Lightbox's July 2023 Roundup

Unveiling the power of Customer Transaction Analytics to win customers

Hi there, welcome to the June edition of Lightbox’s newsletter- Lightbox Insights, 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

Unveiling the power of Customer Transaction Analytics to win customers

In today's competitive retail landscape, understanding customer behavior is paramount to success. At Lightbox, we work closely with our portfolio to analyze customer transaction data to provide invaluable insights into purchasing patterns, preferences, and engagement levels. By leveraging these insights, retailers can develop targeted strategies to win back customers who may be at the point of need or showing signs of decreased engagement. Here’s how our companies are leveraging this powerful tool to gain a deeper understanding of their customer’s purchase patterns to carve a competitive edge:

1) Segmentation based on Transactions: An interesting stat we saw as we started on this journey was the existence of power law in consumer businesses: A small percentage of each company’s customer base accounted for a large portion of the revenue generated by the business. In some cases, 10% of the customer base accounted for 40%+ of the revenues generated by a business in a year! It was imperative to understand who these customers were and how we could identify new customers that could eventually be added to this segment.

We segmented the customers into groups based on transaction properties such as purchase frequency, average order value, product categories, and purchase channels. This segmentation enabled businesses to identify distinct customer segments and tailor their marketing efforts accordingly. For example, power customers may receive exclusive offers, while lapsed/one-time customers may be targeted with reactivation campaigns. We found that there are 6 major segments that exist in any business, with minor variance based on the value proposition of the business:

Figure 1: Customer segment based on AoV and FoP

While the classification above may seem broad, it serves as a great starting point to define what the company deems as “good customer behavior” which can lead to additional parameters being included in the segmentation above. The end goal of this is to track and shift customers from the segments that do not align with the company’s definition of “good customer behavior” into the segments that do align with it. Once we have a good understanding of who our ideal customer is, the next step is to work on improving our ability to serve them better by understanding their needs and their purchase patterns better. Our next analysis helps us do just that.

2) Cohort Analysis: Cohort analysis involves grouping customers who made their first purchase during a specific time period and then analyzing their subsequent purchasing behavior. By comparing cohorts, retailers can identify trends, patterns, and differences in customer behavior. This analysis helps businesses understand factors such as customer lifetime value, repeat purchase rates, or churn rates. Armed with these insights, retailers can devise strategies to win back customers who are exhibiting similar behavior to their most valuable segments.

Figure 2: Customer cohorts of a retail brand

In the figure, we can see 3 prominent trends
1) Approximately 16% of new customers in any given month return the next month to make subsequent purchases
2) Average purchase cycle of customers is 4 months with spikes in M4, M8 and M12
3) Launch of new products/services or marketing campaigns leads to a ~2 to 5% increase in returning customers (Can be seen along the upward diagonal from Jun-22 M1)

While the above analysis helps us engage with our customers online, customer transactional data also assists our companies as they look to expand their offline presence as seen in the next and final analysis.

3) Predictive Analytics: By using transactional data and publicly available data, companies can apply predictive analytics to forecast demand from various zip codes in a city. This enables businesses to strategically and proactively scale their offline presence in these micro markets by setting up stores and outlets for their customers to engage with the brand offline.

Figure 3: Heat map of revenue generated by the company in Mumbai city

In the figure above, the regions in Red are a cluster of zip codes in Mumbai where the brand has significant demand based on revenue generated. If the brand is looking to open new stores or outlets, these clusters would be the highest on its priority list. The clusters in Orange, Blue, and Green are regions with lower demand and would come lower on the priority list to set up an offline presence. An offline presence would lead to an expansion in Frequency of purchase and order value as customers would be able to interact with the brand firsthand leading to a significant expansion of its topline while being efficient about the costs to expand its offline presence.

As the retail landscape continues to evolve, investing in transaction analytics and leveraging the insights it provides will undoubtedly be a game-changer. By understanding customer behavior and employing data-driven strategies, businesses can forge stronger connections with customers, win back their loyalty, and foster long-term success.

While we have tried to give you a flavor of the analytics that we use behind the scenes to make our businesses efficient, there is a lot more data and insights that are generated beyond the ones mentioned above. You can reach out to [email protected] to discuss the topic in depth.

Lightbox Insights 💡

Andy Rachleff, co-founder of Benchmark and famous for coining the term "Product Market Fit," recently spoke about the 11 various VC archetypes that he has seen in the industry:

1. The Salesperson: Someone who is ready to knock down the door when they hear a company is great. They actively seek out information about companies starting up and are persistent in their pursuit, refusing to accept "no" as an answer.

2. The Beggar: The Beggar has no shame in groveling and just wants to participate in the funding round that's happening. This VC is hoping to build a portfolio of recognizable investments they can leverage with other founders and investors. They may lose the deal by not being a lead investor but still fight to get in by participating with checks in great companies. They typically invest $250K-$500K in a $5-10MM round.

3. The ex-Founder: Has an advantage in winning deals but may not have a strong ability to identify promising investment opportunities.

4. The Founder Exec: This individual was not a Founder of a successful startup but was a key executive in a well-recognized tech company and leverages the halo. This serves as a strong indicator of their network and expertise. All things being equal, the person with the best network is likely to have the best returns because if you fish in a better pond, you're likely to catch more fish.

5. The Logo Hunter: This archetype identifies important markets and aims to identify the company most likely to succeed in that market. They prefer to invest at a late stage to boast about their investments and pay any price to invest in leading companies

6. The Smart Guy: This archetype appears to possess exceptional intellect and is sought after by others who enjoy bouncing ideas off of them.

7. The Lab Rat: This archetype focuses on high technical risk. They have experience with research labs at prestigious institutions like Stanford, Berkeley, and MIT and actively seek breakthrough technologies. They may encourage graduate students to start a company based on these technologies and become the initial investor.

8. The Famous Technologist: This VC was previously a CTO, SVP of Engineering, or Chief Architect at a well-known technology company. The Technologist takes great pride in their ability to "go deep" in architecture conversations and is the first to the whiteboard in any founder meeting. This archetype includes individuals like Marc Andreessen who are sought after by founders for their opinions and insights.

9. The Networker: This archetype attends conferences and actively works on establishing connections to stay informed about ongoing deals. They excel at building relationships and networking.

10. The Sage Advisor: This archetype does not frequently speak but when they do, their insights are highly valued. People tend to share and recommend their advice due to their uniqueness.

11. The Industry Expert: This archetype has made successful investments in a particular market space, leading others to consider them as experts. Consequently, more companies in that space are brought to them.

While each of these archetypes has its own merits and drawbacks, at Lightbox, we aim to be a mix of Industry Experts and Sage Advisors. Therefore, you see us operating a concentrated fund with a focus on a few industries and dedicating most of our time to the companies in which we have invested.

What are your thoughts on these archetypes?

Charging v/s Battery Swapping for Indian EVs

As the Indian government and various stakeholders push for increased adoption of Electric Vehicles (EVs), one of the key debates revolves around the most effective and viable charging solutions: charging or battery swapping. Both approaches have their advantages and challenges, making it crucial to assess their suitability for India's unique needs and infrastructure. We believe battery swapping is preferable only for 2 Wheeler and 3 Wheeler commercial use cases.

The Golden Number


Zudio’s revenue growth over the last 5 years. The company’s revenue grew from $5.5MM to $425MM, making it one of the largest single-brand fashion retailers in India in FY23. The business now has an EBITDA of 5.5%. This milestone also marks Zudio passing Zara India in terms of revenue, which recorded a revenue of $312MM in FY23.

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