Indian startups eye rural markets to fuel the next leg of growth

Small villages in the state of Haryana in rural northwest India are making headlines today.

The need for housing construction by farmers in the villages surrounding the industrial town of Rohtak suddenly increased twice as much as the need for filming.

Besides the sounds of cows bellowing, it’s not unusual to hear the director shout “lights, camera, action” here.

A new startup called STAGE has created a fledgling film industry in this hinterland.

“Batta,” a hard-hitting drama about power and injustice, is just the latest of half a dozen films in production this year, STAGE founder Vinay Singhal told the BBC on set. area.

“There were only about a dozen odd Haryanvi films made in Indian history before we came,” Mr. Singhal said. Since 2019, we have made more than 200 films.”

STAGE creates content for largely underserved provincial audiences, keeping in mind hyper-local tastes, dialectical quirks and rural cultural syntax.

There are 19,500 different dialects in India, and STAGE has identified 18 that are spoken by a large enough population to merit their own film industry.

The app currently offers content in two languages ​​- Rajasthani and Haryanvi. It has three million paid subscribers and is planning to expand and include other dialects such as Maithili and Konkani, spoken in northeast and west coastal India respectively.

Mr. Singhal, who appears with his co-founders in the Indian edition of the magazine Shark tanka business reality show, a year ago.

PHASE is one of a growing number of Indian startups that are betting big on rural market opportunities as the next growth frontier. Others include players like Agrostar and DeHaat.

Although the majority of India’s 1.4 billion people still live in 650,000 villages, until now they have hardly been a market for booming tech startups.

Asia’s third-largest economy has become a hotbed for innovation, producing dozens of unicorns – or tech companies worth more than $1 billion – but the majority of them, according to partner Anand Daniel are all built for the “top 10%” of India’s urban population. at Accel Ventures, which has funded some of the country’s most successful ventures, from Flipkart to Swiggy and Urban Company.

While there are notable exceptions like online marketplace Meesho or several agritech companies, the startup boom has largely bypassed India’s villages.

That is now changing as more and more founders are successfully serving rural consumers and getting funding for their ideas.

“Investors are no longer open to you,” Mr. Singhal said.

“Five years ago, I didn’t receive any money. I had to restart the company.”

Accel itself is now cutting more checks to entrepreneurs solving problems for rural markets, recently announcing that it will invest up to $1 million in rural startups through its program. pre-seed accelerator.

Unicorn India Ventures, another local venture capital fund, said 50% of its investments now go into startups based in tier 2 and tier 3 cities. And in July this year , Japanese auto giant Suzuki announced a $40 million India fund to invest in building startups for the rural market.

So what is driving this change?

The untapped market opportunity is huge, Daniel said, and more and more investors and founders are realizing that rural doesn’t necessarily mean poor.

Two-thirds of India’s population lives in the hinterland and spends about $500 billion each year. In fact, this top 20% of the population spends more money than half of those living in cities, according to Accel’s own estimates.

“As India adds $4 trillion to its GDP over the next decade, at least 5% of it will be digitally influenced and come from ‘Bharat’ or rural India,” Mr. Daniel said.

That’s a $200 billion incremental opportunity.

Facilitating this is the growing penetration of smartphones among middle-income rural families.

About 450 million Indians now use a phone outside their cities – more than the entire population of the United States.

And one-click digital payments through the much-touted UPI interface has been a game-changer for companies looking to expand their offerings beyond metros.

“Five or seven years ago, the ability to reach this target group – be it digitally, logistically or receive payments – was not easy. But the current times are much better for the startup generation trying to access this market,” said Mr. Daniel.

Additionally, while most innovation took place in cities like Mumbai and Bengaluru a decade ago, more and more entrepreneurs are emerging from smaller towns, driven by factors such as transportation costs. lower levels of practice, availability of local talent and government initiatives to promote entrepreneurship. in areas without subways, according to a report from Primus Ventures.

Being close to the ground can also help founders see the potential of the large non-metro market.

But disrupting rural India is easier said than done.

Small town consumers are price conscious and geographically dispersed. The number of consumers with an address in any given zip code is much smaller than that of cities.

Gautam Malik, chief revenue officer of Frontier Markets, a rural e-commerce startup that provides last-mile delivery services to populated villages, said infrastructure also continues to lag. Therefore, “distribution is not easy and operating costs are high”. under 5,000.

Additionally, those who use urban stereotypes and force them to fit a village setting will fail, Mr. Malik said.

His company quickly realized why traditional e-commerce couldn’t penetrate the last mile. Village customers simply do not trust their money to a third party with no local presence.

To build that trust factor, Mr. Malik and his team had to tie up with village-level women entrepreneurs to act as their sales and delivery agents.

Such differentiation and long-term commitment will be critical to winning rural India and capturing that incremental $200 billion market opportunity, he said.

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