The making of a tier-3 unicorn

“We have never felt that our office should be in Mumbai,” says Sachin Kate, founder of Clear Car Travels, an Aurangabad-based online car booking platform. It has aggregated cars of over 3,000 fleet operators from 26 cities. Travel portals such as MakeMyTrip and Via list its service on their platforms.

What sets apart Kate’s car rental firm is its technology and innovation - it can monitor the maintenance records (insurance, servicing, pollution checks) of the cars through a cloud-based solution. Kate says on an average the company does 500-600 bookings daily with ticket sizes ranging from ₹3000-4000. He has neither needed funding nor wanted to move out of Aurangabad, which is the fifth largest city in Maharashtra, behind bigger markets such as Mumbai, Pune, Nagpur and Nashik.

“The cost of operations is so low here. Salary pay out is half of what we would have to give in Mumbai, and we get good talent from the Government College of Engineering and from Deogiri College,” says the entrepreneur.

Nearly a thousand kilometres away in Jaipur, Kate’s words are echoed by Anurag Jain, co-founder of GirnarSoft, the company behind ventures like CarDekho.com , and dreams of building a $10-billion company. “Our costs are 30 per cent less than Gurgaon,” he says.

From an employee perspective, Jain says the cost of living is low and distances short - almost all employees stay 10-minutes drive away; whereas in Gurgaon or Bengaluru, they would have to do a one-hour commute.

“If the company and culture are good, people will fall in love with the concept of working in a tier-2 town,” he says, pointing out that 15 of the 20 members of the founding team are still with the company. Jain’s first round of funding happened in 2013, six years after starting up.

From Madurai to Indore and Mohali; and from Jaipur to Udupi and Bhubaneswar, stories of successful start-ups are similar. If the idea is good and the product is of global quality, then the location does not matter. In fact, currently, there are opportunities in tier-3 cities, which face peculiar problems that a local start-up can find solutions to. As Rajat Tandon, Vice-President of Nasscom’s 10K start-up programe points out - before a Zomato or an Ola; or a Grofers moves into a small town, local lads and lasses who know the place and its behaviour can start a similar service with a regional flavour.

GirnarSoft’s Jain agrees that a local entrepreneur would be more attuned to consumer insights of his or her town.“Every city has a different behaviour. For example convenience is a problem in Gurgaon, but not in Jaipur. Here the consumer would look for discounts.”

Though the opportunity is there, numbers tell a different story. Eighty per cent of India’s start-ups are in Bengaluru, Delhi, Mumbai, Hyderabad, Chennai and Pune. Delhi, Bengaluru and Mumbai get 93 per cent of the investments pouring into start-ups, according to a Nasscom-Zinnov report (see chart).

So what has stopped middle-India from matching its bigger cousin? Lack of a start-up ecosystem, limitation in scaling operations and difficulty in attracting senior talent, are a few of the reasons.

Building an ecosystem

Praveen Kalbavi, Managing Director and Chief Executive Officer of the Mangaluru- based Novigo Solutions Pvt Ltd, and Chairman of the IT sub-committee of Kanara Chamber of Commerce and Industry, rues that barring Infosys, the absence of IT majors hampers the development of an ecosystem in the region. There is ample talent here, he says. The region’s 20 engineering colleges produce around 15,000 engineers every year. But the talent pool mostly lands up in Bengaluru, which offers a stronger start-up ecosystem.

The Mangaluru-Udupi region is five years behind Bengaluru in terms of start-up ecosystem, says Thankur Rahul Singh, co- founder of Winkl, a start-up in Mangaluru that provides relevant, contextual and personalised information to consumers in shopping malls. A strong ecosystem provides co-working spaces, start-up warehouses, mentoring associations such as TiE (The Indus Entrepreneurs), incubators, access to investor groups, informal smash-up weekends where entrepreneurs can brainstorm, and the presence of some big industries to whom you can become vendors. In Mohali for instance, co-working spaces are coming up for boot-strapped entrepreneurs who cannot afford huge rentals.

Aurangabad still lacks an ecosystem, says Kate, who is now in the midst of setting up a TiE chapter there. Joining TiE-Pune helped him grow business as he came into contact with seasoned entrepreneurs such as Deep Kalra, the founder of MakeMyTrip, which opened doors to him for a pitch.

However, in towns like Indore and Lucknow, presence of campuses of Indian Institute of Management has fostered a start-up culture. Angel.co – a platform that links investors to entrepreneurs, lists 118 start-ups based in Indore. The start-ups include Friendfiz, an augmented reality-based dating-cum-social network, and Maalgaadi, which calls itself the Uber of cargo logistics. Lucknow is home to 41 start-ups such as SimpliCV, a resume builder; and Ytiliga, a rural e-commerce logistics provider. As Padmaja Ruparel, President, Indian Angels Network (IAN) says, these days investors don’t even need face-to-face meetings with entrepreneurs. IAN’s investors listen to presentations online.

“As an investor, I am not driven by geography. We get driven by good propositions, doing things differently, so that it addresses customer pains. Second it has to cater to large markets," she adds.

According to Ruparel, Kochi is one of the most promising cities in terms of start-up action. It is echoed by Rajat Tandon of Nasscom’s 10K start-up programme. “Nasscom,” says Tandon, “is now working on a hub and spoke model to develop entrepreneurship in the region.” Kochi acts as the hub, and other towns in Kerala will be spokes that get benefitted. This model, says Tandon, will be replicated in other places. Nasscom’s 10K programme hopes to create 10,000 start-ups in the country by 2023.

The rise of Jaipur in the start-up industry is an inspiration for other small cities. When Jain and his brother started out in 2007, the Pink City had no ecosystem, and happily banked on their IIT-alumni network. Today, Jaipur is one of the hottest emerging destinations with several institutions like TiE, Jaipur Angels, RAIN and Startup Oasis mentoring and funding entrepreneurs.

Start-ups such as Razorpay in which American seed fund YCombinator has invested; and Culture Alley, which has been used by 70 lakh people to learn English through their mother tongues, have emerged out of Jaipur.

According to Ajay Data, one of the earliest internet entrepreneurs from Jaipur, “Today there are 500 new start-ups in Rajasthan – even in places like Ajmer, Jodhpur, Bikaner, Alwar and Udaipur.” TheChairman of PHD Chamber of Commerce and Industry in Jaipur says that given everything is on mobile, Android and IOS, starting up from anywhere is not a challenge. "Anyone can make apps. And they get made very fast. People from the smaller towns keep coming to our forums and go back and develop solutions to the problems they see in their towns."

According to Ajay Data, PHD chamber has requested the state government to create a ₹100-crore fund to seed 200 start-ups. Other state governments are also waking up to the need for start-up policies. Odisha and Kerala have been proactive. The start-up village at Kochi, for instance, has given a big boost to entrepreneurship in the state. Also, big industry is now lending a helping hand. Kate says that in the early days when he knocked on the doors of industry associations in Aurangabad to set up a TiE chapter, they hardly showed interest. Aurangabad has units of big corporate names such as Videocon, Garware, Bajaj and Skoda. But, today, the Chamber of Marathwada Industries and Agriculture is working with Kate to create a forum for start-ups.

Who knows, the next Unicorn may well emerge out of a tier-3 town.

With inputs from A J Vinayak & Abhishek Law