Emerging Startup States: The Rise of Tier-2 and Tier-3 India

India’s startup boom is no longer confined to Bengaluru, Mumbai, or Delhi. A powerful shift is underway - Tier-2 and Tier-3 cities are producing nearly half of all recognized startups, with some reports projecting more than 50% of new ventures will originate from these emerging hubs by 2035.

This structural renaissance is redefining entrepreneurship, job creation, regional development, and investment flows across the country.

A New Startup Geography

For over a decade, India’s startup ecosystem was widely perceived as metro-centric. The dream sequence for founders began in major urban centers like Bengaluru, Mumbai, Hyderabad, and Delhi - places with access to capital, talent, infrastructure, and visibility. Yet, recent data paints a dramatically different picture.

From Metros to Heartland

• DPIIT figures show that around 50% of the 115,000+ DPIIT-recognized startups now hail from Tier-2 and Tier-3 cities.

• A KPMG report corroborates that approximately 45% of startups originate from these smaller cities, signaling a lasting decentralization of innovation.

• Other industry forecasts suggest that by 2035 more than half of India’s new startups will emerge outside traditional tech hubs - a testament to long-term structural shifts in the ecosystem.

This shift is not just statistical - it’s transformational. Cities like Jaipur, Lucknow, Coimbatore, Indore, Kochi, and Surat are fast becoming magnet zones for diverse entrepreneurial activity spanning AI, fintech, agritech, healthcare, and consumer tech.

Why the Shift Matters

The rise of Tier-2 and Tier-3 startup ecosystems is not merely geographic. It represents a strategic economic realignment -one that challenges legacy assumptions about where innovation can and should happen.

1. The Great Expansion Beyond Metros

India’s startup ecosystem has expanded from about 300 recognized startups in 2016 to more than 125,000 by 2025. What’s remarkable is that this growth includes contributions from cities often overlooked in national discourse:

• Jaipur: A bustling hub for SaaS, AI, and fintech companies with state policy support and incubators.

• Coimbatore: Leveraging its manufacturing and industrial base to champion clean tech and fintech ventures.

• Bhubaneswar: Rising as an edtech and analytics center due to proactive state policies.

• Lucknow & Ghaziabad: Showing robust incorporation growth, signaling rising entrepreneurial confidence.

2. Democratization of Entrepreneurship

This trend reflects a broader democratization of the startup ecosystem:

• Access to capital is diversifying. Investments are flowing into Tier-2 and Tier-3 regions, with collective funding in select non-metros rising sharply.

• Women and first-generation founders are participating at unprecedented rates, benefiting from targeted schemes and mentorship networks.

• Education and digital tools, including AI and omnichannel models, allow startups to compete with global peers from any geography.

3. Economic and Social Imperatives

The shift matters because it aligns with India’s broader socio-economic goals:

• Job creation and talent retention: Startup growth in smaller cities helps curb urban migration and fosters local employment.

• Lower costs, higher sustainability: Operational expenses in emerging cities can be up to 25–50% lower than in metros, improving runway and financial resilience.

• Community-led innovation: Startups born in local contexts are solving contextually relevant problems, from agritech solutions in villages to regional health-tech platforms.

Yet, this rise is not without challenges.

Challenges Facing Tier-2/3 Startup Ecosystems

1. Infrastructure and Talent Gaps

Despite rapid improvements, many Tier-2/3 regions still lack the depth of investor networks, talent density, and infrastructure of metropolitans.

2. Funding Access

While capital is increasingly flowing into emerging cities, early-stage funding and large Series A/B rounds remain metro-centric. Founders often relocate or register headquarters in bigger cities to attract VCs.

3. Market Connectivity

Building national or global scale demand is harder from smaller cities without strong brand or distribution support though omnichannel strategies are helping bridge that gap.

Illustrating the Transformation

Jaipur - A Tier-2 Unicorn Nursery

Jaipur’s startup ecosystem has outpaced many expectations:

• Close to 7,100+ startups registered across Rajasthan, with Jaipur leading in AI, SaaS, and consumer tech.

• Strategic policies like the Rajasthan Global Capability Centre Policy 2025 are nurturing innovation and skilled workforce growth.

The result? Jaipur has become a case study for how policy, talent retention, and localized infrastructure can drive innovation at scale.

Uttar Pradesh - From Primary Sector to Digital Hub

The state has witnessed notable expansion of digital units:

• Nearly 400 IT units registered under the STPI scheme highlight a growing digital infrastructure.

• Policy interventions like the NIDHI scheme are empowering women-led ventures and early founders.

• Growth is not limited to cities, rural entrepreneurial networks are emerging, creating broader socio-economic change.

Tamil Nadu - Going Rural

Under the Gramam Thorum Puthozhil scheme, Tamil Nadu’s StartupTN is creating rural startup communities, decentralizing innovation into villages.

Crypto and Digital Assets Uptake in Smaller Markets

Indore has become a standout example where 40% of crypto platform users are from smaller towns, illustrating that digital financial adoption is surging beyond metros.

What Growth Metrics Reveal

Startup Registrations Up

Annual company incorporations in Tier-2 cities have more than doubled in less than a decade. 

Job Creation

Startups in smaller cities are contributing significantly to employment data suggests meaningful direct and indirect job creation.

Funding Momentum

Emerging hubs are attracting bigger rounds and increasing average deal sizes, closing the investment gap with traditional metros.

What This Means for India’s Future

1. Inclusive Economic Growth

The rise of startups in Tier-2 and Tier-3 India heralds a more inclusive and balanced economic future. Innovation is no longer restricted to a handful of cities; it’s spreading across states and regions, each with unique strengths.

2. Micro-Economies, Macro Impact

Local innovations are generating disproportionate impact:

• AgriTech startups are boosting rural incomes.

• Health-tech platforms are improving access to quality care.

• EdTech ventures are democratizing quality learning.

These sectoral contributions will cumulatively strengthen India’s GDP, export landscape, and global competitiveness.

3. Policy and Ecosystem Evolution

The Indian government’s Startup India initiative with funding support, tax incentives, and simplified compliance has helped create fertile ground for this growth.

Moving forward, regional funds, specialized clusters, and local incubators will be critical to sustain momentum.

The Heartland Is the New Frontier

India’s startup story is evolving rapidly. Tier-2 and Tier-3 cities are no longer outliers, they are the core growth engines reshaping the nation’s entrepreneurial landscape.

From Jaipur’s AI startups to Tamil Nadu’s rural innovation villages, from UP’s digital hubs to Indore’s crypto adopters - this is a grassroots revolution grounded in real economic opportunity and social empowerment.

In the next decade, these regions are not just expected to produce startups, they will create stable jobs, drive exports, and nurture innovations that compete globally. By 2035, more than half of India’s startups will likely originate here, a seismic shift in how India Innovates.

Disclaimer: Curated from trusted sources; contact editorial@tice.news for corrections.