44% investors funding startup growth in smaller cities: Report

Grassroot growth: Over half, or 44 per cent of investors are investing in startups in Tier 2 and 3 cites, as per a report.

Underlining interest in potential of emerging markets, a report by management consulting platform Primus Partners surveyed startups in 30 domains including food, agriculture as well as information technology and deep or emerging technologies sectors.

A majority of se investments were directed towards technology-based startups at 64 per cent, which indicates interest towards technological growth.

report, titled “Small Towns, Big Ideas: Rise of Innovation and Entrepreneurship in India's Tier 2 and Tier 3 Cities” also took into account responses of startups, acemic institutions, and key investors across Rajasthan, Haryana, Uttar Presh, Odisha, and Gujarat. 

Among investors surveyed, 23 per cent of investors surveyed vouched to invest in non-tech startups, which reflects a diversification in ir investment portfolio beyond technology. 

Interest also emerged for social impact as 13 per cent of investors opted to support startups with a focus on societal impression.

Challenges that startups from emerging cities face in ir path to growth include funding, wherein 40 per cent report difficulty in receiving funds. Only 12 per cent of startups received pre-seed funding, and Series A funding was secured by a mere 2 per cent. Or key challenges apart from funding include talent scarcity, limitations for networking and a lack of accessible mentorship. 

Charu Malhotra, Co-Founder & Managing Director, Primus Partners said growth of Tier II cities signifies a broer economic and infrastructural transformation. 

“Despite grappling with issues like infrastructure gaps, funding constraints, and talent shortages, resilience of se startups points to factors like skilled talent, cost-effective operations, and favourable government policies that have been contributing to ir growth,” Malhotra ded. 

Some 24 per cent of investors surveyed for report have benefited from networking support, which emphasises on significance of network. As many as 41 per cent of investors were related to Alternative Investment Funds (AIF) or Fund of Funds (FoF) syndicates, which signifies collaborative nature of ir involvement in financing startups.

solutions listed for enhancing funding for startups in smaller cities and towns include dedicating funds and partnerships and empowering innovation through entrepreneurial education with a curriculum that focuses on transformation.

Conducting workshops, expanding mentorship and incubation networks, and maintaining supportive government initiatives like tax incentives and simplified regulations will furr support startup ecosystem in smaller cities.