Silicon Valley, New York, Tel Aviv, Singapore, Bangalore and Berlin; top startup hubs in the world. (Yes, Bangalore is up there). These are cities equipped with resources, skilled individuals and a collective mindset that values innovation. Every founder dreams of being in such an environment, fueled by the #startup energy and surrounded by motivated peers. But, how important is location for a startup? Is it just an urban myth that your location can make or break your startup? #beingdramatic
In this post, we try to answer that. With a specific focus on the Indian startup ecosystem, we’ve laid out how locational factors play out for fundraising startups. Like the other posts in the Q2 series, we’ve used a sample size of 600+ startups who applied for investor connect and companies who got funded during Q2 (about 90)
Hypothesis: It’s a no brainer. The ecosystem plays a major role in startup success. It could be for fundraising, mentoring, customer connects (specially for B2B businesses) etc. – you definitely have a better access to such key things if you are in the proximity of a startup hub.
But we think it’s important to acknowledge the growth of startup ecosystems outside cities like Bangalore, Mumbai and Delhi. Maybe even go as far as seeing trends and identifying the upcoming startup hubs in India.
Let’s start broad. The red bars represent the supply in the market (funded startups) while the blue represents the demand in the market (fundraising startups).
It’s pretty straight forward. 75% of the market is concentrated in Tier-1 cities. Do note here that the supply in Tier-2 slightly exceeds the demand (in terms of percentage of companies looking to raise funds or raised funds).
But who are these Tier-2 early adopters? Are they located around the Tier-1 hubs? Is the ecosystem in the country growing in a hub-and-spoke model? To get a better understanding, let’s look at what’s happening in the top Tier- 1 cities. We’ve identified Ahmedabad, Bangalore, Chennai, Delhi, Hyderabad, Kolkata, Mumbai and Pune as Tier-1 cities. #Funfact: 75.6% of the market is spread across just 3 cities namely Bangalore, Mumbai and Delhi. Let us see how that looks:
Red = the supply in the market (funded startups)
Blue = the demand in the market (fundraising startups).
More than 40% of the market (both demand and supply) is located in Bangalore. Clearly, the tech hub of the country and the most happening one in terms of early stage companies. The capital city, New Delhi, comes second followed closely by Mumbai. Note that Delhi has a higher demand for fundraising and Mumbai has a higher supply of funded startups. The remaining fundraising market is scattered around Pune (6.33%), Ahmedabad (5.06%), Chennai (5.06%), Hyderabad (3.8%) and Kolkata (1.57%)
Moving on; Tier 2. Here is a quick look at the distribution of fundraising as well as funded startups across Tier 2 cities:
As you can see, the majority of the Tier-2 market is captured by Gurgaon and Noida. Jaipur, Agra, Coimbatore, Chandigarh and Kochi follow behind with smaller percentages.
In one of our past posts we investigated where Angel investor activity is the highest and this what we found out:
“It gets interesting when you segment investors by location. While the investor base in startup hubs like Delhi, Bengaluru, Mumbai, Chennai and Hyderabad has been consistently rising, we noticed growth in the investor base from towns like Guwahati, Kanpur, Pune, Raipur, Visakhapatnam, Agra, Jaipur and, Chandigarh. In fact, close to 13% of our investor base is from Tier 2 and 3 cities.”
How this growth will impact the number of startups in those cities we’re not too sure but we’re optimistic. Are you a founder from a Tier-2 or Tier-3 city? Do you have any thoughts or experiences that you’d like to share? Tweet to us as @letsventurein on twitter or email us at firstname.lastname@example.org