A recent survey by Primus Partners, a management consulting firm, revealed that 44% of investors have actively participated in supporting startups within Tier 2 and 3 cities in India, indicating a keen interest in the untapped potential of emerging markets. The survey also found that 64% of investors have directed their investments towards technology-based startups, signalling a substantial appetite for tech-driven innovation.
Why Tier 2 and 3 Cities?
According to the survey, startups from Tier 2 and 3 cities have several advantages over their counterparts from metro cities. These include:
- Skilled talent: Startups from smaller cities can access a pool of talented professionals who are willing to work at lower costs and have lower attrition rates.
- Cost-effective operations: Startups from smaller cities can save on operational expenses such as rent, utilities, and transportation, which can help them achieve higher profitability and scalability.
- Favorable government policies: Startups from smaller cities can benefit from various government initiatives such as Startup India, Atal Innovation Mission, and Digital India, which provide incentives, subsidies, tax benefits, and infrastructure support.
Challenges and Opportunities
Despite these advantages, startups from Tier 2 and 3 cities also face some challenges that hinder their growth potential. The survey identified the following issues:
- Funding: Over 40% of startups cited funding as a major growth issue, with only 12% receiving pre-seed funding. The survey suggested that investors should increase their outreach and awareness efforts to identify and support promising startups from smaller cities.
- Networking: About 24% of investors said they have benefited from networking support, underscoring the significance of connections. The survey recommended that startups should leverage online platforms, events, and communities to build relationships with mentors, peers, and potential partners.
- Talent shortage: Some startups reported difficulty in finding skilled talent in niche domains such as artificial intelligence, blockchain, and cybersecurity. The survey advised that startups should invest in training and upskilling their existing workforce and collaborate with academic institutions to access talent pools.
The survey concluded that startups from Tier 2 and 3 cities have immense potential to contribute to India’s economic growth and social development. It also highlighted the role of investors in fueling their innovation and expansion. With the right support and guidance, these startups can overcome their challenges and seize the opportunities in the emerging markets.