Accel, one of India’s most prolific e-commerce and marketplace investors, is making the opposite move by focusing on smaller towns and villages in search of future unicorns.
The venture capital firm argued on Wednesday that these regions, which it refers to as “Bharat”, represent a significant market full of opportunities for entrepreneurs, even as many startups have struggled to break into these regions.
“There is a perception that rural means poor. But if you look at what the top 20% to 30% spend there, it’s very significant. We estimate it to be north of $250 billion,” Accel partner Anand Daniel told TechCrunch. The company claims that the top 20% of these untapped markets spend more per month than roughly half the population in urban cities.
Daniel said the company plans to present this new focus as at least one of the main themes in its next early-stage investment program.
Accel’s decision is notable as most other venture investors in India are chasing startups that cater to the top urban cities. An early investor in startups like Flipkart, Myntra, Swiggy, Zetwerk, Urban Company, Acko, Eruditus, Moglix and Infra.Market, Accel owns about a fifth of all Indian unicorns — even though it hasn’t raised as much capital as some by his peers.
Accel’s faith in rural India is based on improving infrastructure in these areas. The proliferation of smartphones and affordable internet has enabled people across the country to adopt digital services such as mobile payments through UPI. Warehousing and logistics have also improved across the country, allowing for faster deliveries.
Rural Indians are also showing a tendency to upgrade their lives, opting for 125cc bikes over 100cc models, double-door refrigerators over single-door units and used iPhones, Accel said.
While this improvement in infrastructure also allows big companies like Flipkart to serve customers in these regions, Daniel believes that “it’s such a large and non-zero-sum gaming market that there will be opportunities for newer players.”
Many startups that have started or expanded in smaller cities in India in the past have had little success. For example, commerce startup Udaan’s attempt to serve merchants in smaller cities has largely faltered despite the company raising over $1 billion on the pledge.
Some startups struggled on this front because they tried to apply urban strategies to these rural markets, while others struggled because they didn’t prioritize forays.
Another reason could simply be the way these markets operate: Often, family-owned businesses maintain generational relationships with lenders and logistics providers in these regions, and it can be difficult for startups to enter such a market on their own. their technology.
Daniel suggests that entrepreneurs trying to serve Indian suburbs should look out for these relationships and try to help them scale. He cited as an example Citymall, an Accel portfolio company that works with micro-entrepreneurs in smaller cities in India and ensures that they play an important role in – and benefit from – the company’s growth.
Startups catering to rural India will likely have to look and function differently than their urban counterparts. Their business models, customer acquisition strategy and distribution will likely be very different, Accel said.
But the firm is confident that great startups will emerge from these rural areas and their valuations will be as good as their urban counterparts, Daniel said.
