The Technology that powers Lightbox: Feb 2023 Roundup

Building products that make venture investing a lot more data-driven

Hi there, welcome to the 2nd edition of Lightbox’s newsletter- Lightbox Insights, curated every month by the Lightbox team. Consider this newsletter your monthly rendezvous with the Indian startup ecosystem written from Lightbox’s vantage point. If you missed the past newsletters, you can catch up here. 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

Zeno Health is our investment from 2019. Pharmacies are hard to miss in India. There's one around the corner in every neighborhood, so it is no surprise that the country has close to ~10MM pharmacies. So, why invest in yet another one? Because Zeno is not just building another pharmacy. They're taking on the pharmaceutical industry head-on. The company is on a mission to make high-quality, affordable medicines accessible to every Indian. They're building a differentiated pharmacy that is aligned with the customer and not the doctor/marketer. Here's how they do it:

1. Trust. They're building a pharmacy focused on advocacy, not just fulfillment, thus building trust with customers. Most pharmacies in India are like dumb vending machines- focused on fulfilling prescriptions. Zeno is focused on providing a better customer experience by helping customers save 40-50% on their monthly medical expenses. This is done by advocating for switching to cheaper alternatives. The pharmacists, supported by in-house tech tools, recommend the most affordable options to our customers and are successful 80% of the time in getting customers to switch from doctor-recommended brands to generic brands. Zeno sells the most trusted generic/own-label medicines that are manufactured at WHO GMP-certified units.

2. Affordability. Zeno offers the most affordable generics in India. A recent study conducted by Lightbox proved that medicines sold by Zeno were significantly cheaper than those sold by competing organized, unorganized, and online pharmacies. As part of the study, we purchased medicines prescribed by a doctor for certain chronic and acute conditions from Zeno and its competitors mentioned above. For the brands prescribed by the doctor, a patient would have had to pay Rs. 591 based on the marked selling price. However, if the patient substituted these brands with Zeno's recommended generics, it would have cost the patient Rs. 109, which is 82% lower. Attaching a summary of the findings from the survey below.

3. Optimizing supply chains. They're removing middlemen and fixing incentives across the supply chain. The misaligned incentives of marketers and doctors have led to commoditized products being sold at a premium due to branding. We believe that generic medicines are the right product for consumers in India, where 72% of healthcare spend is out of pocket, 53% of which is spent on medicines.

Lightbox Insights 💡

The Technology that powers Lightbox

Decision making in Venture Capital has traditionally been all about personal connections, gut feeling, and partner intuition. The little data that is available is often fragmented and hard to make sense of. We wanted to change this. We wanted to make quantitative, data-driven decisions and integrate this across our investment process- from sourcing and analyzing to eventually keeping a track of portfolio performance.

At Lightbox, we're big believers in the power of tech to transform the industry. Our in-house tech team has created some incredible in-house products that help us stay on top of all the data that is thrown at us every day.

The Gallery: First up, we've got The Gallery - our deal flow management platform. It's made up of two parts: Pitch Us and The Gallery. Pitch Us helps us gather all the key info we need about a business, so we can evaluate it based purely on the business idea, the team, and relevant KPIs. The Gallery, on the other hand, lets our team vote on each company that applies to us. If a company gets through the first stage, they get to pitch to everyone at the fund. This process is great for structuring deal flow and getting market and ecosystem analytics.

Cerebro: Second, we've got Cerebro - our internal intelligence tool for monitoring the performance of our portfolio companies. Cerebro tracks KPIs and pulls data from a variety of sources, including internal systems and external data sources. This gives us a 360-degree view of each company and helps us make data-driven decisions.

We believe in a hybrid future of a data-driven venture capital fund with our products like The Gallery and Cerebro. We are building towards a future where fund managers and technology can work seamlessly together, driving greater value. If you want to read more of our thoughts on the tech we have built, you can check out our blog here.

Lightbox's Hot Take 🔥

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

Supercharging customers of online brands with offline showroomsWe believe the online-first brands of today are missing out on 'supercharging' their customers by launching offline touchpoints a lot slower than necessary. Supercharging occurs when customers are nurtured in a small-footprint location that typically holds no inventory — and fulfilled, initially (and subsequently, for repeat purchases), from an operationally efficient distribution center. A customer who is exposed to the brand offline, rather than online, is not only more likely to peruse and sample a wider selection of product categories but also is more immersed in the brand experience. This immersion and affinity serve to increase the rate and volume of subsequent purchases.

The delay in launching offline distribution: There are about ~1,000 D2C brands in the country currently. This explosion of D2C brands in India has positively transformed how Indians consume. The brands are now expected to resonate with our aesthetic and values, hold themselves to a higher standard quality-wise, be transparent about the ingredients, and of course, be available at the tip of our fingers i.e across all the major online touch points. While this is fantastic and we need more Indians to become online shoppers (currently only at ~10-15% of the population), we believe the only way to capture retail in India is to be omnichannel. Not just be omnichannel, but be omnichannel QUICK. While we have seen the eventual transition to offline across top D2C brands, say MamaEarth, Sugar Cosmetics, Boat, we believe amongst the new generation of D2C pioneers this transition could happen a lot quicker.

This is because: 1) The Online D2C opportunity is often over-estimated. Few brands are able to scale up online in India (profitably that too). Even within this exclusive club, the largest brands across categories are doing ~$100MM ARR in online revenue. To build a >$1BN opportunity, offline touch points (GT, MT, EBOs, etc) are inevitable.2) Customer Acquisition Problem: Acquiring customers online at a CAC that makes unit economics work remains a privilege accessible only to the categories with high gross margins. For example, MamaEarth with 71% Gross Margins could afford to spend 42% of its revenue on advertising expenses. Other categories (say, apparel, furnishing, etc) have struggled to acquire customers at a sustainable CAC given their low gross margin profile.

3) In the longer run, stores are more capital efficient: Think of CAPEX + Rent as a (permanent) distribution + marketing expense that can be amortized over a far longer period of time. Your storefront then serves as a hoarding constantly reinforcing your brand, thus driving down customer acquisition costs.

We are not advocating setting up stores to necessarily sell. One needs to maintain the operating advantage that online gives you, but it is worth considering a different version of a store that could enhance the experience and build a brand.

Lightbox's 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. Last month we hosted a team games night. In the spirit of AI/AR/VR being the latest buzzwords, we brought out the Oculus and some old-school board games.

The Golden Number


250 companies in India delivered >$100MM in net profit in FY22. In the US, this number is 1,762. This is despite the US exchanges having ~3,500 companies while the BSE has ~5,000 listed companies. The Indian public markets have come a long way but there's still a lot of work to be done in building depth.

We would love to hear from you. Please reply to this email with your thoughts, suggestions, or just to say hi.

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