This also helps shatter the myth that startups are all about urban consumers and urban investors and address only English-speaking consumers.
Local Angel investing
Angel investors are individuals who offer initial funding to startup ideas for a share of the equity. The first funding of such ventures is seed funding. Angel investors do invest at the idea stage or if the business has started and needs further investment to stabilise (where in such situations, typically the founders have put in the initial capital from their savings and their families and friends).
Angel investors usually fund the business, after the original funding is in place but before a company requires a more sizable investment from a venture capital company. Angel investment is needed to grow a company from its early stage of development, to demonstrate business viability for the next round of funding. Angel investors (can) play a vital role in mentoring the founders, and can be a strategic sounding board to the core venture team.
In the last few years, startups have not just built their consumer offerings for urban pockets, but also for the rest of India. More keenly, the domestic capital for some of these investments is not coming just from ultra-high-net-worth individuals (UHNIs) or high net-worth individuals (HNIs) in the top ten cities.
They are also coming in from investors in tier- 2 and tier- 3 cities. India ranks third globally in the startup ecosystem, after the United States and China.
Nearly half of Indian startups come from tier- 2 and tier-3 cities and work on solutions for agriculture, education, power, data analytics and healthcare sectors. They have created over seven lakh jobs so far. Experts opine that the realty market in tier- 2 and tier- 3 cities is seeing increasing urbanisation due to multiple reasons like the Covid mandated lockdowns and the consequent migration of knowledge workers back to their home towns and growth in startups in these areas, governmental impetus like the ‘Digital India Startup Hub’ programme as well as a ‘Digital India Investment Fund’ to fund startups.
India’s total internet user base as of January 2022 stood at 658 million, with plenty of room to grow. ‘Jiofication’ ‒ the launch of the Jio network in 2016 and its subsequent scaled rollout across India, brought in pricing that almost made internet access an inclusive phenomenon across India. Rural India, which had not been spoken to before, woke up to the opportunities that such connectivity provided. India has adopted social media smoothly.
With over 467 million social network users, India has the second highest number of social media users in the world ‒ that’s a third of the Indian population using social media. One of the key factors acting as a growth catalyst is reducing the digital infrastructure gap between urban locations and tier-2 and tier-3 cities.
Post-pandemic learning is the visibly increased availability of talent in smaller cities and the rise of the work-from-home culture. While for some sectors, it is a headache for corporates to get their talent back to the office in urban pockets, the question is whether such behaviour is still sustainable.
Many startups address or build their business by focusing on urban challenges and urban consumers. The adoption of digital across India is breaking these myths. Startups from tier-2 and tier-3 cities focus on local issues ‒ something that’s the native intelligence of the founders who come from these local towns.
They bring their local cultural understanding, consumer problems, the need for local or regional language to communicate to their consumers, and more importantly, the revenue model that would be accepted by the local consumers. These aspects attract angel and venture funding from investors from these tier-2 and tier-3 cities.
Data shows that Indian investors are increasing their geographic exposure to invest in startups across over 65 tier-2 and tier-3 cities. Investments have started flowing into startups across Goa, Chandigarh, Coimbatore, Patna, Surat, Jaipur, Indore, Kochi, Vadodara, Bhubaneswar, Thrissur, Roorkee, Ranchi, Mangalore and Raipur.
Local angel investors also offer seed capital for new ventures or growth capital for brick-and-mortar establishments going into a digital mode. Over the past few years, investors from India’s smaller cities have come together to form local and regional angel platforms. These platforms typically facilitate investments in early-stage startups that typically look to raise between Rs 5 lakh and Rs 50 lakh.
Many local startup investment networks initially started funding only local ideas and have not moved to fund startups across India. Some of the active local ecosystems include the likes of Surat Angels, Chandigarh Angels, Marwari Catalysts Ventures and Nagpur Angels. These local angel investors bring a vast understanding of regional problems and their ability to mentor local startup entrepreneurs. They bring their individual and collective business acumen of having built businesses (non-digital) successfully in their regions.
One sees this as an acceptance of the angel investing category from across India, as well as the need for local mentors rather than only national English-speaking mentors. The Startup India mission is transforming the way entrepreneurship is being encouraged. With sustained momentum, this can reshape the contours of channelising ideas into business ventures across India.