Accel, one of India’s most prolific e-commerce and marketplaces investors, is making the opposite move, targeting smaller towns and villages in search of future unicorns.
The enterprise capital firm argued on Wednesday that these areas, which it calls “Bharat,” represent a significant market offering opportunities for entrepreneurs, although many startups have had difficulty tapping into these regions.
“There is a belief that the countryside means poverty. But if you look at what the top 20% to 30% of citizens spend there, it’s quite significant. We estimate it to be north of $250 billion,” Accel partner Anand Daniel told TechCrunch. The company says the top 20% of untapped markets spend more each month than about half of the urban population.
Daniel said the company plans to include this recent goal as at least one of the principal themes of its next early-stage investment program.
Accel’s decision is noteworthy as most other enterprise capitalists in India go after startups serving top urban cities. An early investor in startups reminiscent of Flipkart, Myntra, Swiggy, Zetwerk, Urban Company, Acko, Eruditus, Moglix and Infra.Market, Accel owns shares in about a fifth of all Indian unicorns – although it has not invested as much capital as some of his peers.
Accel’s belief in rural India is underpinned by improving infrastructure in these regions. The proliferation of smartphones and inexpensive web have enabled people across the country to use digital services, reminiscent of mobile payments via UPI. Warehousing and logistics have also improved across the country, enabling faster deliveries.
Rural people in India are also showing a penchant for upgrading their lives, selecting 125cc motorcycles over 100cc models, two-door fridges over single-door fridges, and used iPhones, Accel says.
While this infrastructure improvement also enables large corporations like Flipkart to serve customers in these regions, Daniel believes that “it’s such a large non-zero-sum gaming market that there will be opportunities for newer players.”
Many startups that have launched or expanded to smaller Indian cities in the past have seen little success. For example, commerce startup Udaan’s efforts to serve merchants in smaller cities have largely failed, although the company has raised greater than $1 billion in pledges.
Some startups struggled on this front because they tried to force urban strategies to fit rural markets, while others struggled because they didn’t prioritize the suburbs.
Another reason may simply be the way these markets function: family businesses often maintain generational relationships with lenders and logistics providers in these regions, and it might be difficult for startups to break into such a market using their technology alone.
Daniel suggests that entrepreneurs trying to serve Indian suburbs needs to be mindful of such relationships and strive to increase them. As an example, he cited Citymall, an Accel portfolio company that works with micro-entrepreneurs in smaller Indian cities and ensures that they play a significant role in the company’s development and profit from it.
Startups serving rural India will likely need to look and operate in another way from their urban counterparts. Their business models, customer acquisition strategy and distribution are likely to be very different, Accel said.
However, the company is confident that big startups will emerge from these rural regions and that their valuations will probably be nearly as good as their urban counterparts, Daniel said.