Accel bullish on non-urban markets; sees large cos emerging in e-comm, healthcare, financial domains

Several large, $1 billion-plus companies will be built over the coming decade, serving promising domains such as ecommerce, financial services and rural healthcare in smaller towns and cities, says Anand Daniel, a partner in leading venture capital firm Accel.

The growth story in these largely untapped non-urban locations is now unfolding amid marked advancements in online, financial and delivery infrastructure, he adds in his blog post titled “The imminent rise of startups catering to the Bharat”.

Accel is also bullish on companies dabbling in edtech, upskilling and recruitment solutions, as well as content platforms and consumer companies leveraging AI for these high-potential regional markets.

The leading early-stage fund, which has invested in marquee companies, including Flipkart, Swiggy and Urban Company, is placing bold bets on 'Bharat', a market it defines as middle-income households in Tier 2, Tier 3, and rural areas.

According to Daniel, there is significant opportunity if a startup can provide exceptional value for this target group at the right price points and keeping regional dynamics in mind.

"Meesho, Physics Wallah, and Zudio are just the sunrise. Many more companies tailored for Bharat are yet to emerge," Daniel writes.

Until now, delivery logistics hassles, low payment propensity, prohibitive distribution costs, and unsatisfactory marketing ROIs have posed challenges leading to scepticism around the ability of businesses to derive suitable returns.

But now with its thriving online, financial and delivery networks, this yet-to-be-tapped market represents the next frontier for building successful businesses, Daniel argues.

The incumbent’s (‘established players') value proposition lacked focused attention on India's diverse and varied customer segments. Most of these companies are not built in a manner that caters to the country's Tier 3 and rural parts.

As the non-urban market beckons "platforms that can leverage technology, innovate on capex, and build efficient distribution models to provide better products and services at the same or a better price are bound to crack a large potential market", Daniel notes.

The numbers speak for themselves - today half the top 20% of households are evenly distributed in rural India.

The top 20% of the rural population has a higher monthly per capita expenditure (MPCE) than about 50% of the urban population, the blog states.

"This highlights substantial purchasing power in rural areas that is often overlooked. We are bullish that there will be omnichannel platforms in commerce, health, and education that will cater to the needs of this target group," Daniel says.

“Accel expects multiple large, USD 1 billion-plus companies to be built for Bharat (non-urban households) in the coming decade,” he adds.

While India’s urban consumers have been served with quick commerce, the best financial products, on-demand professional services and multitudes of brands tailor-made for them, smaller towns and cities still await most of these offerings.

This untapped "highly aspirational" non-urban market is waiting to be cracked, says Daniel.

Daniel points out that there has been a surge in demand for used iPhones, 125cc bikes, and double-door refrigerators among non-urban audiences - the evolving preferences reflecting a readiness for offerings that match aspirations for enhanced lifestyle and upward mobility.

Accel has invested in multiple Bharat first companies like Apnamart, Citymall, and Arivihan, and the blog highlights the sub-domains of ecommerce, fintech, edtech, health and consumer brands as holding immense potential for startups keen on accelerated growth.

Several large companies will be built in the coming decade in these sub-domains.

"Innovative founders must make this market their core and leverage the advancements to create scalable, economically feasible solutions tailored to Bharat's evolving needs," says Daniel.

More companies focused on building ecommerce marketplaces for Tier 3 cities and beyond are needed.

"We believe that vertical marketplaces across various sectors—grocery, beauty, apparel, medicines, and agriculture—will emerge to meet these markets' unique needs and nuances," writes Daniel.

On fintech, he says, BFSI (banking, financial services and insurance) will drive significant value, and a large portion can be captured by experienced individuals building new-age fintech companies.

"From personal loans to loans for cattle or house financing, a new set of lending companies can leverage technology and provide tailored products at the right price to cater to the underserved and aspirational Bharat Target Group.”

Healthcare, too, is a wide-open opportunity for innovators, with its scope ranging from efficiently run mobile health clinic chains to affordable diagnostic solutions, and trustworthy generic medicine brands to solutions oriented towards rising demand for fertility treatments in Tier 3 and beyond.

The blog penned by Daniel further states that solutions which provide primary education, upskill, and offer certification programmes at the right price are very limited and much needed, given that India has a sizeable unemployed youth base.

"With the advent of AI, we are seeing platforms bring down the cost of production and delivery," Daniel says.