Unbox: Playbooks for India's Innovation Economy

Hi and welcome to the June 2024 edition of Unbox. We’re halfway into a year that may be best defined as a fine balance between venture capital’s affinity for eternal optimism and a more recent inclination towards hard-nosed pragmatism. The ecosystem is still very much in the throes of a reset, one that is already catalysing the evolution of venture capital playbooks for India in the upcoming decade.

In this edition of Unbox, we unpack what’s changing in the ecosystem and where Lightbox is positioned; notable wins from the portfolio that set them up for long term gains; a sneak peek at a new micro-report we’re releasing soon; and the exciting community we’re building within the ecosystem for all to better navigate India’s exciting consumption market.

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While the downturn is far from over, murmurs of a thaw in the ongoing funding winter are gaining ground. Across the ecosystem, businesses able to demonstrate the ability to create tangible value at reasonable valuations are being able to access capital again. Caution dominates global investor sentiments but India’s vibrant innovation economy continues to be core to their asset allocation strategies.

Early-to-growth stage startup businesses in India raised venture capital worth $3.81 billion during the first six months of 2024 — the fourth highest funded market globally after the US, China and the United Kingdom. Overall investments year-on-year were down 16.4% from the corresponding period in 2023, signalling ongoing pressure on capital flows. The number of funding rounds declined by 44% to 481. While fewer companies raised capital this year, the median deal size improved to $2.5 million in April-June 2024 against $1.5 million in the same period last year, per data compiled by Tracxn.

Three Lightbox portfolio companies were part of the rising tide in the first six months of 2024. Zeno Health snagged $25 million in a growth round; Amaha Health garnered nearly $6 million; and Bombay Shirt Company raised $6.5 million in a Series B round. Many more companies in our portfolio are at various stages of closing significant follow-on funding rounds.

India’s goal of becoming a $10 trillion economy by 2034 spells tremendous opportunities for venture capital to play a pivotal role in nurturing the businesses that will become important catalysts in getting there. Fashioning the right investment approach for this unique, complex and unpredictable market has never been more critical. The downturn has forced, some may contend, a much required reset and venture capital investors across the board find themselves recalibrating their approaches. Whether it’s General Catalyst establishing a direct presence with the acquisition of homegrown Venture Highway or Matrix Partners India decoupling from its overseas parent, a distinctly localised playbook is the key to navigating India.

We took that approach when we started up as Lightbox a decade ago. Like most venture capitalists, we’re eternal optimists. The bet we took on the potential of generating value from organising India’s vast and diverse consumption market forms the cornerstone of our investment philosophy. At the same time, we’ve employed hard-nosed pragmatism by taking a private equity approach to investing, collaborating with our founders to drive operational outcomes and eventually superior returns for our investors. 

We’ve taken some hits (who hasn’t?) but our investment approach has enabled us to ride out the worst of the downturn. Companies in our portfolio have been able to access growth capital and the momentum in our carefully constructed ensemble of differentiated business models is getting stronger. 

Back to building for India. Let’s make it happen!

After closing out the first quarter of 2024 on a high note, the portfolio kept the momentum going in the April-June quarter with operational wins that will enable companies to further build further value in the business.

Women’s wellness and hygiene company Nua achieved an important milestone in June when it hit EBITDA profitability. The win came on the back of factors such as revenue growth, improved brand awareness, high RoAS and expansion to marketplaces and modern trade. During the quarter, Nua added two key modern trade accounts – DMart and Lulu’s. Its products are currently available at more than 1,500 offline locations. 

If you commute in Mumbai, you can’t miss those witty one-liners on the backs of most Cityflo buses. With all the attention that the one-liners were getting, the urban commute company reckoned that the buses could also become a canvas for brands to showcase their messages in an interesting format. It recently signed on Giva, Atomberg and Whole Truth to advertise on its buses and opened up a new source of revenue.

In the April-June quarter, made-to-order apparel maker Bombay Shirt Company managed to innovate and expand both on its product and distribution. On the product side, the company recently forayed into jackets and made-to-measure shirts (allowing customers to shop a faster TAT product with no compromise in quality). Both of these help open up Bombay Shirt Company to newer customers. On distribution, the company now has 23 stores diversified across formats — franchises, gallery and mall stores. 

Rooter, the gaming and esports content platform, won its first long-term contract with Amazon Pay, which will regularly advertise on the platform for the next six months. And furniture rental platform Furlenco is launching a new range of products under the brand Gen Z. Check out the collection here.

Also read our deep dive into how Zeno Health is harnessing social commerce to unlock Bharat.

India's elderly are the fastest growing segment of the country's population. Against the backdrop of growing consumption across the board, there is merit to evaluating this demographic as an untapped opportunity. However, while the elderly are by no means a monolith, they do skew heavily towards spending on healthcare and away from discretionary spending (so far), which provides the initial lens through which we examine opportunities in this space.

There are significant health challenges unique to the elder population that are inadequately addressed today. While there is a need for services (and to a lesser extent, products) to improve and expand the healthcare experience, the market for them is relatively fledgling and existing/emerging models have not yet proven scale and sustainable economics.

In our analysis of the eldercare market opportunity, we looked at the limitations and complexities of existing segments such as home care and assisted living, and explored white spaces where elders and their children may be willing to spend. Beyond health, we are also at the starting line for an uptick in discretionary consumption by young and soon-to-be (urban and mid-high-income) elders, who earn and consume more than previous generations, have an entirely different relationship with technology, and are increasingly open to planning for their elder years. Overall, there is high conviction on latent demand and the inevitability of this market. 

We’ve put our findings together in our latest micro-report, which will be available on our website on Monday, July 22. You can also write in to us at hello (at) lightbox (dot) vc if you would like it delivered to your inbox.

Also check out the Lightbox companies in healthcare and wellness – Amaha Health, Zeno Health, Nua.

In our January newsletter, we talked about how the availability of debt has been a lifeline for many businesses. The downturn has taught investors and founders that early stage businesses need to rethink their strategies on how to better use debt. We spoke to Mint in May about how startups can better navigate the downturn in the context of debt and specifically venture debt as more and more startups seek to restructure repayment terms with lenders.

Our friends at Ladies Who Lead put together a wonderful initiative called Venture Vault in May for entrepreneurs looking to take their businesses to the next level. Lightbox’s Sandeep Murthy shared learnings from the Lightbox portfolio on scaling a young startup. Watch an excerpt from the session in the video below.

The most interesting part about being in the venture capital business is meeting people and learning from their experiences. The Cafe Upstairs was host to two events recently where we welcomed entrepreneurs, investors and friends from the ecosystem to spend some time with us and exchange insights.

In April, we had the pleasure of welcoming a stellar panel of speakers to talk about the road ahead for new-age consumer brands in the upcoming decade. Kedaara Capital managing director Anant Gupta shared his learnings from investing in companies such as Manyavar and Lenskart as well as building a personal care business at ITC. Naiyya Saggi, co-founder of the Good Glamm Group, brought in the operator perspective on building and scaling an online-and-community-first consumer business. Abheek Singhi, managing director and senior partner at Boston Consulting Group, provided deep market insights into how the consumer markets are evolving. Finally, former Marico veteran Chaitanya Deshpande brought in much-needed insights from the world of traditional FMCG. The session was moderated by Lightbox managing director Sandeep Murthy.

Read more about the session here. Watch the full session in the video below.

The June edition of Lightbox Espresso was a riveting session with Dr Sanjay Arora, founder of diagnostics company Suburban Diagnostics. Since selling the company and delivering a profitable exit to investors, Dr Arora has been prospecting for potential startup investments as he embarks on his second career as an independent investor. Watch the full session in the video below.

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