Accel, one of the most active e-commerce and marketplace investors in India, is taking a contrary step by focusing its attention on smaller towns and villages in search of future unicorns.
The venture firm argued on Wednesday that these regions, which it refers to as “India,” represent a significant market rife with opportunities for entrepreneurs, even though many startups have struggled to make inroads in these regions.
“There’s this perception that rural areas mean poor. But if you look at how much the top 20% to 30% of people are spending there, it’s quite significant. We estimate it’s over $250 billion,” Accel partner Anand Daniel told TechCrunch in an interview. The firm claims that the top 20% of people in these untapped markets spend more every month than half the population living in urban cities.
Daniel said the company plans to incorporate this new focus as at least one major theme in its next project. Early Stage Investment Program,
Accel’s decision is notable, as most other venture investors in India pursue startups that serve the top urban cities. An early investor in startups such as Flipkart, Myntra, Swiggy, Zetwerk, Urban Company, Acko, Eruditus, Moglix and Infra.Market, Accel owns nearly a fifth of all Indian unicorns — even if it hasn’t raised as much capital as some of its peers.
Excel’s belief in rural India is based on the improvement in infrastructure in these areas. The proliferation of smartphones and affordable internet has allowed people across the country to adopt digital services such as mobile payments through UPI. Warehousing and logistics have also improved across the country, leading to faster deliveries.
Excel said rural Indians are also showing a tendency to upgrade their lifestyle, preferring 125cc bikes over 100cc models, double-door refrigerators over single-door ones and used iPhones.
While this improvement in infrastructure enables large companies like Flipkart to serve customers in these regions, Daniel believes that “this is such a large and non-zero-sum game market that there will be opportunities for new players.”
Many startups that have launched or expanded in smaller Indian cities in the past have had little success. For example, commerce startup Udaan’s attempt to serve merchants in smaller cities has largely failed despite the company’s efforts. Raising over $1 billion On the promise.
Some startups struggled on this front as they tried to force urban strategies into rural markets, while others struggled because they did not prioritise the exurbs.
Another reason may be how these markets work: Often, family-run businesses maintain generational relationships with lenders and logistics providers in these regions, and it may be difficult for startups to enter such a market with just their technology.
Daniel suggests that entrepreneurs trying to serve Indian cities should be mindful of such relationships and try to help them grow. He gave the example of CityMall, an Accel portfolio company that works with micro-entrepreneurs in small Indian cities and ensures that they play a key role in the company’s growth and benefit from it.
Startups operating in rural India will have to look and act differently from their counterparts operating in cities. Their business models, customer acquisition strategies and distribution will be very different, said Axtel.
But Daniel said that the company is confident that big startup companies will emerge from these rural areas and their valuation will also be as good as in urban areas.
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