Accel is bullish on rural markets, predicting big players emerge in e-commerce, healthcare and finance, says ET BrandEquity

Anand Daniel, partner at leading venture capital firm Accel, says the next decade will see the creation of several billion-dollar plus companies serving promising sectors such as e-commerce, financial services and rural healthcare in smaller towns and cities. In a blog post titled “The Imminent Rise of Startups Catering to Indian Citizens' Needs,” he adds that these largely untapped non-urban growth stories are unfolding amid significant advances in online, financial and delivery infrastructure. Accel is also bullish on content platforms and consumer-facing companies leveraging AI for these high-potential regional markets, as well as companies dabbling in edtech, skilling and recruiting solutions.

The leading early-stage fund, which has invested in big names like Flipkart, Swiggy and Urban Company, is making a bold bet on “Bharat,” a market defined as tier 2, tier 3 and middle-income households in rural areas.

According to Daniel, there is a huge opportunity for startups to offer good value to this target group at the right price, while keeping local trends in mind.

“Meesho, Physics Wallah and Zudio are just getting started. There will be many more India-focused companies to come,” Daniel wrote.

In the past, challenges such as hassle with delivery logistics, low propensity to pay, exorbitant distribution costs, and poor marketing ROI made businesses question whether they could get adequate returns.

But now, with thriving online, financial and delivery networks, Daniel argues this untapped market represents the next frontier for building a successful business.

The value propositions of incumbents (“incumbents”) were not focused on India's diverse and varied customer segments. Most of these companies were not built to cater to the needs of tier 3 and rural India.

With rural markets gaining traction, “platforms that can leverage technology, innovate capital expenditures and build efficient distribution models to offer better products and services at comparable or better prices will have a huge potential market to tap,” Daniel said.

The numbers speak for themselves: today, half of the top 20 percent of households are evenly distributed across rural India.

According to the blog, the monthly per capita expenditure (MPCE) of the top 20% of the rural population is higher than that of about 50% of the urban population.

“This highlights the huge purchasing power of rural areas that is often overlooked. We are optimistic that omnichannel commerce, health and education platforms will emerge to cater to the needs of this target demographic,” Daniel said.

“Accel expects multiple large $1 billion plus companies to be created to cater to Bharat (non-urban households) over the next decade,” he added.

While urban Indian consumers have access to fast transactions, the best financial products, on-demand professional services and a host of brands tailored for them, most of these services are still unavailable in smaller towns and cities.

This untapped and “highly ambitious” non-urban market is waiting to be tapped, Daniel says.

According to the blog post, there is a huge opportunity for startups to develop products that are tailored to their needs at the right price.

Daniel points to a surge in demand for second-hand iPhones, 125cc bikes and double-door refrigerators among non-urban consumers, reflecting changing preferences for products that meet improved lifestyle and status aspirations.

Accel has invested in several Bharat first companies including Apnamart, Citymall and Arivihan and in its blog, it highlights sub-domains like e-commerce, fintech, edtech, health and consumer brands that hold huge potential for startups looking to accelerate growth.

Over the next decade, several big companies will be established in these sub-domains.

“Innovative founders need to put this market at the core of their companies and leverage its advancements to create scalable, economically viable solutions tailored to India's evolving needs,” Daniel said.

We need more companies that focus on building e-commerce marketplaces for tier 3 cities and beyond.

“We believe vertical markets will emerge across a variety of sectors, including grocery, beauty, apparel, pharmaceuticals and agriculture, to meet the unique needs and nuances of these markets,” Daniel wrote.

When it comes to fintech, he says BFSI (banking, financial services and insurance) will create significant value, much of which will be captured by experienced individuals building new-age fintech companies.

“From personal loans to livestock and home loans, new lenders can leverage technology to offer tailored products at the right price to meet the needs of India's underserved and aspirational target audience.”

Healthcare also represents a huge opportunity for innovators, ranging from efficiently run mobile clinic chains to affordable diagnostic solutions, from trusted generic drug brands to solutions to cater to the growing demand for fertility treatments in tier 3 and beyond.

Daniel's blog further states that given India has a significant number of unemployed youth, solutions to provide primary education, improve skills and provide certification programs at reasonable prices are very limited and badly needed.

“AI is enabling platforms to lower the costs of production and delivery,” Daniel said.