Angel Networks Who are Targeting Startups in Smaller Cities In order to raise capital and foster their growth, startups in Tier 2, 3, and 4 cities are increasingly turning to their local network of investors. For this article, we spoke with angel networks that are either based locally or that identify and assess prospective investment opportunities in small geographic areas.

The era in which entrepreneurship and startups were only restricted to metro cities has long since passed. In India today, Tier 2 and Tier 3 cities are home to almost 50% of the recognised startups, as per data from the Union Ministry of Commerce and Industry. The ongoing technological revolution taking place in Tier 2 and Tier 3 cities is accelerating economic development in the nation and bringing about socioeconomic change on a worldwide scale.

According to a spokesperson from Chandigarh Angels Network (CAN), startups in smaller cities generally benefit from lower operating costs than those in Tier 1 cities. "Office space, hiring new employees, and living expenses are often less expensive, which might be beneficial, particularly during the financial winter. Since they can operate more cheaply, entrepreneurs may extend their runway and concentrate on sustainable growth," the spokesperson stated.

However, the startups in smaller cities are finding it relatively more challenging to secure funding compared to those located in major startup hubs. "Nevertheless, despite the funding winter, there are still opportunities available, and investors are recognising the potential of startups in smaller cities," the spokesperson added.

The funding winter applies more to Series A and upwards startups, according to Prabhash Nirbhay, Founder and Chief Evangelist at Jharkhand Angels; angel networks are less impacted because they are still in the very early stages. "However, startups in general are looking at reaching profitability faster."

In order to raise capital and foster their growth, startups in Tier 2, 3, and 4 cities are increasingly turning to their local network of investors. For this article, we spoke with angel networks that are either based locally or that identify and assess prospective investment opportunities in small geographic areas.

FUNDING TO PROMOTE GROWTH: The angel network, as per Umesh Uttamchandani, Co-founder of Gujarat-based DevX Venture Fund, has been a strong backbone for the startup ecosystem as a whole. It opens up a different arena for investment and consolidates the expertise of many angel investors into one platform, in addition to providing funding that supports and nurtures the firm at an early stage.

"At DevX Venture Fund, we have invested in 14 startups. Out of which we have taken an exit in 4 of them and interestingly 2 of them happen to be from non-metro cities. Quixote Automotive was the first portfolio startup into automotive tech and got acquired by an unicorn – Spinny, giving us 3x. Big Spoon Foods (popularly known as Makhni Brothers) is a multi cloud kitchen setup which gave us 12x the returns and has been the most successful exit at DevX Venture Fund," said Uttamchandani.

This year, it's considering investing in at least 6–8 startups. DevX typically issues cheques up to INR 2 crore across all sectors and on a pan India level.

Similar to this, Chandigarh Angels Network has backed 35 startups since 2015 in non-metro cities including Dhurina (edtech), Paymart (fintech) and Blackbow (alcoholic beverage) among others with a ticket size ranging from INR 50 lakh to INR 2.5 core. It targets pan India startups but the key focus is on Chandigarh, Punjab, Haryana and Himachal Pradesh.

In addition to the initial investment, CAN also provides follow-on funding, and continues to support its portfolio startups by participating in subsequent funding rounds along with access to a wide network of its contacts, including other venture capitalists, potential customers, strategic partners, and industry influencers for their future rounds and growth.

In an effort to give companies access to larger funding rounds, Surat-based angel network IVY Growth Associates has also applied to establish an AIF CAT I - VC Fund with a target size of USD 15 million. In addition, it has recently launched its proprietary tech platform, AngelTech, which serves as a comprehensive hub for showcasing promising startup deals to potential investors.

Gaurav VK Singhvi, an angel investor from Surat who established the We Founder Circle (WFC) angel fund, has launched a robust tech platform "Invstt. com" to facilitate startup fundraising while assisting investors in finding the investment opportunities and streamlining their investment journey. More than one-third of the startups in WFC's portfolio as of this point are either based in non-metropolitan areas or were created by entrepreneurs from such areas.

SUPPORTING INTERNATIONAL BUSINESS EXPANSION: IVY Growth Associates's network and connections in Dubai, facilitated by one of our founders who is based there, allows it to assist its portfolio companies in establishing and expanding their business presence in the UAE region. "This enables our startups to tap into the opportunities and resources available in the thriving Dubai startup ecosystem," shared the Co-founder Rachit Poddar.

With a special emphasis on the Middle East and Europe, Poddar stated, "we are aggressively establishing a worldwide corridor that connects angel investors and entrepreneurs as part of our expansion plan." IVY has backed more than 20 startups from non-metro cities across a diverse range of sectors, including renewable energy, protective farming, edtech, and direct-to-consumer brands.

DEVELOPING THE SKILL OF BLATANT AMBITION: Fundraising is just one of the problems, the deeper problem, according to Jharkhand Angels' Founder Prabhash Nirbhay, is being underambitious as well as being under-represented in the discourse around the startup ecosystem. The network's primary motivation is to use its mentorship to assist Tier 2 and Tier 3 startups in mastering the art of unabashed ambition.

Jharkhand Angels so far backed 6 startups such as Hanuman and ZiffyTech in healthcare, D2C food brand JhaJi Store, and deal discovery platform Fydo. Nirbhay genuinely believes that their startups should solve real problems. Thus, they are interested in healthtech, edtech, and greentech.

NAVIGATING FUNDING WINTER AND MAINTAINING GROWTH: "The startup ecosystem in smaller cities remains dynamic despite the funding winter," added angel investor Gaurav Singhvi. "Our portfolio startups from Tier 2, 3, and 4 cities have shown resilience by adapting to the current environment. They have focused on optimizing resources, exploring alternative funding options, and nurturing strategic partnerships. Additionally, they have prioritized retaining current customers and providing exceptional service to maintain their market presence."

Singhvi-led We Founder Circle's portfolio startups claim to have built strong relationships and secured repeat business. "This customercentric approach, coupled with their determination to innovate and collaborate within the ecosystem, has helped them navigate the funding constraints while sustaining growth and contributing to the overall development of the startup ecosystem," Singhvi said.

Dinesh Singh, Co-founder and Director, FAAD network, also mentioned that their portfolio startups from Tier 2, 3, and 4 cities have adapted well to the current environment. "They are prioritizing positive unit economics, stabilizing their business operations, and focusing on local market penetration. By nurturing repetitive sales from existing customers and increasing customer value, they are effectively navigating the challenges and thriving in this environment."

Commerce and industry minister Piyush Goyal had earlier said the Modi government is devoted to assisting entrepreneurs "through better incubation centres in the new and emerging smaller towns and cities of India."

As per Tracxn data, startups in non-metro cities have so far this year raised $1.26 billion in funding. A total of $5.94 billion of funding in 2022, $10.3 billion in 2021 and $2.9 billion in 2020. A record amount of money was raised by companies in smaller cities in 2021. Despite the funding winter that emerged in Q4 2021, 2022 was a momentous year for the non-metro region, where startups managed to receive around $6 billion in funding. Small-town entrepreneurs are creating a more inclusive and diverse startup ecosystem by bringing fresh ideas and innovation to their communities. These businesses are well-positioned to have a significant impact on the Indian economy and others with the help of the government and investors.