How Tier II & III Startups Are Finding Growth Opportunities Amid the Pandemic

Every crisis comes with a myriad of challenges, followed by transformational opportunities. With the rapid adoption of technology, startups are adapting to the new normal
How Tier II & III Startups Are Finding Growth Opportunities Amid the Pandemic
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Co-founder of India Accelerator
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The global economy is going through the worst crisis ever. The pandemic-led lockdown has forced companies to transform their work culture overnight and take the most difficult decisions such as layoffs, delayed promotions and increments. Like every other sector, the startup community is also facing disruptions with the economic slowdown and businesses shut down.

Unsurprisingly, the Indian startup community is facing the brunt of the pandemic. Though startups from metro cities are a little better equipped with facilities to deal with the crisis, it is imperative to know tier II & tier III start-ups are managing to survive during the uncertainty?

Every crisis comes with a myriad of challenges, followed by transformational opportunities. With the rapid adoption of technology, startups are adapting to the new normal. Considering digitization and e-commerce—the two key domains to boost the economy—it is opening up multiple avenues for start-ups to thrive and make their own space in the market.

Growth drivers of the economy

Amid the pandemic, startups are considered growth drivers of the economy. The Atmanirbhar Bharat initiative announced by the government of India is continuing to push the young entrepreneurs emerging from tier II & III cities to adopt strategic and innovative measures to lead the economy. According to Nasscom estimates, tech startups battered by the pandemic are on a gradual path of recovery and over 50 per cent of them are cautiously optimistic and expecting their revenues to reach pre-covid levels in the coming six months.

The good thing is that start-ups and MSMEs are one of the fastest adopters of new-age technology solutions. Additionally, businesses from tier II and tier III states—Uttar Pradesh, Maharashtra, West Bengal, and Tamil Nadu—have emerged as prominent online sellers on e-commerce platforms. Talking about the potential of startups from smaller cities, large MNCs are also coming up with mentorship programmes that help start-ups be market-ready. For instance, Microsoft has recently launched Microsoft ScaleUp, an initiative to provide start-ups access to technology and mentorship. It has already extended support to 18 startups last year across diverse sectors—fintech, blockchain, healthtech and IoT.

Boon for startups

COVID-19 has made tier III and tier III cities emerge as a business hub for Indian startups. Entrepreneurs based in metro cities look at prominent sectors and solve societal problems. However, non-metro cities have become emergent markets for startups focusing on building unique opportunities and making the life of people easy by solving basic problems. Several tangible and intangible factors have contributed to this push. In metro cities mainly Delhi, Mumbai, and Bangalore, entrepreneurs have to incur higher operational costs than those operating from tier III and III cities. Startups find lower initial investment and operating costs, more affordable personnel and ease of working out with local authorities.

To support the startups in these cities, the government is also giving a tremendous push to incubators and accelerators to create success stories. Several tier II  states are coming up with their own start-up programmes such as Start-up Chhattisgarh, Kerala Start-up Mission, and many alike to boost the spirit of entrepreneurs in smaller cities.

Additionally, tier II cities such as Jaipur, Patna, Indore and Surat are showcasing an impressive 40 per cent growth rate. This makes attractive options for angel investors and venture capitalists to invest in startups that can be operated at a large scale while incurring lower costs. Moreover, the COVID-19 pandemic has made potential entrepreneurs build and work from their own hometown without having to travel to metro cities. This has proven beneficial in several terms that involve low-cost living as compared to the metro cities while staying close with the family.

With unlocking phases of COVID-19 led lockdown, India is moving towards strengthening startup communities and unravel opportunities in digital innovation. The government is continuing to take a strategic approach in aiding entrepreneurs to innovate and digitize sectors such as edtech, transport, logistics, agritech, and many others. In tier II and III cities, it is easy to connect with the government and local authorities and identify solutions.

It is said never let a good crisis go waste. The crisis has shaken up the way we view the world and exposed the fault lines in our society. It has also emphasised the necessity for quick and relevant solutions for the new world—this is where the speed and street smartness of founders from tier II and III cities can help them grow. The signs are ominous; in fact the growth of funding amount in tier II and III cities is faster—over $1 billion was invested in startups from tier II and III cities between 2014 and 2019. It means that investors are betting bigger on startups in smaller cities.

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