Strong Investor Support For Tier II And III Startups; 64% Focused On Tech Innovation

Nearly 44 per cent of investors actively supported startups in Tier II and Tier III cities, revealing a strong interest in untapped markets, according to a study by management consulting firm Primus Partners. The study, focusing on innovation and entrepreneurship in smaller cities, added that 64 per cent of these backers are channeling their investments into technology-based startups, underlining a significant interest in tech-driven innovation.

Additionally, 23 per cent of investors opted to support non-tech startups, demonstrating a diversified investment portfolio. Furthermore, 13 per cent specifically backed startups with a social impact focus.

The States Startup Ranking 2022, unveiled by the Department for Promotion of Industry and Internal Trade (DPIIT), highlights the progression of India's startup ecosystem over the past eight years. The rankings, reflective of a comprehensive survey, underscore the progress made by startups in tier II and tier III cities, contributing significantly to India's overall development. The states recognized as top performers include Maharashtra, Odisha, Punjab, Rajasthan, Telangana, Arunachal Pradesh, and Meghalaya.

Favorable Govt Policies In Tier II, III Cities

Charu Malhotra, Co-Founder & Managing Director of Primus Partners, said, “The growth of tier II cities signifies a broader economic and infrastructural transformation. Despite grappling with issues like infrastructure gaps, funding constraints, and talent shortages, the resilience of these startups points to factors like skilled talent, cost-effective operations, and favorable government policies that have been contributing to their growth.”

The survey revealed that 24 per cent of investors benefited from networking support, emphasizing the significance of connections. Of the surveyed investors, 41 per cent were affiliated with Alternative Investment Funds (AIF) or Fund of Funds (FoF) syndicates, highlighting the collaborative nature of their involvement in financing startups.

Startup Challenges

The study also highlighted challenges faced by startups in emerging cities, with over 40 per cent citing funding as a major growth issue. Only 12 per cent received pre-seed funding, and a mere 2 per cent secured Series A funding. In addition to funding challenges, startups also faced issues such as talent scarcity, networking limitations, and a lack of accessible mentorship.

Dedicated Funds For Startup Ecosystem

The survey recommended the establishment of dedicated funds and partnerships, strengthening entrepreneurial education with a focus on integrating innovation-centric curriculum and workshops, expanding mentorship and incubation networks, and maintaining supportive government initiatives, including tax incentives and simplified regulations, to bolster the startup ecosystem in smaller cities.