economy, youth empowerment, policy influence, development, entrepreneurship, and innovation.
The report outlined that digitalisation and initiatives by central and state governments, such as the Startup India Initiative and National Entrepreneurship Policy, have played a pivotal role in connecting the investors with the founders. The report suggests over 66 percent of investors reach out to the founder via government networking platforms.
What is even more startling is that there has been a threefold increase in the number of jobs created by small-town startups. According to the report, the number of employment created by these startups has shot up from 50 lakhs in 2021 and 100 lakhs in 2023 to 150 lakhs in 2023. Understanding the role of these local startups in job creation, several state governments have embarked on launching new programs, such as iStart Rajasthan, Startup Odisha, Startup Haryana, etc, to support the startups.
However, given the level of increasing support, most startups in small towns face challenges in raising funds for growth. The report shows that about 12 percent of these startups received pre-seed funding, 10 percent got seed funding, and only 2 percent of startups secured Series A funding.
