LetsVenture leading investor in smaller cities, towns

Venture capital funding rounds in tier-2 and tier-3 cities have been steadily increasing over the years. According to data shared by market intelligence platform Tracxn in 2022, there were 710 funding rounds in tier-2 cities and 63 in tier-3 cities. In the current year, there have already been 142 funding rounds in tier-2 cities and 15 in tier-3 cities, indicating the growing interest from investors.

Indian startups have been at the forefront of job creation and technological advancements in recent years, with major hubs like Bangalore, Delhi-NCR, and Mumbai leading the way. However, there has been a noticeable shift in the startup landscape, due to the rise of tech talent in smaller cities and towns, often referred to as tier-2 and tier-3 cities. This trend has captured the attention of venture capital funds, who are increasingly looking to invest in these emerging startup ecosystems.

While the sectoral breakdown for tier-1 and tier-2 cities is quite similar, tier-3 cities have shown a unique focus on autotech startups. In 2022 and 2023, autotech was the leading sector in tier-3 cities. Energytech and transportation and logistics tech also emerged as popular sectors in tier-3 cities, indicating a potential for innovation and growth in these areas.

The funding landscape in tier-1 cities remains robust, with startups raising approximately $4.9 billion in funding in 2023 YTD. In 2022, tier-1 startups raised a staggering $27.6 billion, showcasing the confidence of investors in these established hubs. However, it is worth noting that 2021 marked a slowdown in funding for tier-1 cities, while tier-2 cities experienced a record year in terms of funds raised.

In tier-2 cities, startups have raised around $785.8 million in funding in 2023 YTD. In 2022, the total funding reached $7.1 billion, while in 2021, it amounted to $11.3 billion and $3.4 billion in 2020. Tier-2 cities have become an attractive destination for investors, as consumer and retail startups have gained prominence in these regions.

Despite the funding winter that emerged in Q4 2021, 2022 was a momentous year for the tier-3 region. Tier-3 cities have also seen a significant milestone, surpassing $1 billion in funding for the first time in 2022, with a total of $1.6 billion raised. This achievement underscores the growth potential of startups in these emerging ecosystems.

The rise of venture capital interest in tier-2 and tier-3 cities can be attributed to several factors. Government initiatives such as the “Make in India” and various startup-friendly policies have spurred entrepreneurship and innovation beyond the traditional tier-1 hubs. The availability of skilled tech talent in smaller cities has also played a vital role in attracting investors, according to Tracxn.

In terms of investors, LetsVenture emerged as a top player across all tiers in 2022. In tier-1 cities, LetsVenture led with 85 funding rounds, followed closely by AngelList with 77 rounds and Accel with 49 rounds. In tier-2 cities, LetsVenture and AngelList maintained their positions as leading investors, while We Founder Circle also made significant contributions. In tier-3 cities, Aman Gupta and LetsVenture tied for the top spot, with AZ Gems also making notable investments.

The growing interest from venture capital funds in tier-2 and tier-3 cities signifies a shift in the Indian startup ecosystem. It highlights the untapped potential and the rise of regional innovation hubs across the country. As investments continue to flow into these emerging ecosystems, it is expected that tier-2 and tier-3 cities will play a crucial role in driving India’s startup growth and economic development in the years to come.

https://www.financialexpress.com/market/venture-capital-funds-interest-steadily-on-the-rise-in-tier-2-tier-3-cities/3091824/