India Is The Future Now

Sandeep Murthy
20th December 2023

Free money has disappeared. Vanity metrics are out. As the venture capital market resets, the Lightbox playbook of concentrated bets on differentiated, technology-enabled businesses, focused on India’s fragmented consumption markets is poised to deliver significant value accretion over the next few years.


The bedrock of Lightbox’s investment philosophy has been our abiding faith in the unfolding potential of the Indian economy. We believe the economy is now at a juncture where the conditions are conducive for driving significant value accretion across venture capital portfolios composed of differentiated businesses that are able to find the path to profitability.  

India is in the throes of the ‘miracle years’. Large and thriving Asian economies such as Japan, South Korea and China have all come through 10-year periods, dubbed the ‘miracle years’, that saw massive growth in per capita income and development. 

It has taken India 60 years to become a $1 trillion GDP economy and seven years to get to the next $2 trillion. In 10 years, we will get to $10 trillion. Domestic consumption will outpace global peers, powered by a projected 5X growth in middle class consumption. All this is in the backdrop of a still very fragmented economy. Against 85% in the US, for instance, only 13% of India is organised. This fragmentation presents a compelling opportunity for emerging players, especially those that harness technology for operating leverage  and brand to extract high gross margins.

Back to basics

For venture capitalists, around the world, 2022 through 2023, has been a period of reckoning. To borrow a term used by former US Federal Reserve chairman Alan Greenspan during the 1990s dotcom boom, the “irrational exuberance” that free money fueled from 2008 to 2021 has been replaced by caution and introspection. This downturn in the market offers the venture capital industry an opportunity to pause and return to the basics of investing – find entrepreneurs who have differentiated ideas with viable business models that are able to methodically prove their value proposition. 

The opportunity to build businesses in India is not just driven by new technology that is going to change the world. It is driven by leveraging technology to organise unorganised markets.

When we started on this journey at Lightbox, we decided to take concentrated bets on differentiated business models designed to capitalise on the unique opportunities in the Indian market. Instead of spreading ourselves thin across a vast portfolio, we decided to focus on engaging deeply with a few handpicked entrepreneurs who we believed had unique solutions for organising large unorganised market categories. We invested in businesses where technology would provide operating leverage while brand would allow us to charge a premium and extract higher gross margins. 

We saw this opportunity in Furlenco where they use technology in the production and refurbishment of furniture while addressing the needs of an aspiring middle class to live better. Bombay Shirt Company deployed technology in a platform where, at scale, users could customise their look to create their own personal brands. As time progressed we added the dimension of looking at the impact the businesses we invested in had on the world around us. This took us into companies like Waycool that uses technology to reduce wastage in the food supply chain, while creating branded food products. Cityflo takes cars off the road by leveraging technology to run one of the most efficient daily commute operations in India. Zeno is organising the unorganised pharmacy market to bring savings to customers on their daily medicine needs.

The businesses we chose to invest in were ‘real world’ businesses where unit economics were well understood. However, the private markets were screaming the mantra of blitzscaling. Staying disciplined and focused on unit economics was challenging in the face of millions of dollars flowing into these sectors. Therefore we played the game. Balancing raising large sums of money with staying true to business models that were well defined. This was further complicated by the fact that investors seemed to equate large fund raises with reduced risk. Companies were being evaluated not on the value they were adding to consumers, but by how much capital they raised. 

In the pre-free money days, the amount of capital raised was a decent proxy for relative risk of a business. This was because there was a cost to the capital and so if you wanted large sums of it, you had to show that you had truly addressed a customer need. When money became free there was no real opportunity cost for an investor to take a chance on a new idea. So the quantum of capital raised was no longer a credible proxy for relative risk of a business. Companies were able to raise hundreds of millions of dollars without having product-market fit; sometimes without even having a product. 

Now that we have returned to a world where there is a clear cost of capital, companies must demonstrate product market fit and deliver real business models. Venture capitalists must move their portfolio companies to focus on operations rather than on vanity metrics.

Profitability is freedom

The emphasis on profitability across portfolios is healthy for the ecosystem. It reflects a return to rational investing and a maturing of the overall ecosystem.

Technology companies contribute 8% of the overall GDP, but only constitute 0.5% of the public markets capitalisation. These businesses are delivering customer value but have not been able to unlock value for investors. They have been suffering from an identity crisis. As they move towards profitability they will be able to both tap public markets as well as demonstrate an attractiveness to acquirers who are inclined to look at earnings accretive deals over money guzzling operations. 

With a sustained focus on profitability, not only will older companies now unlock their value and deliver returns, but new companies will not get sucked into the vortex of endless fundraises. Companies will demonstrate irrevocable proof of product market fit with early success in unit economics. This will enable some of these businesses to deliver liquidity to investors earlier in their lifecycle. Ultimately liquidity is the oxygen that keeps the venture capital ecosystem breathing. 

Another added dimension to keep in mind, is that for foreign institutional investors, Indian venture capitalists have to also overcome the hurdle of a depreciating currency. In order to meet the target of a 20-25% net IRR, Indian funds with foreign investors need to start to deliver liquidity earlier in their fund cycles. Profitable companies will enable this. 

Make It Happen

As the venture capital ecosystem finds itself in the midst of a reset, our strategy has stood us in good stead. Within our portfolio of 14 companies, six will be cash flow positive in the next six months. Four more will get there in the next 12 months. The final four will continue to scale at moderate burn for the next 18 months before reaching profitability. 

As a firm, the next 12-18 months will be challenging on account of market factors but also a time when our original investment playbook will be validated. Driving profitability across the portfolio is a priority. We go into the new year with a simple and powerful theme. Some people want it to happen. Some wish it would happen. Others make it happen.

We leave you with some moments from our recently concluded Annual Day.