Sridhar Vembu Gives Going Bootstrap A ‘Yes’, Asks Startups To Consider Tier-2,3 Cities For Operations

Zoho CEO Sridhar Vembu on Monday said that “anytime” could be a good time for a startup to begin its journey in India despite the current lull in the markets. He said, given that the country’s GDP is expected to grow five to ten times companies can go bootstrapped anytime. 

Speaking to BW Businessworld, Vembu said that startups must consider setting up operations in Tier-2 and Tier-3 cities to lower their costs. “If I was in my 20s, I would move to Eastern Uttar Pradesh to startup as there is abundant and able talent in its 500-kilometre radius, which includes Bihar, Jharkhand, Chhattisgarh,” he said.

As per government reports, nearly 50 per cent of all startups are from Tier-2 and Tier-3 cities. Tracxn data also says that 27 out of 300 soonicorns in India are from Tier-2 and Tier-3 cities.

Vembu said that the startups based out of smaller cities and far-off locations can look at serving internal markets such as Bengaluru, Mumbai, Delhi and Pune.

Lately, the Zoho CEO has been speaking a lot more on his aspirations of setting up a hub in Eastern UP rather than the western part of the state that hosts many companies and startups already. He explained that the rationale behind such a consideration is the potential in Eastern UP which can be developed at lesser capital while tapping into the talent already available. 

“Eastern UP and surrounding areas have population equivalent to Germany and the UK combined but have a low GDP today. Growing it to a level of current day Coimbatore will be massive,” he said.

Earlier in the discussion with BW Businessworld, the widely-admired leader said India needed companies that were looking at the long-term while going after tactical and immediate opportunities. 

Delving into the topic of lack of funding in the startup sphere and the larger macroeconomic scenarios globally, Vembu emphasised that India needs sustainable, durable companies and R&D-driven companies like those in Japan, South Korea, Taiwan and China. “They need to be created. We cannot have companies that are exit-focused and liquidity-driven,” he said.

He also opined that the macroeconomic situation was a sign of correction and called it “valuable”.

“You had perpetually money-losing companies going and raising another USD 500 million – an unheard kind of money – if you are in India. Twenty years ago, it was impossible to raise USD 10 million. Then, last year and a half ago, people were raising a billion dollars, which was unbelievable. That boom is ending. And I don't think it's a bad sign because it also taught us a lot of bad habits,” the Zoho CEO said.

According to Tracxn data, PE/VC funding dropped by 60.5 per cent to USD 6.64 billion between January and March 2023. This was down from USD 16.8 billion, which was recorded in the corresponding quarter in last year.

Amidst the startup doom-and-gloom, it was reported that bootstrapped company Noise posted 8 per cent rise in its net profit at Rs 35.5 crore in FY22, up from Rs 32.8 crore in FY21. During FY22, the company’s sales grew by over 2x.