A survey of startups, academic institutions and investors in Tier 2 and Tier 3 cities on Wednesday said about 44 per cent of surveyed investors have actively participated in supporting startups within Tier 2 & 3 cities, indicating a keen interest in the untapped potential of emerging markets. The survey by management consulting firm Primus Partners focusing on innovation and entrepreneurship in small cities added that 64 per cent have directed their investments towards technology-based startups, signalling a substantial appetite for tech-driven innovation.
Moreover, 23 per cent of investors have opted to support non-tech startups, showcasing a diversified investment portfolio beyond technology. Further, 13 per cent of investors have specifically backed startups with a social impact focus.
“The growth of Tier II cities signifies a broader economic and infrastructural transformation. Despite grappling with issues like infrastructure gaps, funding constraints, and talent shortages, the resilience of these startups points to factors like skilled talent, cost-effective operations, and favorable government policies that have been contributing to their growth,” said Charu Malhotra, Co-Founder & Managing Director, Primus Partners.
An additional 24 per cent of surveyed investors said they have benefited from networking support, underscoring the significance of connections while 41 per cent of the investors are affiliated with Alternative Investment Funds (AIF) or Fund of Funds (FoF) syndicates, highlighting the collaborative nature of their involvement in financing startups.
The survey also noted the challenges faced by startups from emerging cities, with over 40 per cent citing funding as a major growth issue and only 12 per cent receiving pre-seed funding. Those securing Series A funding were a mere 2 per cent. Apart from funding, other key challenges were talent scarcity, networking limitations and lack of accessible mentorship.
The survey called for dedicated funds and partnerships, strengthening entrepreneurial education with a focus on innovation-centric curriculum integration and workshops, expanding mentorship and incubation networks, and maintaining supportive government initiatives such as tax incentives and simplified regulations to support the startup ecosystem in small cities.