India's Startup Story Isn't Being Written in Mumbai
Nandan Nilekani's digital public infrastructure bet is paying off — and the dividends are flowing to Tier-2 founders, not just metros.
I grew up in Kerala. I started my first company in Bangalore. My team now spans four cities across three countries. So when people ask me where India’s next wave of startup founders is coming from, I feel qualified to say: it’s not from the places most investors are currently looking.
The number that stops me every time I quote it is this one from DPIIT: as of January 2025, India has 1,59,157 recognised startups. Not 15,000. Not 50,000. One hundred and fifty-nine thousand. That’s a 38,000% increase from 471 in 2016. We are no longer a startup ecosystem in the making. We are the third-largest startup ecosystem in the world by count, behind only the US and China.
But here’s the part people gloss over: more than 51% of those startups are emerging from Tier-2 and Tier-3 cities. The Economic Survey of India in 2024 flagged this explicitly — 45% of DPIIT-recognised startups were already coming from outside the major metros. That number has only grown since.
This is not an accident. It’s infrastructure.
What Nandan Nilekani actually built
Most people know Nandan Nilekani as the Infosys co-founder who went on to chair UIDAI. That’s technically accurate and entirely misses the point. What Nilekani spent the better part of 13 years doing was something far more interesting: building a shared digital substrate that any Indian — any company, any government service, any farmer with a smartphone — could plug into for free.
Aadhaar hit 1.31 billion enrolled individuals by 2024. That’s not a number you compare to a normal tech product. That’s a number you compare to the population of a continent. Every one of those people got a verifiable identity — many for the first time. And on top of that identity layer, a payments layer got built: UPI.
UPI now processes over 10 billion transactions per month (as of 2024 data Nilekani cited at the Global Fintech Festival). It connects 350 million people and 50 million merchants. The coconut vendor outside my mother’s house in Thrissur takes UPI. The auto-rickshaw driver in a tier-3 town in Rajasthan takes UPI. You don’t need a credit card. You don’t need a relationship with a bank. You need a phone number and a thumb.
Nilekani’s framing for this — which he has articulated across forums including at Stanford’s Doerr School of Sustainability — is “population-scale digital infrastructure.” The idea is deliberately different from what Silicon Valley builds. SV builds products that scale. Nilekani built infrastructure that enables scale. The difference is the same as building a port vs. building a cargo ship.
India Stack — the layered system of Aadhaar for identity, UPI for payments, and DigiLocker for documents — became the rails on which a generation of startups could run without needing to solve identity, payments, and authentication from scratch. That’s compounding leverage. A founder in Kochi or Indore doesn’t have to build what a founder in 2010 had to build. They just build the thing they’re actually trying to build.
Why Tier-2 cities are producing the real product instinct
I’ve hired across Bangalore, Kochi, Hyderabad, Chandigarh, and Ho Chi Minh City. The most important thing I’ve learned: the best product instinct doesn’t come from people who’ve been marinated in other startups. It comes from people who’ve lived with real problems and are furious enough to solve them.
A founder in Coimbatore who watched her father’s textile business get destroyed by supply chain fragmentation doesn’t need to read a case study about SME logistics. She is the case study. A founder in Nagpur who grew up watching small-scale farmers sell at distress prices at mandis understands AgriTech from the inside out.
NASSCOM and RedSeer’s 2024 report put a number on this instinct: nearly 58% of all new users for consumer internet startups in India are now coming from non-metros. The people building for Bharat increasingly are Bharat. That’s not a PR narrative. That’s a product-market fit shortcut that no VC in Bandra West can manufacture.
Kerala’s startup funding in the first nine months of 2025 rose to $14.7 million — a 147% increase from the same period in 2024. Chandigarh’s tricity corridor now has over 633 DPIIT-recognised startups. Chennai’s startup count went from 271 in 2020 to 1,350 in 2024. These aren’t anomalies. They’re the leading edge of something structural.
The cost argument helps too — rentals and office space in Tier-2 cities run roughly half what they do in Bangalore or Mumbai. A $500K seed round stretches much further in Jaipur than in Koramangala. That means longer runway, more experiments, less pressure to fake traction before you find it.
What investors are missing
When I talk to Indian VCs, most of them still default to asking: “Is the founder Bangalore-based or open to relocating?” That question is not just lazy — it’s actively filtering out some of the best bets in the portfolio.
I’ve watched a founder from Trivandrum build a B2B SaaS product for the Gulf market — because she understood Gulf-diaspora workflows intimately, had family there, and spoke the consumer language. She didn’t need Koramangala. Koramangala would have told her to pivot into enterprise.
The other thing investors are missing: UPI and Aadhaar did something to the psychology of Tier-2 founders that is hard to overstate. When your parents, who ran a cash business for 30 years, suddenly switched to digital payments without any hand-holding — when you watched that happen in real time — you believe at a cellular level that distribution problems in India can be solved at scale. You have the confidence to go after markets that outsiders think are too hard.
Nandan Nilekani reportedly said the market value of startups built on India’s DPI is already around $100 billion as of late 2024. That number will compound. Because the DPI isn’t done — ONDC (Open Network for Digital Commerce) is being layered on top, attempting to do for commerce what UPI did for payments. If it works, the next 50,000 DPIIT-recognised startups won’t be building what the last 50,000 built. They’ll be building on a new layer of open rails.
My bet
India will produce its next cohort of category-defining companies from places that most global investors can’t point to on a map. The founders will be building for markets they have lived in — not markets they read about in Y Combinator trend reports. They will run lean because they have to, and they will find distribution faster because they understand their users molecularly.
Zero, the university we’re building, is deliberately not based in a metro. The instinct behind it is the same instinct Nilekani had when he decided to build identity infrastructure for a billion people who didn’t yet have smartphones. You don’t build for the audience that already has everything. You build for the audience that’s coming.
India’s startup story isn’t being written in Bandra or in Indiranagar. It’s being written in cities you’ll learn to recognise only after the companies are already large.
