Promoting Indigenous

Case Study of Investor Interest in Small-town Start-ups

I n recent years, the landscape of entrepreneurship in India has

witnessed a remarkable shift with increasing attention towards
small-town startups. As urban markets become saturated, investors are
turning their gaze towards the untapped potential of small-town
innovation, driven by a desire to foster economic growth while
embracing India's diverse cultural heritage. This case study delves into
the burgeoning trend of investor interest in such ventures, focusing on
the unique challenges and opportunities they present.

1
TIER 2 AND TIER 3 CITIES:
CATALYSTS OF INDIA'S ECONOMIC
GROWTH AND INNOVATION
According to a report by the National
Council of Applied Economic Research
(NCAER) featured in Outlook India, the
contribution of tier 2 and tier 3 cities to
India's GDP is projected to rise from
approximately 40% in 2015 to 45% by
2025. This underscores the increasing
economic importance of these cities within
the national context.
Data from the Ministry of Housing and
Urban Affairs indicates that nearly 45%
of the urban population resides in tier 2
and tier 3 cities, highlighting their pivotal
role in the country's economic landscape.
The expected population growth in these
cities to 63.1 crore by 2040 from 42.3 crore
in 2020 suggests a widening market and an
emerging talent pool, poised to drive
economic growth and development. This
demographic shift presents a fertile
ground for start-ups and innovation,
underpinning the potential for significant
economic development and
Source: Na onal Ins tute of Urban Affairs (NIUA), Primus Partners
START-UP ECOSYSTEM IN INDIA: AN
OVERVIEW
Due to the impact of various government
initiatives, the country is experiencing a surge
in entrepreneurial enthusiasm. In households
across strata, individuals aspire to set up
businesses, emphasizing the proven connection
between innovation, problem-solving passion,
2
entrepreneurship opportunities.
The trajectory of India's economic growth,
alongside the evolving role of tier 2 and tier
3 cities, marks a transformative phase in
the economic development. Expansion of
these urban centres is indicative of their
growing contribution to the national GDP,
fuelled by innovation, entrepreneurship, and
an increasing urban population. As these
cities continue to develop, their impact on
the economic landscape is expected to
deepen, offering new avenues for growth
and development within the broader
context of India's ascending trajectory on
the global economic stage.
and a thriving start-up ecosystem. India has
positioned itself as the world's third-largest
start-up ecosystem, demonstrating remarkable
growth. This evolution reached a significant
milestone in June 2023, surpassing 1,00,000
recognised start-ups under Startup India, a
number that expanded to 1,23,364 by March
7, 2024, reflecting ~350% growth over the past
five years.
Source: Tracxn

The Indian start-up ecosystem is

experiencing not only a surge in quantity
but also notable prosperity, evident in the
annual rise of unicorn companies. At
present, there are 113 Indian unicorns that
have collectively secured US$ 100 billion
in funding and hold a combined valuation
of approximately US$ 350 billion,
according to data disclosed by Inc 42. Of
these unicorns, 72% has materialised in the
last five years, underscoring the rapid
expansion of the start-up sector. This
growth is ascribed to governmental
initiatives, increased consumer expenditure
and a favourable business climate.

Source: Tracxn

3
The dynamism of India's start-up ecosystem
extends beyond the metropolitan centres,
with tier 2 and tier 3 cities witnessing a
noticeable rise in entrepreneurial activities.
These regions, once peripheral to the start-
up narrative dominated by cities such as
Bengaluru, Delhi, and Mumbai, are now
central to the unfolding story of Indian
innovation and enterprise. The shift indicates
a broader recognition of the potential
harboured by tier 2 and tier 3 cities, known
for their unique advantages such as access to
untapped talent, lower operational costs, and
a burgeoning consumer market. These cities
are increasingly viewed as strategic locations
to address local challenges with innovative
solutions, contributing significantly to the
country's next phase of start-up growth.
This trend is illustrated by the success
stories of start-ups originating from non-
metro cities. For instance, Zomato, which
began its journey in Gurugram, expanded
operations across 24 countries. Similarly,
Surat has given rise to notable start-ups like
the edtech firm Dronstudy, and the fashion
platform Wishbook. Furthermore, Pune's
Padcare Labs gained attention for its
innovative hygiene solutions, securing
funding on a prominent reality show. These
examples underscore the impactful role of
start-ups from tier 2 and tier 3 cities in
fuelling local economies, generating
employment, and driving regional economic
development, thereby redefining the
landscape of Indian entrepreneurship.
KEY DRIVERS CONTRIBUTING TO
STARTUP GROWTH IN TIER 2 AND
TIER 3 CITIES
Several key drivers collectively create a
fertile environment for entrepreneurial
4
ventures and propel the growth of start-ups
in tier 2 and tier 3 cities. These factors not
only support but also accelerate the
development and expansion of start-ups
outside the traditional metro city
strongholds.
• Digital Infrastructure and
Connectivity: Proliferation of internet and
mobile connectivity stands out as a
foundational element, enabling efficient
interactions between businesses and
consumers. This digital infrastructure helps
start-ups initiate and scale operations as well
as connect with a broader audience
effortlessly.
• Cost Efficiency: Tier 2 and tier 3 cities
offer a cost-effective advantage due to the
lower cost of living compared to tier 1 cities.
This economic benefit allows start-ups to
launch and expand operations with reduced
financial strain, reaching profitability with
greater ease.
• Government Support Initiatives:
Government support plays a crucial role in
nurturing the start-up ecosystem in lower
tier cities. Initiatives such as Atal Incubation
Centres equip young entrepreneurs with a
comprehensive support system, including
mentorship, intellectual property assistance,
investor connections and skill development
programmes. Such infrastructure
significantly reduces the challenges and
uncertainties faced by start-ups, promoting a
stable growth environment.
• Expansive Market Potential: The
growing population in tier 2 and tier 3 cities
unveils vast market opportunities for start-
ups. This demographic expansion translates
into a wider audience for start-ups to engage
with, offering substantial avenues for growth
and deeper market penetration.
• Access to Skilled Talent: These cities
are home to a significant pool of skilled
talent, ready to be harnessed by start-ups.
Access to such a workforce enables start-ups
to develop, refine, and launch their offerings
with expertise, driving innovation and
competitiveness.
• Evolution of Consumer Behaviour: The
landscape of consumer behaviour in lower
tier cities is evolving, with e-commerce
platforms and social media gaining
prominence. A BCG report highlighted that
in 2021, half of the online urban shoppers
were from tier 2 or tier 3 cities, a figure
expected to rise to nearly 60% by 2030. This
shift indicates a growing consumer base at a
rate nearly double that of larger cities.
Coupled with modernisation and increasing
internet penetration, the changing needs and
problems of these consumers demand
innovative solutions, which start-ups are
Source: Tracxn, Primus Partners
5
strategically positioned to provide.
Together, these drivers underscore the
transformative potential of tier 2 and tier 3
cities as burgeoning hubs for start-up
activity, contributing to the broader narrative
of India's entrepreneurial landscape.
EMPOWERING GROWTH: THE RISE
OF STARTUPS AND INNOVATION
IN INDIA'S TIER 2 AND TIER 3 CITIES
Tier 2 and tier 3 cities have become the
breeding ground of start-up and innovation.
As per government data, 50% of start-ups
recognised by the Department for Promotion
of Industry and Internal Trade (DPIIT) are
from tier 2 and tier 3 cities, reaffirming
Prime Minister Narendra Modi’s vision of
inclusive India.
The escalating trend in start-up funding
across tier 2 and tier 3 cities in India which
increased at ~74% CAGR from US$4.5 billion
(Rs. 37,500 crore) in 2021 to US$13.6 billion
(Rs. 1,12,500 crore) in 2023, reflects a robust
investment landscape. This surge underscores
the growing recognition of these regions as
lucrative investment hubs, potentially
catalysing entrepreneurial growth, economic
development, and a paradigm shift in small
town start-ups. The graph below shows the
funding secured by start-ups in tier 2 and
tier 3 cities for 2021, 2022 and 2023. The
graph highlights the financial support
garnered by start-ups within these tiers,
offering insights into their funding
trajectories over the three-year period.
India is home to over 100 unicorns, with
52% from tier 2 and tier 3 cities. In 2022, 22
new unicorns emerged, totalling US$29.2
billion in valuation. The future looks
promising, with more Indian unicorns
heading towards becoming decacorns (US$10
billion valuation). Startups are pivotal in
shaping India's economic future, contributing
significantly to job creation, skill
development, innovation, and attracting
foreign investment, transforming the
country's employment landscape. The chart
below shows the trend of exponential growth
in the employment landscape over the past 3
years. The agile nature and innovative spirit
of the start-ups has led to the creation of
diverse roles, attracting a skilled workforce,
and contributing substantially to the overall
employment ecosystem in cities, driving
sustained economic growth.

Source: Tracxn, Primus Partners

EMPOWERING ENTREPRENEURS:
THE SIGNIFICANCE OF
DIGITALIZATION IN TIER 2 AND
TIER 3 CITIES

Digitalisation plays a pivotal role for

entrepreneurs operating in smaller tier 2 and
tier 3 cities, according to reports from
McKinsey and the World Bank. It serves as a
catalyst for market access, connecting
entrepreneurs with suppliers and customers,
and facilitating online marketing and sales.
This digital transformation not only
enhances operational efficiency but also
enables remote work and provides valuable
data insights. As a result, it levels the playing
field, offering growth opportunities
comparable to those in larger urban centres.
retail penetration, advancing it by 12 months
As per the Times of India, India has
to approximately 4.6% in FY21. Projections
witnessed substantial growth in mobile and
indicate that the e-retail market is poised to
internet penetration over the last decade. At
grow at an annual rate of 25-30% over the
present, 80% of India's 650 million
next five years, reaching US$ 120-140 billion
smartphone owners hail from small towns.
by FY26. Notably, small-town India is
The pandemic further accelerated India's e-
expected to drive 80% of the new customer

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growth.
Evidently, e-commerce transactions in tier 2
cities, such as Guwahati and Jaipur, have
reached an all-time high, experiencing an
80% increase from the previous year, as
reported by the same report of TOI. A
NASSCOM report from 2022 reveals that
over 7,000 start-ups are operating from
emerging hubs, particularly in the fields of
deep tech and Business Process Management
services. These emerging companies have
demonstrated remarkable growth, increasing
by 50% from 2014 to 2018, with
expectations of 2.2x growth by 2025.
Over the past two decades, technology has
played a significant role in various facets of
India's growth, impacting industries such as
manufacturing, transportation, defence, and
space technology. The smaller cities have
witnessed increased technological inclusion,
driven by the expansion of technological
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enablers. This includes widespread telecom
and smartphone penetration, providing quick
and affordable internet access, technology-
enabled credit access, and the establishment
of effective and inclusive payment systems.
Furthermore, the Indian government has
taken proactive measures to promote
digitalisation nationwide, with a particular
focus on tier 2 and tier 3 cities. This
strategic push towards digitalisation aligns
with a broader initiative for achieving digital
inclusivity and ensuring that the benefits of
digital technology permeate every corner of
the country.
Digital India Innovation
Launched in 2015, the Digital India initiative
is a flagship programme aimed at
transforming India into a digitally
empowered society and knowledge economy.
This initiative focuses on improving online
infrastructure, increasing Internet
connectivity, and making government
services digitally accessible.
The Budget for 2022-23 introduced thematic
funds for fostering sunrise sectors, notably
deep-tech. Furthermore, the Ministry of
Electronics and Information Technology
(MeitY) has launched numerous schemes and
programmes to bolster technology start-ups,
especially those in the deep tech domain.
Some of the key initiatives are outlined
below:
• TIDE 2.0 Scheme: The TIDE 2.0 Scheme,
i.e. Technology Incubation and Development
of Entrepreneurs, commenced in 2019 to
foster tech entrepreneurship. It offers
financial and technical assistance to
incubators supporting Information and
Communications Technology (ICT) start-ups
utilising emerging technologies such as IoT,
AI, blockchain and robotics. Implemented
through 51 incubators, the scheme operates
under a three-tiered structure, focusing on
enhancing incubation activities within
institutes of higher learning and leading
R&D organisations. With an allocated
budget of US$ 31.9 million (Rs. 264 crore)
over five years, the scheme anticipates
providing incubation support to around
2,000 tech start-ups.
• Domain-Specific Centres of Excellence:
The MeitY has conceptualised and activated
26 CoEs in various areas of national
importance to encourage self-reliance and
cultivate capabilities for embracing new and
emerging technology domains. These CoEs
dedicated to specific domains serve as
catalysts, facilitating India's transformation
into an innovation hub by democratising
innovation and realising prototypes.
• SAMRIDH Scheme: In August 2021, the
government launched the Startup Accelerator
Programme of MeitY for Product Innovation,
Development and Growth (SAMRIDH) to
bolster existing and upcoming accelerators
in selecting and nurturing potential software
product-based start-ups for scaling up. With
a total budget of US$ 11.9 million (Rs. 99
crore) over a span of three years, the
SAMRIDH Scheme aims to support a total of
300 start-ups.
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• Next Generation Incubation Scheme
(NGIS): Approved to fortify the software
product ecosystem and address a major
portion of the National Policy on Software
Products (NPSP) 2019, NGIS was slated to
commence from 12 locations including
Agartala, Bhilai, Bhopal, Bhubaneswar,
Dehradun, Jaipur, Guwahati, Prayagraj,
Lucknow, Patna Mohali/Chandigarh and
Vijayawada. With a solution-oriented
architecture, NGIS aims to mentor 300 tech
start-ups in tier 2 and tier 3 cities over a
period of three years, with a total budget
outlay of US$ 11.5 million (Rs. 95.03 crore).
• Support for International Patent
Protection in Electronics & IT (SIP-EIT)
Scheme: The government introduced the SIP-
EIT scheme to incentivise international
patent filing by Indian MSMEs and start-ups,
thereby encouraging innovation and
acknowledging the value and capabilities of
global intellectual property. Under this
scheme, reimbursement is provided up to a
maximum of US$ 18 thousand (Rs. 15 lakh)
per invention or 50% of the total expenses
incurred in filing and processing patent
applications up to grant, whichever is lower.
• Gen-Next Support for Innovative
Startups (GENESIS): The MeitY has
introduced an overarching initiative called
Digital India-GENESIS. This programme
aims to identify, nurture, and propel start-
ups in tier 2 and tier 3 cities, prioritising
collaborative partnerships among start-ups,
government entities and corporations. The
objective is to advance digitisation based on
principles of inclusivity, accessibility, and
affordability, ultimately promoting
increased employment opportunities and
economic growth.
GRASSROOT INNOVATION
Grassroots innovation entails the
development of inventive and practical
solutions by individuals or communities at
the grassroots level, addressing local
challenges and enhancing living conditions.
These innovations typically arise from a
profound understanding of local needs and
resources, playing a pivotal role in resolving
critical issues spanning agriculture,
healthcare, environment, and technology.
Crucially contributing to the
comprehensiveness and inclusivity of India's
startup ecosystem, grassroots innovations
propel local economic growth, particularly
in less developed regions. They serve as
catalysts for a diverse array of ideas and
solutions, effectively addressing regional
challenges.
Currently, 12 States/UTs have established
policies and schemes offering incentives for
startups focused on grassroots innovation,
with 13 States/UTs providing clear
definitions for what constitutes grassroots
innovation and rural impact. Notable case
studies exemplifying grassroots innovation in
various States/UTs further underscore the
transformative impact of these initiatives in
addressing localized issues and fostering
socio-economic development.
• Kerala: Kerala stands out as a leading
state in India for fostering startup initiatives,
consistently championing the innovation
endeavours of its residents, particularly at
the grassroots level. The Government of
Kerala has proactively endorsed this
commitment by introducing the "Innovation
Grant Scheme," a strategic initiative aimed at
assisting startups and entrepreneurs in
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translating their distinctive ideas into fully
realized businesses. Spearheaded by the
Kerala Startup Mission, the state
government's dedicated entity overseeing
startup-related activities and schemes, this
program reflects Kerala's unwavering
support for innovation and entrepreneurial
endeavours. The Innovation Grant Scheme
underscores the state's commitment to
nurturing a conducive environment for
startups, fostering creativity, and propelling
promising ideas toward successful
realization.
• Gujarat: The Grassroots Innovations
Augmentation Network (GIAN) was
established through collaborative efforts by
the Government of Gujarat, the Society for
Research and Initiatives for Sustainable
Technologies and Institutions (SRISTI), and
the Indian Institute of Management
Ahmedabad (IIMA). GIAN is strategically
designed to amplify and proliferate
grassroots innovations, contributing to the
growth of viable enterprises. The network
plays a pivotal role in facilitating the scaling
up of innovative solutions while
concurrently offering innovators crucial
connections to contemporary science and
technology, market research insights, design
institutions, and funding organizations. GIAN
serves as a catalyst for the transformation of
grassroots innovations into successful
ventures, fostering a symbiotic relationship
between innovators and the broader
ecosystem of scientific, technological, and
entrepreneurial support.
• Himachal Pradesh: Himachal Pradesh
has witnessed noteworthy grassroots
innovations such as "Him Sagar Jal," a water
harvesting and distribution system that has

significantly improved access to clean water
in remote areas. Additionally, the state's
apple farmers have ingeniously developed
sorting and grading machines for apples,
elevating the quality of their produce. These
instances exemplify the commendable
grassroots innovations originating from
different states across India. The innovators,
through their creations, underscore the
crucial role of nurturing innovation at the
grassroots level, emphasizing its potential to
propel social and economic development
throughout the country. These initiatives not
only address local challenges but also
contribute to the broader narrative of
innovation as a driving force for positive
change in India's diverse and dynamic
landscape.
• State Startup Fiscal Assistance: States
and Union Territories (UTs) have actively
cultivated an ecosystem that fosters fiscal
incentives, grants, and funding, particularly
in the form of seed capital, to support
startups. According to the submission data
for the States' Startup Ranking 2022, the total
fund allocation across 30 participating
States/UTs exceeded US$ 181 (Rs. 1500
crore). Notably, 10+ new funds established by
six states contributed over US$ 60.3 (Rs. 500
crore) to this collective initiative.
To facilitate the financial support, States/UTs
have issued Government Orders allocating
funds for Grant-in-Aid salaries, emphasizing
their commitment to nurturing startup
ecosystems. Additionally, several States/UTs
have entered into strategic Memorandums of
Understanding (MoUs), including
collaborations with Small Industrial Banks,
marking substantial initial investments
exceeding US$ 12.1 million (100 crore). The
data from the States' Startup Ranking
Framework (SRF) 2022 indicates that the
disbursed funds to various startups have
surpassed US$ 301.6 million (Rs 2500 crore),
reflecting a robust commitment to fostering
entrepreneurial growth and innovation
across the nation.
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CHALLENGES FACED BY TIER 2 AND
TIER 3 CITY STARTUPS
• Incubation: India's burgeoning startup
ecosystem is making significant strides, not
only within the confines of major urban
centres like Bengaluru, Mumbai, and Delhi
but also across the vast expanses of tier 2
and tier 3 cities. These regions are
increasingly recognized for their potential to
drive substantial economic growth. However,
they face a pivotal challenge: limited access
to incubation centres, which are crucial for
nurturing early-stage startups. While
government initiatives such as Atal
Incubation Centres and the Next Generation
Incubation Scheme have made inroads, the
gap in support remains pronounced.
Incubation canters offer essential services
like mentorship, funding assistance, and
networking opportunities through various
programs including bootcamps, pitch
sessions, and founder grooming sessions.
Bridging this gap is essential for leveraging
the untapped potential of startups in these
cities, thereby contributing to a more
inclusive and widespread economic
development across India.
• Access to Funding: The landscape of
alternative finance has been a pivotal force
in energizing India's startup ecosystem.
Despite the compounded annual growth rate
of 74% in funding for startups located in tier
2 and tier 3 cities over the last two years, the
financial support extended to these
enterprises is still not proportionate. This
disparity is particularly striking given that
these cities contribute to 50% of the
country's recognized startups.
The lack of diverse funding avenues forces
these startups to depend primarily on
personal networks, such as family and
friends, and occasionally on banking
institutions for financial support. This
reliance on limited sources of capital
significantly hampers the growth prospects
of startups in smaller cities and acts as a
deterrent for young entrepreneurs, impeding
the broader development of innovative
ventures outside major urban centres.
• Scalability: Scaling remains a formidable
hurdle for entrepreneurs in smaller towns.
Unlike their urban counterparts who can
easily expand into smaller cities, startups in
smaller towns encounter challenges in
extending operations to larger metropolitan
areas. Limited financial resources, a scarcity
of skilled talent, inadequate machinery, and a
technological know-how deficit contribute to
this difficulty. Currently, logistics pose a
significant obstacle for tier-II and III startups,
marked by higher costs, inadequate access to
modern facilities, power disruptions, and
transportation limitations. Unlike larger
enterprises that can afford independent
logistics, startups require affordable, shared,
or on-demand infrastructure, an essential
element often lacking in smaller towns.
However, Government initiatives in India are
catalyzing small town start-ups by
addressing critical challenges through
various support mechanisms. Initiatives such
as financial assistance, incubation centers,
and skill development programs are
empowering budding entrepreneurs in rural
areas. Schemes like Startup India and Stand-
Up India offer financial support, mentorship,
and infrastructure, leveling the playing field
for small town ventures. Below, we list down
12
11
key government initiatives fostering
entrepreneurship and driving economic
growth in India's smaller towns.
GOVERNMENT-LED CATALYSTS:
INITIATIVES FOSTERING STARTUP
GROWTH IN INDIA
1. Startup India
On January 16, 2016, the Indian government
introduced the Startup India initiative with
the aim of fostering a robust ecosystem to
nurture innovation and startups within the
country. Prime Minister Mr. Narendra Modi
inaugurated this initiative to harness and
promote the entrepreneurial capabilities of
the nation. Alongside the launch, an Action
Plan for Startup India was unveiled,
encompassing three pillars and 19 action
items. This plan serves as a comprehensive
roadmap, outlining the strategic framework
for the development and advancement of the
Startup India initiative.
Eligible start-ups receive various advantages,
including the ability to self-certify
compliance with six labour laws and three
environmental laws online. Patent
applications are expedited with an 80%
filing fee rebate, and start-ups can enjoy a
three-year income tax exemption in their
initial decade. Liquidation for start-ups with
uncomplicated debt structures is expedited
within 90 days under the Insolvency and
Bankruptcy Code. DPIIT-recognised start-ups
can directly sell products and services to
government entities through the Government
e-Marketplace (GeM), facilitating trial orders.
DPIIT, operating under the Ministry of
Commerce and Industry, serves as the pivotal
department for start-ups. The government
has instituted key schemes such as Fund of
Funds for Startups (FFS), Startup India Seed
Fund Scheme (SISFS) and Credit Guarantee
Scheme for Startups (CGSS) to aid start-ups
throughout their business cycle, facilitating
their growth to a stage where they can
secure investments or loans for sustainable
development.
• Fund of Funds Scheme: The scheme,
which was initiated in June 2016 with a
corpus of US$ 1206.4 million (Rs. 10,000
crore) have been approved and established.
Its contribution is distributed over the 14th
and 15th Finance Commission cycles,
depending on implementation progress. It
aims to invigorate the Indian start-up
ecosystem and facilitate access to domestic
capital.
• Startup India Seed Fund Scheme:
Approved for a four-year duration
commencing in 2021–22 with a corpus of
US$ 114 million (Rs. 945 crore), SISFS was
launched to offer financial aid to start-ups.
Intended for proof of concept, prototype
development, product trials, market entry
and commercialisation, the scheme aims to
propel start-ups to a stage where they can
secure investments from angel investors,
venture capitalists or loans from commercial
banks and financial institutions. Over the
next four years, it anticipates supporting
approximately 3,600 entrepreneurs through
300 incubators.
• Credit Guarantee Scheme for Startups:
It was instituted with the objective of
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offering credit guarantees to loans provided
by Scheduled Commercial Banks, Non-
Banking Financial Companies (NBFCs) and
Venture Debt Funds (VDFs) to DPIIT-
recognised start-ups. This coverage extends
to loans facilitated under the Securities and
Exchange Board of India (SEBI)-Registered
Alternative Investment Funds.
• Start-up India Investor Connect: It is
an innovative platform that employs AI-
based matchmaking to seamlessly connect
start-ups with potential investors. This
facilitates streamlined investment
opportunities, allowing entrepreneurs to
directly approach multiple investors using a
single application to pitch their start-up
ideas.
2. Atal Innovation Mission
The Atal Innovation Mission (AIM) is the
Indian government's
flagship initiative
dedicated to fostering a
culture of innovation
and entrepreneurship
nationwide. AIM's core objectives include
formulating innovative programmes and
policies across economic sectors, promoting
collaboration opportunities, and overseeing
the country's innovation and
entrepreneurship ecosystem. AIM adopts a
comprehensive approach, instilling a
problem-solving innovative mindset in
schools and cultivating an entrepreneurship
ecosystem across universities, research
institutions, and private and MSME sectors.
Real-time MIS systems and dynamic
dashboards systematically monitor and
manage all AIM initiatives, while third-party
agencies conduct reviews for continuous
improvement. Several programmes fall under
the umbrella of AIM's initiatives.
• Atal Tinkering Labs: AIM has
introduced the Atal Tinkering Lab (ATL)
programme, creating state-of-the-art spaces
in schools with the aim of nurturing
curiosity and innovation in students from
grades 6th to 12th nationwide. ATL leverages
21st-century tools and technologies,
including Internet of Things, 3D printing,
rapid prototyping tools, robotics,
miniaturised electronics, and do-it-yourself
kits, to empower young minds.
• Atal Incubation Centres: Atal
Incubation Centres (AICs) are business
incubators initiated by AIM at universities,
institutions, and corporations to cultivate
innovation and entrepreneurship among
young talents in the country. These AICs
strive to promote world-class innovation and
provide support to dynamic entrepreneurs
Impact of Atal Innovation Mission
Source: aim.gov.in
13
aspiring to establish scalable and sustainable
enterprises.
• Atal Community Innovation Centres:
In an effort to extend the advantages of
technology-led innovation to underserved
regions of India (including tier 2 and tier 3
cities); aspirational districts; and tribal, hilly
and coastal areas, AIM is establishing Atal
Community Innovation Centres (ACICs). This
involves a distinctive partnership-driven
model where AIM grants up to US$ 301
thousand (Rs. 2.5 crore) to an ACIC,
contingent on the partner providing equal or
greater matching funding. Currently, 14
ACICs have been successfully established
across the country.
3. NIDHI
To stimulate The NIDHI programme's achievements in
innovation among promoting innovation and entrepreneurship
start-ups in India, also extend to the establishment of eight
the Department of NIDHI CoEs, 40 NIDHI TBIs and 20 NIDHI
Science & Inclusive TBIs within academic settings,
Technology providing incubation and mentoring to
unveiled the innovative start-ups across technology
National Initiative sectors. Through CSIR incubation centres,
for Developing 300 start-ups/incubatees have been
and Harnessing supported, illustrating the programme's
Innovations (NIDHI) in 2016. This extensive impact on India's innovation
comprehensive programme encompasses landscape.
various components aimed at nurturing
innovations, start-ups, and the start-up BEYOND METROS: INSPIRATIONAL
incubation ecosystem within the country. TALES OF ENTREPRENEURS IN TIER
Key components include: 2 AND TIER 3 CITIES
• NIDHI-PRAYAS: This initiative focuses
Razorpay (Jaipur)
on the proof-of-concept stage, offering
mentoring and financial assistance to
In 2014, IIT Roorkee
innovators to help transform their ideas into
alumni Kumar and
prototypes.
Mathur identified a
• NIDHI Entrepreneurs-In-Residence
considerable
(EIR) Programme: It provides fellowships to
challenge in online
students pursuing entrepreneurship, fostering
payment processes
early engagement with the innovation
for small- and
ecosystem.
medium-sized enterprises (SMEs), particularly
• NIDHI Seed Support Programme: It
within the e-commerce sector. To address
ensures the availability of early-stage seed
this gap, they founded Razorpay, a payment
funding to start-ups, crucial for their initial
gateway solution designed to facilitate
development phase.
seamless online transactions for start-ups
• NIDHI Accelerator Programme: The
and SMEs. The platform offers a wide array
programme aims to make start-ups
of payment options, including credit and
investment-ready at an accelerated pace.
debit cards, net banking, and UPI, with a
• The NIDHI programme has significantly
transaction fee of 2-3%. It also integrates
contributed to the establishment of high-
with prominent Indian wallets such as
quality infrastructure for incubating
JioMoney and Mobikwik, providing a robust
technology-driven start-ups through
dashboard for payment management across
Technology Business Incubators (TBIs) and
web and mobile applications.
Centres of Excellence (CoEs).
Razorpay's suite of products, including
Additionally, the Department of
Razorpay Route, Smart Collect,
Biotechnology, through Biotechnology
Subscriptions, Invoices and Capital, caters to
Industry Research Assistance Council
various financial operations such as cash
(BIRAC), promotes start-ups, entrepreneurs,
flow management, automated fund transfers
innovators, and researchers in undertaking
and instant loan provisions to alleviate cash
translational research. This initiative leads to
flow challenges. Additionally, its payroll
the creation of affordable products and
management software streamlines and
technologies targeting the wider public.
automates employee salary processes.
Notably, BIRAC's efforts include:
The platform has high-profile clients such as
• Establishment of 75 incubation centres
Oyo, Cred and Flipkart, showcasing its
under the BioNEST and E-YUVA schemes
industry relevance and success. Achieving
across 21 states and UTs; and
unicorn status in October 2020 after a US$
• Support for approximately 900
100 million funding round led by GIC and
innovative projects under the Biotech
Sequoia India, Razorpay further solidified its
Ignition Grant (BIG).
market position by raising US$ 375 million

14
in a Series F round in December 2021. By
May 2022, it announced a US$ 75 million
liquidity event for its ESOPs. With key
investors like Ribbit Capital, Tiger Global
and Sequoia India, Razorpay stands as a
leading fintech unicorn in India, valued at
US$ 7.5 billion.

Funding Snapshot

Post
Date of Funding Round Revenue
money Investors
funding Amount Name multiple
valuation
Moore Strategic
10-May-22 $75M Series F - -
Ventures, Lightspeed India
Lone Pine Capital, Alkeon Capital
Management, TCV, Tiger Global
19-Dec-21 $375M Series F $7.5B -
Management, Y
Combinator, Gic, Peak XV Partners
20-Sep-21 Undisclosed Series E - - Salesforce Ventures
GIC, Peak XV Partners, Ribbit
18-Apr-21 $160M Series E $3B - Capital, Matrix Partners India, Tiger
Global Management
GIC, Peak XV Partners, Ribbit
12-Oct-20 $100M Series D $1B - Capital, Tiger Global Management, Y
Combinator, Matrix Partners India
Ribbit Capital, Peak XV
18-Jun-19 $75M Series C $450M 21.0x Partners, Tiger Global
Management, Y Combinator
Tiger Global Management, Y
5-Jan-18 $20M Series B - -
Combinator, Matrix Partners India
1-Jun-16 Undisclosed Series A - - Mastercard
Tiger Global Management, Matrix
27-Oct-15 $9M Series A - -
Partners India
Matrix Partners India, Ram
Shriram, Jeff Huber, Justin
Kan, Kunal Bahl, Rohit Bansal, Punit
20-Oct-15 $2.5M Seed - -
Singh Soni, Naveen Tewari, Abhay
Singhal, Sandeep Tandon, Amit
Gupta, Kunal Shah, Bill Gajda
1-Jun-15 Undisclosed Seed - - Uncommon Capital
23-Mar-15 $120K Seed - - Y Combinator

Source: Tracxn

CarDekho (Jaipur) InsuranceDekho, alongside strengthening its

GirnarSoft's flagship venture, CarDekho.com,
took strategic steps in FY23 to enhance its
business model, notably exiting its franchise-
led used-car retail and customer-to-dealer
car sales segments. Instead, the focus shifted
towards expanding car and bike financing
through Rupyy and insurance offerings via
automotive and financial services in
Southeast Asia. These adjustments led to
improved unit economics, a 150% increase
in consolidated operating revenue and
minimised losses post-adjustments.
The CarDekho Group, known for its
ambitious expansions, encompasses a variety
of platforms, such as PriceDekho,

15
BikeDekho, TyreDekho and BatteryDekho,
catering to a broad spectrum of
stakeholders including buyers, sellers, and
dealers. Its acquisition of Revv, a car-sharing
service, marks CarDekho’s venture into
shared mobility.
In an interview with Inc42, the CEO shared
insights on the advantages of operating from
Jaipur, a tier 2 city. Rental costs are lower
Funding Snapshot
Source: Tracxn
Inshorts (Noida)
In 2013, Azhar Iqubal, along with his IIT
Delhi classmates Anunay Arunav and Deepit
Purkayastha, initiated News in Shorts, now
known as Inshorts, as a Facebook page
providing concise news summaries. Evolving
into a popular news app, Inshorts has
surpassed 10 million downloads, offering
16
compared to major tech hubs, and although
there were initial hiring challenges due to a
scarcity of skilled professionals, it opened
doors to invest in and develop local talent.
At present, several graduates from
neighbouring colleges have ascended to key
C-suite positions within the CarDekho
Group, showcasing the successful cultivation
of a skilled workforce.
users quick updates in a 60-word format.
Despite starting with 100,000 users in
December 2014, the app now boasts nearly
three million users. In addition to its news
service, Inshorts has excelled in creative
advertising, collaborating with prominent
brands like Vodafone, OnePlus, Mercedes,
Netflix, Amazon Prime, and Myntra, achieving
operational viability within five years.
Funding Snapshot
Overall, they have raised US$164
Mn until now with a largest found
round yielding an investment of
US$60 million.
CONCLUSION
The future of indigenous startups in India,
particularly in tier 2 and tier 3 cities,
appears remarkably promising and poised
for exponential growth. Contrary to the
traditional narrative centred on metropolitan
areas, these smaller cities have emerged as
pivotal contributors to the nation's economic
expansion and innovation. Fuelled by a
robust GDP growth rate, these regions have
witnessed a substantial surge in
entrepreneurial activities, challenging
preconceived notions about the dominance
of tier 1 cities. The burgeoning startup
culture in India is capturing the imagination
of the youth, inspiring a significant number
to embark on their entrepreneurial journeys.
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Television shows like Shark Tank have
played a crucial role in reshaping consumer
perceptions and fostering a spirit of
innovation. With factors such as a growing
population, enhanced digital infrastructure,
and supportive government initiatives, tier 2
and tier 3 cities are increasingly becoming
breeding grounds for startups. This trend is
further underscored by a rising influx of
investments, with venture capitalists, private
equity firms, and investors showing keen
interest in these small-town hubs. According
to a report by the Times of India, tech
startups from tier 2 and tier 3 cities are
projected to grow 2.2 times by 2025
compared to 2022, signalling a dynamic and
promising future for the startup ecosystem
in India's smaller urban centres.