Rancho’s India Startup Story

Startup Growth Outside of Silicon Valley of India??

Ever since India kickstarted the Startup India Campaign in 2016, India’s startup scene has been experiencing rapid growth. As mentioned in a previous post, India is currently the 3rd largest startup ecosystem in the world and is projected to continue growing in the years to come. But while India’s startup scene is successful and relatively new, it follows other developed startup ecosystems’ footsteps in terms of concentration of its startups. A significant portion of India’s VC investments are geographically focused in 2-3 cities. This centralization of startups and VC investments, however, has recently shown signs of decentralization. Innovation and economic growth have spread beyond the previously dominant cities, unlocking the potential of tier-2 and tier-3 cities and the unique perspectives that come with them.?

According to Bain & Company’s India Venture Capital Report 2023, the split of VC investments in India by city has exhibited an extension to Tier 2 and 3 cities. While investments in Bengaluru have increased its percentage of total investments in India has dropped from 56% to 45%. This drop can be attributed to a great rise in investments in Tier 2 and 3 cities such as Chennai and Hyderabad. Some notable investments from these cities include $400 million in Uniphore, $330 million in ElasticRun, $325 million in XpressBees, and $85 million in KFintech. Bain & Company’s annual report also claims that factors such as Google Startup School’s mentorship of 10K start-ups in tier 2 and 3 cities, Microsoft’s Highway to 100 Unicorns accelerating startups in tier 2 cities, and unique tier 2+ market addressability and its potential (innovation that addresses tier 2+ city-specific problems) contributed to the increased investments in cities outside of Bengaluru, Mumbai, and NCR. Like so, global interest in India’s growing startup ecosystem and its focus on less developed cities has allowed the reaches of innovation in India to expand outside of what was otherwise India’s ‘startup comfort zone’.???

In addition to the aforementioned events, government support may be another reason that India’s startup ecosystem has experienced this shift.?

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Government Support for Regional Growth??

Along with the Startup India Campaign in 2016, the Atal Innovation Movement (AIM) was also implemented to promote a culture of innovation and entrepreneurship in the country. The movement has been actively fostering the problem-solving innovative mindset of children in schools and expanding India’s ecosystem of innovation and entrepreneurship in universities and research institutions. AIM’s greatest efforts for an diverse and expansive startup ecosystem are its Atal Incubation Centers (AIC) and Atal Community Innovation Centers (ACIC).??

AICs and ACICs have significantly boosted regional growth and entrepreneurship. With 72 AICs supporting over 3,500 startups and creating more than 32,000 jobs, they provide essential resources like mentorship, funding, and co-working spaces. Additionally, 14 ACICs have been established to promote technology-led innovation in underserved areas, including tier-2 and tier-3 cities, through grants and partnerships. These centers have democratized access to entrepreneurial resources, fostering economic growth and innovation nationwide and have supported the rise of regional startups aforementioned.??

All of this is not to say that India has successfully escaped its centralized startup ecosystem. Mumbai and NCR saw an increase in VC investments leaving other cities with only 18% of total investments. This means that Bengaluru, Mumbai and NCR are still home to what is well over half of VC investments in India. But given recent trends and constant efforts to include regional startups in their rapid growth, India’s startup ecosystem show’s a promising future, one that makes use of their diverse, vibrant culture and population.

This article has been written by Rancho & Tae Kyeong Hong

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