Startup momentum moves beyond metros to tier II cities; Kochi, Jaipur, Chandigarh, Indore to lead

India’s tier II cities could see the next wave of startups as existing startup hubs in top cities are either getting saturated or becoming expensive, say the organisers of the TiE Global Summit, the annual conference of The Indus Entrepreneurs network—an India-focused international network of entrepreneurs, investors, and corporate leaders.

In an interaction with Fortune India ahead of the 10th TiE Global Summit scheduled from January 4–6 in Jaipur, Mahavir Pratap Sharma, convener of the 10th TiE Global Summit, said the most promising tier II cities for startups are Kochi, Jaipur, Chandigarh, and Indore.

Sharma, an angel investor himself, said TiE—one of the largest entrepreneurship organisations in the world, with a 12,000-strong global network of entrepreneurs, serial entrepreneurs, business leaders, domain experts, and mentors—is holding its annual meet in a tier II city for the first time ever.

“It happened in Delhi, Mumbai, Bengaluru, Singapore, and Dubai before. Now, for the first time, it is happening in a tier II city. It’s going to be in Kochi next. The quality of life and cost of operations for businesses, etc., are all in favour of tier II cities. The next wave of startups is already coming from such cities,” Sharma said.

According to him, after Covid and the funding winter, the bottom line has become very important for startups from an investor’s point of view. “Covid taught us that you can have remote working. Attrition will be lower, issues related to commute, traffic, pollution, etc., will all be less, and all these things combined give an edge to people who are in Goa or Kochi or Jaipur. Startups are emerging at a much faster rate than in Bengaluru or Hyderabad in such places,” he said.

“There are over 7,000 startups registered on the Rajasthan government’s portal alone. Previously, startups used to migrate beyond Series A or Series B funding because they needed to shift to Bengaluru or Singapore to raise follow-up rounds. But startups like CarDekho, Minimalist, and several others decided not to go and still scale up or become unicorns. All of that combined is now making people stay back in Jaipur and other tier II cities post Series A too,” Sharma said.

However, there are still gaps. “The first is the mindset. Changing the mindset of startups and changing the mindset of VCs is the first thing we have to do. Once we are able to create success stories from these tier II cities—and Jaipur has done that, with unicorns and unicorns in the making—that is the success story that we need,” he said.

Sharma also points to the availability of quality human resources and adequate infrastructure that can help the entire startup ecosystem grow as the other two major gaps that need to be filled. He said investors have become more careful about their portfolios, and funding just for the sake of growth is giving way to funding good companies with a strong bottom line or a clear plan for profitable growth.

He felt that startups in tier II and tier III cities will look to solve real-world middle-class and lower-middle-class problems through their products and solutions, while established startup hubs will continue to see startup ideas that require long-term investments.