Lightbox Insights

Does Venture Capital have Product Market Fit?

Hi there, welcome to the October edition of Lightbox Insights, a monthly newsletter curated by the Lightbox team. Consider this newsletter your rendezvous with the Indian startup ecosystem written from Lightbox’s vantage point. If you missed the past newsletters, you can catch up here. If this was forwarded to you, consider subscribing to get this straight to your inbox. Now, let’s dive in!

Who are we?

For all our old subscribers and new, Lightbox is a consumer-tech venture fund based in Mumbai. Over the past 9 years, we have had the pleasure of partnering with some of the leading consumer companies in India (spot them above!) that are shaping the future of consumption in India by leveraging technology and brand in a sustainable manner in a market that is often unorganized, fragmented, and undergoing parallel changes.

In a world driven by FOMO (yes, even in finance), we are proactive, thesis-driven investors. Every investment that we underwrite is backed up by exhaustive bottoms-up sectoral research, complemented by significant time spent with founders, allowing us to proactively source investments. Our endeavor to be the most involved investor on the cap table is made possible by our unique concentrated portfolio construction, our degree of operational engagement, and the use of an internal suite of analytics.

Portfolio Spotlight

Utility and Discretionary: India’s unique Consumption opportunities

Last month we had the privilege to attend and speak at SuperReturn Asia. We spoke about India’s consumption story and how India presents the opportunity to build businesses both in the utility and discretionary side of consumption.

Interestingly, Lightbox has invested in both sides of the spectrum — we have Zeno Health that exists on the utility side of the world and Bombay Shirt Company which lives in the discretionary. We cover not just their story but also the business model innovations in the industry that keep us excited about the future of the business. You can check out the entire presentation here.

Deep Dive

India’s Space Story: One giant leap for mankind

India’s Chandrayan 3 launch

In the vast expanse of the cosmos, India has carved out a niche for itself through its ambitious and rapidly evolving space industry. From humble beginnings in the 1960s to becoming a global space powerhouse, India's journey into the final frontier has been nothing short of remarkable. Governed by the Indian Space Research Organisation (ISRO), we have consistently defied expectations, achieving feats that once seemed out of reach for a developing country. We spent the last few months embarking on an odyssey to explore India's upcoming (and thriving) space sector.

At the heart of India's space prowess are its launch vehicles. The Polar Satellite Launch Vehicle (PSLV) and the Geosynchronous Satellite Launch Vehicle (GSLV) have earned a reputation for their reliability and versatility. PSLV, in particular, has become a trusted workhorse for launching satellites, both domestic and international, into space. Beyond launch vehicles, India's space industry is now exploring new frontiers in commercial space ventures, further solidifying its presence as a key player in the global space economy.

How we’re looking at the sector: An intuitive way to look at space is by considering activities below space (on Earth), and activities in and on the way to space. These are called Downstream and Upstream respectively.
a) Upstream: This segment includes launch services, satellite manufacturing, and Earth Imagery. As discussed earlier it involves anything happening in space (Earth Imaging) and activities that aid the journey to get there (Launch Services and Satellite manufacturing).
b) Downstream: This segment involves on-ground satellite stations and data processing, i.e. all activities on Earth.

We’ve broken down SpaceTech opportunities into 5 buckets, namely:

1. Earth Observation: Unlocking Critical Insights from Space

Earth observation, conducted through satellite-based imaging technology, plays a pivotal role in decision-making by providing a unique vantage point to analyze vast areas of the planet. With a $500MM industry in India, poised for a 16% CAGR growth, it addresses pressing challenges such as natural disasters and geopolitical complexities. Startups like Pixxel and GalaxEye are at the forefront, overcoming traditional imaging obstacles and contributing to the shift from Geosynchronous Orbits to Low Earth Orbits for enhanced resolution and frequency.

2. Satellite Communication: Bridging Gaps Across Earth

Satellite communication, a $2.2BN industry in India with a 17% CAGR, serves as a crucial link between different locations on Earth. Its applications range from providing internet and telephone connectivity in rural areas to facilitating secure defense communications. However, challenges include government dependency, large telecom tie-ups, and regulatory hurdles, potentially limiting its sustainability in the long term.

3. Launch Services: Propelling Space Activities Forward

At the heart of all space activities, launch services are a $540MM industry growing at a remarkable 20% CAGR. With an increasing demand for smaller satellite launches, especially in Low Earth Orbits, this segment presents significant disruption potential. Key factors influencing market leadership include cost per kilogram, efficient manufacturing, and continuous technological innovations. Efficient testing methods, as demonstrated by SpaceX's reusable rockets, are integral to cost-effective launches.

4. Space Situational Awareness (SSA): Mapping the Orbital Landscape

Space Situational Awareness (SSA) involves monitoring tens of thousands of objects in Earth's orbit, focusing on higher accuracy and faster data transfer. Encompassing Space Surveillance and Tracking, Space Weather monitoring, and Near-Earth Objects monitoring, SSA technology is crucial for predicting and mitigating potential threats to satellites and launches.

5. Space Exploration: Expanding Human Knowledge Beyond Earth

Space exploration, aiming to increase humanity's understanding of the cosmos, is a field driven by innovation and accessibility. Notable examples include SpaceX's efforts to reduce the cost of rockets, making space more affordable and accessible. Billionaires' initiatives contribute to advancements, and companies dedicated to making space exploration accessible have spurred innovations and cost reductions, ultimately benefitting humanity

Lightbox's Hot Take 🔥

(we know... yet another VC's opinion. But hear us out.)

Has Venture Capital in India lost its Product Market Fit?

Caution and prudence define the venture capital ecosystem in India today. Despite the lull in the global macro environment, we have heard one thing repeatedly - India as a venture market is unique and holds a lot of potential. Why, then, the slowdown in VC investing and fundraising? Well, we believe there is a simple reason for this - the Indian Venture Capital ecosystem has lost its Product-Market Fit (PMF), fuelled by the Zero Interest Rate Policy (ZIRP) years.

An organization is supposed to have attained PMF when a) it has customers buying its product, and b) when the organization makes a profit in the process. The product, of course, is the companies VC funds invest in. The customers? Public market investors and strategic acquirers. Over the past few years, VCs have been building (investing) without keeping the customer in mind. Hence, we see the slowdown in the market wherein the customer refuses to buy what the VC is selling – unprofitable companies that have prioritized growth at all costs. Blame this on the free money era – it got everyone hooked on chasing crazy growth, and we forgot the golden rule of business: generating free cash flows. Now we're in a situation where a lot of venture-backed companies are struggling and need a major makeover (read: down rounds).

What do our customers seek? For public market investors, there are only a handful of companies available for investment in the public market (to wit: only 33 companies listed on the Nifty 50 have a >1MM monthly trading volume on the NSE). As a result, lots of money ends up chasing a few companies, making them expensive. To fix this, we need more profitable companies that are publicly listed. The other set of customers are strategic acquirers, often headed by promoters who love their dividends at the end of the year. Therefore, nobody wants to acquire money-losing businesses that reduce their end-of-year profits.

Here’s the most hopeful part of this race to PMF: all the problems in the Indian landscape above are solvable. Investing in profitable companies that are growing sustainably will be the rule, not the exception. Building and enabling enough of these will solve the scarcity problem, which will solve for liquidity. India is a fantastic place to invest because of this; our VC ecosystem is about to attain PMF, and we’re free from many of the macro problems that plague a host of other markets – an aging population, geopolitical instability, and a flattening GDP, to name a few. So here’s to solving for profitability.

With funding drying up, founders and investors are waking up to their responsibilities - they're tightening their belts and finding ways to do more with less. In the next 12-18 months, we will see a winnowing within the startup ecosystem. We expect that there will be several companies that are not able to make it – perhaps because profitability is a bridge too far for them, given the nature of their business models. The companies that remain will be better placed to deliver liquidity sooner to investors, and a large spate of companies will emerge with sustainable business models that deliver profit and thus attract capital. This is the beginning of a cultural reset in our ecosystem, and we hope that what brought us to this point is not forgotten.

The Cafe Upstairs

We love playing host in our office in Mumbai. Our lovely, green office space often doubles up as a space to host team activities, events, and catchups. We like to call this our Cafe Upstairs. Recently we hosted a small group of founders at our office in Mumbai for an interactive session about the building blocks of scaling a startup- hiring, PMF, marketing, and fundraising. Keep an eye out for more of these in the coming months!

Last month, Sandeep also spoke to our friends at Mint about Lightbox's strategy and priorities for the next 18 months. You can check out the entire article here. Some key snippets:

“I look at where we sit today with the current portfolio, within the next nine months, six companies will get to profitability. Within the next 12 months, another four will turn profitable. And they will get there by growing smart, improving margins”

“I’ve gone out and talked to institutional investors. I’ve talked to LPs everywhere. You don’t have to convince anyone about the (Indian) opportunity. Largest fast-growing economy in the world, young population, relatively stable political environment. Every large global corporation is coming here in some way, shape, or form. Deliver on this one metric of providing liquidity and they will come in drove. I think it’s a good time for us to demonstrate that (exits) can happen,"

The Golden Number


Cumulative number of accounts linked by Account Aggregators (AA). This number has grown 5x in 6 months.

AA is the next set of Digital Public Goods launched in India. It use technology to assist you in simple and secure exchange of your data between financial institutions like banks, insurance agencies or mutual fund companies. This information cannot be shared without your consent.

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