Everyone thinks they know where to find the next big startups in South Asia. They’re all fighting over the same deals in Bangalore, Mumbai, and Singapore. But they’re looking in the wrong places. The next billion dollar opportunity will not come from the big city!
Here’s something counterintuitive: the most promising founders in South Asia aren’t in the places you’d expect. In a time where capital isn’t cheap and it is important to squeeze the maximum possible value from each dollar, it’s not the founder from the big city who will have the better probability of success. Instead, it’s the scrappy founder for whom the problem they’re solving is intensely personal. It is the founder for whom their entire entrepreneurial thesis is the result of their lived reality.
And this is the founder we choose to back.
Glitz and glamour don’t equal promise
The conventional wisdom about startups goes something like this: you need to be in a major tech hub to succeed. You need access to the “ecosystem.” You need to be where the money is.
This is utter nonsense.
Before tech-driven startups were a thing, people started businesses of all shapes and sizes out of sheer necessity. And they made them work regardless of the obstacles in their way. An address in the CBD was not a root cause of business success but drive and relentlessness were. We believe this holds true even today, and is why we focus on Tier 2 and Tier 3 cities when looking for companies to invest in. It also magnifies our impact, as funding is often the single largest constraint in these places.
Away from the lights, opportunity abounds
The economic structure of Tier 2 and Tier 3 cities is vastly different to that of a Tier 1 city. Lifestyles are different, the way people interact with each other is different and so, the problems which need to be solved are also very, very different.
In Asia, the vast majority of people belong to the middle class, and that number is only going to grow as economies develop and incomes rise. But, most of these people continue to be employed by MSMEs who mostly operate away from the urban centers. And as technology adoption is often a function of migration and diffusion, these MSMEs also happen to be at the earliest stages of digitization. Taken together, these factors make for a cocktail of growth and the business opportunities, while much harder to solve, are also way more rewarding, both in size and impact.
Take for instance SmartCOOP, a company in our portfolio which operates from rural Sri Lanka. While most major cities in the country are well-banked, Cooperative societies cater to the banking needs of people in smaller cities and villages around the country. SmartCOOP is building a robust core banking solution tailored to the needs of these societies, thus enabling them to operate more efficiently.
The ‘returnee’ founder trend
In a phenomenon unique to South Asia, we’re also seeing “Brain Gain” – people who left for Silicon Valley, London, or Singapore in the early 2000s coming back. But they’re not just coming back with experience. They’re coming back with insights about what works at scale, and more importantly, what doesn’t. Interestingly, they’re choosing to solve problems in, you guessed it, Tier 2 and Tier 3 cities, where they were born or grew up in.
These founders are a different breed. They understand both worlds, therefore building locally with a vision for a globally scalable product from Day One. And they tend to be more capital-efficient thanks to the wisdom of experience.
How we support startups and founders in our portfolio
At nVentures, we’ve learned something that most VCs haven’t figured out yet: the best way to support these founders isn’t just with money. Money is commoditized. What actually moves the needle are things like:
- Market access across borders – because good ideas shouldn’t be limited by geography
- Curated networking – because the right introduction at the right time can save months of work
- Partner access for GTM – because distribution is often harder than building
This isn’t a fancy theory concocted in a university somewhere. We’ve seen it work. We also offer free workspace if founders need it.
Take Kaiju Labs, our first exit. Most VCs wouldn’t have looked at them because they did not fit the bill for ‘founders in Web3’. We did. They were acquired for $ 2 million within 18 months by Singapore’s KAST, delivering a 48% IRR to investors. After we backed them, they even went on to raise from Tenity and get grants from Ripple. Today, KAST has more than 20 people working in Sri Lanka on making their product better, so there’s an element of local job creation too.
That’s one more thing we do for startups in our portfolio. We are a feeder for much larger VCs, and getting funded by us gives startups a good chance of raising follow-on funding from some of the bigger names in the industry.
Here’s something else most people miss: the power of the right partner. Through NCINGA, our anchor investor, our portfolio companies get access to 10 markets across Asia and beyond. NCINGA’s work as a global systems integrator means they get access to lots of boardrooms. They don’t hesitate to recommend portfolio companies to clients provided there is a clear fit.
The Last Word
The conventional wisdom about South Asian tech is about to be proven wrong. The next wave of great companies won’t all come from metropolitan hubs. They’ll come from founders who understand real problems because they’ve lived them and build them efficiently because they’ve had to.
If you’re an investor focusing on the usual places – you might want to look at what you’re missing. You’re welcome to join other senior execs from Apple, Sonos, Klarna, IFC, and Tech Mahindra who’ve chosen to invest in our funds.
