Authored by Vivek Chadha, Founder of AccelerateX Ventures, Angel Investor and Author of Startupology
India’s startup story is no longer confined to the big cities. Tier-2 cities such as Jaipur, Kochi, Indore, Bhopal, Coimbatore, and Guwahati are now showing up more frequently in investor conversations, deal sheets, and acquisition news.
Take FreshToHome, based in Kochi, which raised $104 million led by Amazon’s Smbhav Fund. Or Minimalist, which started in Jaipur and was acquired by Hindustan Unilever for about ₹3,000 crore. These are not isolated wins—they represent a serious shift in where promising ventures are emerging. Nearly half of all DPIIT-recognised startups now come from outside the metros. A recent report titled “India as a Startup Superpower by 2035: A Strategic Roadmap” by the Bengaluru chapter of The Indus Entrepreneurs projects that more than 50% of Indian startups by 2035 will emerge from Tier 2 and Tier 3 districts.
A Decade of Momentum
Over the past 10 years, India’s startup ecosystem has experienced tremendous growth, becoming the third-largest in the world. With initiatives like Startup India, Startup India Seed Fund Scheme (SISFS), Credit Guarantee Scheme for Startups (CGSS), Fund of Funds for Startups (FFS), and sector-focused programs such as Atal Innovation Mission (AIM) and MeitY Startup Hub (MSH), the government has played a pivotal role in supporting entrepreneurs across the country.
While references to Startup India are often broad, there is now sharper support at the grassroots level. For instance, SISFS offers early-stage funding of up to ₹20 lakh for validation and ₹50 lakh for product launch. States like Rajasthan (through iStart), Kerala (through KSUM), Madhya Pradesh (via its MP Startup Policy), and Gujarat (through iCreate and SSIP) are offering structured, operational help from Day 1.
The Economics Make Sense
Startups outside the metros are building real, sustainable businesses. Lower salaries, cheaper rentals, and slower burn rates mean they have more room to grow without constantly chasing capital. A founder can stretch their runway and achieve breakeven faster when operating from a Tier-2 city.
A 20-person tech team in Ahmedabad, for example, can cost less than half of what it would in Gurugram—while delivering similar output. In a funding environment that increasingly values margins and monetisation, this cost advantage is crucial.
These Markets Are Still Open
Consumer demand in smaller cities is rising fast—and much of it remains underserved. In sectors like logistics, healthcare, education, home services, and retail, strong digital options are still lacking in many towns. Founders with local insights are stepping in early and locking in customer loyalty.
These startups are filling real gaps. And when they get it right, growth often exceeds expectations. CAC (Customer Acquisition Cost) tends to be lower, retention stronger, and word-of-mouth spreads faster and deeper.
The Talent Is Already There
For years, building a startup meant relocating to Bengaluru or Mumbai. That’s no longer the case. With better internet connectivity and hybrid work models, skilled professionals are staying closer to home—and still building high-quality products.
Founders are hiring locally, shaping culture early, and assembling teams that are motivated to stay. One example: a founder based in a village in Haryana is running a profitable chain of homeopathy clinics. He employs a team of 80 people locally and is on track to generate ₹10 crore in annual revenue with ₹4 crore in profit. He’s now looking to raise capital—but has no idea where to begin.
Stories like his are everywhere. These businesses have clear demand, strong numbers, and real momentum. What they often lack is access.
Investors Are Taking Notice
Nearly half of India’s active VC and PE firms have backed at least one Tier-2 or Tier-3 startup. This is a sharp contrast from just a few years ago. Funds are setting up regional sourcing teams, attending local demo days, and collaborating with state-run incubators to widen their pipeline.
Demo days and pitch events are becoming more common across small-town India. Incubators like AIC-RMP in Bhopal, KSUM in Kerala, CIIE.CO in Ahmedabad, and TIDE in Coimbatore are hosting annual or biannual demo events. IIMs in Udaipur, Kashipur, and Indore have launched startup accelerators with regional demo days attracting national funds. TiE chapters in Jaipur, Coimbatore, and Bhubaneswar are also hosting pitch-a-thons that help startups connect with serious capital—without needing to fly to Bengaluru or Delhi.
Strong fundamentals no longer depend on a founder’s PIN code. Some of India’s most capital-efficient startups are coming out of smaller towns, built for cash flow from day one.
Digital Infrastructure Has Caught Up
A few years ago, infrastructure was a legitimate concern. Today, however, most towns and even villages in India enjoy solid internet access, widespread smartphone adoption, and basic digital services. This shift has enabled remote-first business models in edtech, healthtech, SaaS, and fintech.
Founders no longer need to relocate to serve national audiences—they can build locally and scale nationally.
States Are Doing Their Bit
While the Startup India program laid the foundation, many states have moved swiftly to introduce targeted support. Gujarat, Rajasthan, Tamil Nadu, Kerala, Madhya Pradesh, and others now offer startup grants, mentorship networks, and access to incubators.
These policies are founder-friendly and operationally impactful. Rajasthan’s iStart program, for example, offers a scoring system to aid early-stage support. Kerala’s KSUM brings in fabrication labs, soft-landing programs, and global market entry grants. Madhya Pradesh’s startup policy focuses on rural entrepreneurship, while Gujarat’s SSIP has built a thriving student innovation ecosystem.
This state-level backing has created newfound confidence in local founders, spurring the emergence of mini-ecosystems in cities that were never considered startup-friendly a decade ago.
What’s Missing Is Visibility
The biggest gap isn’t funding—it’s discovery.
Hundreds of high-potential startups in smaller towns simply don’t show up on investors’ radar. Their pitch decks aren’t circulating in mainstream VC circles. They’re not on the usual event circuits. But the metrics are strong. The businesses are stable. And the founders are deeply committed.
What’s missing is a bridge between capital and opportunity.
Small-town India is where demand is shifting. Consumers are active, aware, and willing to spend. Founders who live among them understand their preferences, pain points, and aspirations. That insight is hard to replicate from a metro.
For Investors, the Opportunity Is Clear
This is the moment to back founders building for markets others are only now beginning to notice. The fundamentals are strong, the infrastructure is ready, and the ambition is high. Small-town startups aren’t just the next wave—they’re already here.
