Unbox: The Services-led Venture Capital Playbook

Hi and welcome to the September 2024 edition of Unbox. Within the universe of alternative investments, what differentiates venture capital from other asset classes? In this edition, we talk about our perspective and approach; introduce you to our distinct corporate governance framework for startups; bring you up to speed on the wins for our portfolio during the last quarter; and who dropped in at The Cafe Upstairs. Dive in.

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India is inefficiency at scale – a state of being that presents unique opportunities for venture capital investors. It also comes with complexities that are distinct from other venture capital markets around the world. There are tremendous opportunities for building solutions at scale. But, it’s a longer game and demands close attention to the nuances of building for this market. Which is why, at Lightbox, we prefer to build, rather than bet.

We’ve spent the majority of the past decade of our existence refining our approach to investing in India. Yes, we do invest in young companies. But, the capital, critical as it is, is only a part of our offering. We bring something much more valuable to the table – a meticulously constructed suite of services for entrepreneurs building next generation consumer brands for India.

Learn more about our approach here – “As a venture fund, we’re a service provider” Sandeep Murthy

Our company building approach, as opposed to merely investing, has been invaluable for our portfolio during the latest downturn. We’ve been able to provide the necessary inputs for our companies to get on the path to profitability and yet keep the growth engines running. Whether it’s harnessing data and analytics to help companies understand where and when to open up new stores, or figuring out the best possible way to use debt or developing leadership teams to navigate the next phase of growth, the team at Lightbox has been right there in the trenches with portfolio companies.

We know that as the funding winter recedes and global investors return to the market, founders in our current portfolio will inevitably face the growth versus profitability dilemma. We believe that in the last 18 months, we’ve armed our founders with the tools to ride out that dilemma and stay focused on the big goal – building sustainable businesses and shaping the future of consumption in India.

Going by the investment data from the July-September quarter, capital flows in the venture market have started to ease and concentrate among fewer companies – 10 companies cornered 53% of the $4.45 billion raised by startups during the quarter. Overall, a total of 373 startup funding rounds were reported during the quarter. In 2023, the same quarter saw $3.62 billion invested across 558 funding rounds, per data collated by Tracxn. And, after a brief lull in 2023, half a dozen technology startups have already been admitted into the unicorn club this year.

The easing of capital flows is obviously welcome. Several of our portfolio companies have accelerated growth and are at various stages of raising follow-on capital. Fast-paced growth, after all, is intrinsic to the long-term success of a startup. But, as American author and environmental activist Edward Abbey put it, “growth for the sake of growth is the ideology of the cancer cell.” Is it possible to strike a balance between high-octane growth and profitability? Our services-led, company building approach to venture capital gives us the conviction that it is.

Startups are defined by agility, creativity and a willingness to take risks. But, as startups grow, it's crucial to balance the freewheeling culture with solid governance principles and practices. Our experience over the past decade has shown us that a one-size-fits-all approach to corporate governance is ineffective for startups. Therefore, we advocate for a dynamic and responsive approach to corporate governance, designed to meet the unique demands of each startup’s journey. This approach is enshrined in the five essential pillars of our corporate governance framework.

In the video above, we introduce you to Lightbox's carefully constructed playbook for good governance for startups and emerging companies. Stay tuned for more.

In terms of specific wins, PayMate entered into a partnership with NCPI Bharat BillPay to launch its BBPS-B2B platform. The platform will enable large-scale standardization and digitization of commercial processes related to invoicing, payments and collections while fostering an interoperable ecosystem between buyers and suppliers. The partnership aims to cater to 634 lakh MSMEs and 16.6 lakh corporate enterprises in India.

A few months ago we told you about how Cityflo had opened out a new revenue stream by turning its buses into an outdoor advertising channel for brands. Since being rolled out in April-May this year, the advertisements vertical has made commendable progress and already contributes nearly 15% of its overall revenues. Brands it has signed up so far include Giva, Atomberg, Whole Truth, HUFT, Dhan among others.

In August and September, we hosted two veteran company builders at The Cafe Upstairs — Ravi Sheth from the Great Eastern Shipping Company, and Anshuman Singh, founder of Stellar Value Chain Solutions. While we immensely enjoy learning from the new age entrepreneurs and investors who usually join us for these fireside sessions, learning about building businesses from people who have been doing that successfully and seemingly effortlessly for decades was a whole new experience for us as a team.

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