Accel, one of India’s most prolific e-commerce and marketplace investment firms, is taking a contrarian step by shifting its focus to smaller towns and villages in search of unicorns of the future.
These regions, which it refers to as ‘Bharat’, represent a large market full of opportunities for entrepreneurs even though many startups are struggling to make headway in these regions, the investment firm said on Wednesday.
“There’s a perception that rural means poor. But if you look at what the top 20% to 30% of the population there is spending, it’s very significant. We estimate it’s north of $250 billion,” Anand Daniel, an Accel partner, told TechCrunch in an interview. The company claims that the top 20% of these untapped markets spend more monthly than about half of the population in urban cities.
Daniel said the company plans to highlight this new focus as at least one of the key themes in its next early-stage investment program.
Accel’s decision is noteworthy, given that most other investors in India are going after startups serving major metropolitan cities. An early investor in startups like Flipkart, Myntra, Swiggy, Zetwerk, Urban Company, Acko, Eruditus, Moglix and Infra.Market, Accel has a stake in about five Indian unicorns – although it has not invested as much capital as You own it. Some of his peers.
What underpins Accel’s faith in rural India is improving infrastructure in these areas. The proliferation of smartphones and affordable internet has allowed people across the country to adopt digital services, such as mobile payment via UPI. Warehousing and logistics operations have also improved across the country, allowing for faster deliveries.
Rural Indians are also showing a tendency to improve their lives, choosing 125 cc bikes instead of 100 cc models, double-door refrigerators instead of single-door units, and using iPhones, Axel said.
While this improvement in infrastructure also enables major companies like Flipkart to serve customers in these regions, Daniel believes “it is a large, non-zero-sum gaming market where there will be opportunities for new players.”
Many startups that have launched or expanded to smaller Indian cities in the past have had little success. For example, commerce startup Udaan’s attempt to serve merchants in small towns has largely faltered despite the company raising more than $1 billion based on the promise.
Some startups have struggled on this front because they tried to impose urban strategies that fit these rural markets, while others struggled because they did not prioritize the suburbs.
Another reason may simply be how these markets work: Often, family-run businesses maintain generational relationships with lenders and logistics providers in these regions, and it can be difficult for startups to break into such a market with only their technology.
Daniel points out that entrepreneurs trying to serve suburban India should be mindful of such relationships and try to help expand them. He cited as an example Citymall, an Accel portfolio company that works with micro-entrepreneurs in small Indian cities and ensures that they play an important role in and benefit from the company’s growth.
Startups serving rural India will likely have to look and operate differently than their urban counterparts. Accel said its business models, customer acquisition and distribution strategy will likely be very different.
But Daniel said the company is confident that big startups will emerge from these rural areas, and that their valuations will be as good as their urban counterparts.