More start-ups from Tier-2 and Tier-3 cities as Government support becomes instrumental

Associated with 1,500 women in 13 different clusters of 5 states, Umang Shreedhar, Founder of Umang Shreedhar Designs, a budding start-up based out of Bhopal (Madhya Pradesh), recently had an opportunity to share her experience about her start-up and its future roadmap with Prime Minister Narendra Modi. The start-up is adding value to the industry through its innovative fabric from bamboo and soybean as well as improving the life of local women by increasing their income. It didn’t take much time for the PM to get impressed with Umang’s innovations in Khadi and collaboration with reputed companies!

This is just one of the fitting examples of how fashion start-ups in Tier-2 and Tier-3 cities are emerging and even being recognised by the Government. Start-ups are called the Wealth Creator and Problem Solver and underlining the same, the Union and various State Governments are increasing their focus on comparatively smaller cities. According to various reports, about 50 per cent of start-ups hail from Tier-2 and Tier-3 cities, spanning many states and cities where opportunities and resources are comparatively less.

Time and again, many start-ups face serious challenges like layoffs, and various internal issues (like Zilingo recently had). So in this scenario, the need to promote the small and budding start-ups of Tier-2 and Tier-3 cities, increases more.

Increasing efforts are creating new growth avenues for start-ups hailing from smaller cities

One can see rapidly changing trends of funding in the Indian start-up ecosystem, which is the third largest in the world. As per Inc42, cities like Bengaluru, Delhi-NCR and Mumbai were touted as the top three start-up hubs by 2021 as these cities accounted for over 90 per cent of the funding in Q1 of CY ’21. The situation took a major turnaround a year later as dominance of these cities faded as they accounted for 78 per cent of the total funding (around US $ 9.10 billion) in Q1 of CY ’22, while the share of funding to start-ups in Tier-2 and Tier-3 has increased by 11 per cent in a year.

The Government is also focusing to promote start-ups in comparatively smaller cities. The Minister of Commerce and Industry and Textiles Piyush Goyal recently urged National Start-up Advisory Council (NSAC) members (mostly India’s leading start-ups) to focus on Tier-2 and Tier-3 cities where limited VC funding is available at present.

Similarly, the Department for Promotion of Industry and Internal Trade (DPIIT) also emphasised to take the start-up ecosystem to the small towns and suggested that unicorns should ‘adopt’ districts and catalyse development in the region. The Government’s flagship initiative Startup India confirms the high number of start-ups as more than 3,500 start-ups have already been associated with fashion, textile and apparel industry pan-India. And many of them are from smaller cities like Bhubaneswar, Kanpur, Rajkot, Palghar and Kharar to mention a few. (See table for more details)

Stakeholders within fashion and textile industry associated with Start-up India

Source: Government of India

As per official records extracted by Apparel Resources (AR) from Start-up India website, corporates such as Aditya Birla Group and Fashion For Good; investors such as Nair Ventures (Navi Mumbai), Skylark Ventures (Delhi), Dominor Investment Holdings LLP (Delhi) and TAN Advisors (Ludhiana) amongst many others; and Government bodies such as Ministry of Textiles, Ministry of Commerce and Industry and Niti Aayog are also associated with Start-up India initiative.

Even fashion institutes like NIFT, with Government’s support, are focusing on assisting entrepreneurs in transforming innovative business and technology ideas related to Design and Fashion Industry though NIFT Foundation for Design Innovation (NFDI). Four Incubators are currently being set at various NIFT campuses – 1 in Delhi and Chennai each and 2 in Mumbai. Another reputed textile and fashion technology institute DKTE has Technology Business Incubator (TBI) that is engaged in the incubation activities of textile engineering.

Regarding funding to the start-ups of Tier-2 and Tier-3, Anuj says that this is a myth that each and every start-up must need funding! Funding is only required once start-ups grow to a certain level and prove their potential. And to come to this level, there are enough resources available like institutes that have support for start-ups, various competitions, micro VCs and Government schemes.

What Indian states are doing to promote fashion and textile start-ups?

Looking at the potential of the start-ups and limited opportunities in non-metro cities, various states are coming forward to support the newly formed businesses with lucrative facilities and support structures for them. As per official data, 30 out of the 36 States and Union Territories have a dedicated start-up policy. It’s almost 6-7 years since most of the states have been strengthening such policies, especially in 26 states that have launched their schemes after the launch of the Startup India initiative in 2016.

Madhya Pradesh (MP) has recently come up with its policy for start-ups. It aims to provide an enabling ecosystem for an innovation-based economy to help the states become a global innovation hub. The policy has several fiscal and non-fiscal incentives for the youth who want to build their start-ups in Tier-2 cities like Indore, Bhopal, Gwalior and Jabalpur.

There are more than 35 start-ups dedicated to textile, apparel and fashion industry from MP which are associated with DPIIT. Some of these start-ups are – Spangle Clothing, TryboFashtech, Sarva Khadi, Sanjeevani Vastra, My Earth Garments, Kalanya Fashions and Eleven Apparels, while the names and related information of the remaining ones can be seen on DPIIT portal.

Apart from the regular support that MP is providing to these start-ups, the state recently organised Startup Conclave in Indore. Prime Minister virtually launched the Madhya Pradesh Start-up Policy and Madhya Pradesh Start-up portal to facilitate and help promote the start-up ecosystem. The State Government has also merged Madhya Pradesh Venture Finance Limited and Madhya Pradesh Venture Finance Trustee Limited. The resultant entity, called Madhya Pradesh Laghu Udyog Nigam, will be an exclusive venture capital providing funding support to start-ups in the state.

So how does MP start-up policy help businesses? Providing financial assistance, institutional support, single-window clearance, infrastructure and support in Government procurement policy and marketing are some of the major points of the MP start-up policy. The business ideas selected in an innovation challenge will be provided incentive support of Rs. 1 crore each by the state.

Maharashtra Government is also promoting budding start-ups through ‘Startup Week’, where 24 start-ups will have the opportunity to win work orders up to Rs. 3.6 crore. This is the fifth edition of this event and it has aim to establish ‘Government as a Platform’ to achieve the dual objective of not only improving citizen services but also leveraging and nurturing a thriving start-up ecosystem with opportunities for growth and collaboration. And this opportunity is being fetched warmly by emerging start-ups as last year, over 1,800 start-ups applied for this event.

Kerala has come up with Kerala Startup Mission which has provided over Rs. 25 crore as an Innovation Grant to a wide range of technology and product start-ups since 2017 under Kerala Startup Mission (KSUM). In the last five years, the state has scouted more than 8,000 innovative ideas from tech start-ups, including student start-ups. Amongst them, 2,000 start-ups made their final pitches through 23 Idea days and a total of 550 innovations won KSUM innovation grants. It covers Productization Grant, Scale-Up Grant, Women Productization Grant and Start-up R&D Grants.

Some of the certified start-ups in fashion and apparel industry by Kerala Government are –Fabix Fashions India, Flagship Apparels and Suits India.

Few states need to focus more

Some of the states are missing out when it comes to supporting start-up ventures despite the fact that they once had a well-placed policy. ‘Andhra Pradesh Innovation and Start-up Policy-2014’ ended in 2020 and it is no more valid! As per reports, the state’s department for the promotion of industry and internal trade has recognised about 1,090 start-ups in Andhra Pradesh in the last five years under the ‘Startup India’ scheme but several start-ups, having origin in Andhra Pradesh, are being operated now out of state and the main reason for the same is quick market linkages available in other cities like Chennai.

The State Government has recently notified an IT Policy in 2021, which also included several measures to develop the start-up ecosystem, like including Rs. 100 crore funding for start-ups. The policy also mooted ‘Accelerate Start-ups in Andhra Pradesh (ASAP)’ – a flagship start-up promotion scheme for early-stage start-ups but there is no movement!

Like Andhra Pradesh, many states lack the venture capitalist culture for fundraising and their policies don’t have much thrust on the same and this is required to be promoted.

What’s the way forward?

17 investors (individuals and firms), 19 accelerators and 67 incubators – three of the most important pillars in start-up ecosystem – are officially associated with the Government of India to fund innovations in fashion and textile start-ups. No doubt the collective efforts are visible; however, the efforts need to be escalated, especially in manufacturing-based start-ups.

A lot of start-ups are still into fashion technology genre and, advocating the same, Anuj Batra, Co-founder, Andromeida Maritime Solution (Gurgaon) who has been associated with many prestigious institutes and mentored a number of fashion start-ups said, “The tilt is more towards technology related to fashion and e-commerce but as talent is there, proper hand-holding can give a push to other start-ups within the fashion industry,” told Anuj to TeamAR, adding, “I have come across hundreds of such talented start-ups (across all the segments) from smaller cities but the issue is of their hand-holding. These start-ups need one-on-one discussions with expert mentors to explain their ideas and to get better guidance.”

One development that has been there to boost manufacturing in start-up ecosystem is the Atal Innovation Mission (AIM) which is the flagship programme of NITI-AYOG, Govt. of India. NIFT TEA Knitwear Fashion Institute, Tirupur has been selected for establishing the Atal Incubation Centre (AIC) under the AIM programme – with overall sanctioned grant of Rs. 870 crore. Now, the centre is functioning in the name of ‘AIC NIFT TEA Incubation Centre for Textiles and Apparels’. This is one new kind of initiative by NITI AAYOG for setting up Incubation Centre in the industrial clusters like Tirupur, which can enable Innovators and SMEs to make paradigm shift of manufacturing basic products to innovative products.

Key Pointers and MP Start-up Policy:

• Start-ups and incubators will be given financial assistance on investment, lease rent, patent and capacity expansion
• A special package will be given to production-based start-ups
• Provision has been made for alternative funds for start-ups
• Women entrepreneurs will be given additional support for their start-ups