The global reach of India’s startup ecosystem has pulled in investors from all geographies. While US funds dominate the landscape, even VCs from Europe, the Middle East and Southeast Asia are looking for upsides in the dynamic market, having seen the trajectory of Silicon Valley startups up close.

Among these is Canada-based Ocgrow Ventures, which has been an active investor in the tech industry since 1995, when the product economy was still building steam in the West. The privately held VC fund that manages the assets and investments of Harish Consul and his family, primarily focusses on early stage investments. The firm, led by Consul, has invested over $100 Mn across more than 50 companies worldwide, including early investments in tech giants Amazon and Shopify.

In India, Ocgrow Ventures’ portfolio includes 18 startups, including the likes of Garuda Aerospace, Rebel Foods, Gupshup, and Saveo.

“We invested in all the above companies at the seed or Pre-Series A stages. Our focus is on young India centric companies, which target Gen Z market, the huge growth in the middle class of young consumer market looking for new consumer services ranging from higher end products & services, including wealth management fintech to new social commerce buying habits for this next generation,” Ocgrow Ventures’ Consul told Inc42 as he outlined the fund’s thesis for the Indian market.

Consul, with over 35 years of entrepreneurial experience, highlighted India’s rapid rise as a global innovation hub in areas such as digital transformation, generative AI, fintech, and health technology.

Despite some inherent growth challenges in India, Consul views India as a promising market for startups and innovation.

In this conversation with Inc42, Consul sheds light on Ocgrow Ventures’ investment strategy, key sectors of interest for the Canadian VC firm, and the challenges Indian startups face as they scale.

Edited excerpts

Inc42: How has India’s private equity and venture capital investment ecosystem changed over the past two decades?

Harish Consul: Ocgrow Ventures has been investing globally since 1995 and in India specifically since 2011 through our global fund. Over the last three to five years, the change has been dramatic. India’s startup ecosystem has matured rapidly, with founders driving innovation and growth. We’re deeply connected to India’s market, speaking regularly at global tech and investment conferences with an India focus.

What sets us apart is our global network, which helps Indian startups scale internationally. A great example is Garuda, which started in India and is now growing globally with offices around the world. The mindset of founders has also shifted—from a “growth at any cost” approach to balancing growth with profitability.

We believe companies can achieve both, and technologies like AI automation are already helping founders improve margins and reduce operational overhead.

Inc42: When we look up Ocgrow, it’s often linked to real estate. Can you clarify the connection between your real estate background and your venture fund?

Harish Consul: Ocgrow Group has two divisions. We originally started as a real estate investment company, and our family has been in that space for over 40 years. That remains a long-term portfolio of real estate assets.

Ocgrow Ventures, on the other hand, is our global venture fund, which I founded. It focusses on investing in startups, particularly in India and globally, across sectors like AI, health tech, and consumer brands.

Inc42: What is Ocgrow Ventures’ core investment thesis as a private equity fund?

Harish Consul: We typically invest anywhere from $500K to $10 Mn in early-stage companies. Our philosophy is simple: back world-class founders who’ve already achieved product-market fit. These are companies with real paying customers and growing revenues. We’re looking for verticals that tap into massive total addressable markets (TAM), and right now, AI is a must for any company working in data analytics or similar spaces.

But for us, it’s not just about the business metrics—though those matter, of course. What’s really important is the founders themselves. We spend a lot of time with them, getting to understand their passion and mindset. We’re looking for that hunger and laser focus—the kind that’s rare to find. It’s not just about saying you’re passionate; it’s about living and breathing what you’re building every day. That kind of grit makes all the difference.

We’re also very hands-on. We often take board or strategic advisory roles and help companies scale fast by leveraging our extensive global network. It’s all about helping them grow exponentially and build those valuable global alliances that can take them to the next level.

Inc42: What are the key sectors Ocgrow Ventures is focussing on?

Harish Consul: AI-native companies are definitely a big focus for us—what we see as the next wave of SaaS. These are businesses using AI to automate traditional industries by leveraging data, which we categorise as vertical AI sectors. We’re also highly active in the consumer space. While many are moving away from it, we remain bullish on select areas within consumer tech, fintech, drones, and agritech are also key areas of interest.

Additionally, we’re very focussed on “Young India” and Gen Z-centric verticals. Enterprise AI platforms that use technologies like LLMs (large language models) to automate industries are another exciting space for us.

Inc42: You seem bullish on AI. How do you view its current status in India, especially considering that native AI applications are still limited while top-layer applications face challenges?

Harish Consul: That’s a fair point, but it’s changing rapidly. In just the last few months, we’ve seen a surge in AI-native founders building on top of existing layers. One example is an automation AI company we’re getting involved with—I’ll share more details later. We’re seeing incredible talent emerging from cities like Mumbai, Pune, Hyderabad, Bangalore, and Delhi. I don’t think India is lagging; in fact, I believe it’s on track to lead the charge in AI innovation very soon.

Inc42: Can you elaborate on the “Young India” centric verticals?

Harish Consul: Absolutely. India has a massive population under 30, and we’re seeing a rapid rise in Gen Z-focussed consumer brands. We’ve made several investments in this space, spanning sectors like retail, cosmetics, fashion, and skincare. Health and wellness are also key areas where we’re very active, particularly in health consumer products rather than delivery or restaurant services.

The rising middle class in India is driving demand for these consumer plays. Founders in this space are doing some really interesting things, and we believe this trend will only accelerate as demand continues to grow.

Inc42: Can you share specific examples of your Young India Centric investments?

Harish Consul: Many of our investments in this space have been made in just the last six months, and some haven’t been announced yet. Broadly, these investments are sector-agnostic but all consumer-focussed, targeting the 18 to 30 age group that’s shaping India’s market landscape.

Inc42: Your fund also focusses on global health tech and longevity ventures. Have you invested in any Indian health tech startups?

Harish Consul: We’re very active in health tech and longevity and are currently evaluating several opportunities in India. This sector is experiencing massive growth globally. We are seeing advancements in preventative, personalised, and precision-based medicine—areas like microbiomes, stem cells, peptides, and IoT devices.

In India, we’ve explored longevity clinics like Seva and invested in Savio, a pharmacy aggregator. However, we’re keen to connect with more Indian health and longevity startups. It’s a call to founders in this space to reach out to us—we see tremendous potential and want to deepen our focus here.

Inc42: You also cofounded another fund – Hanu Ventures? How does it fit into this structure?

Harish Consul: Hanu Ventures is another fund I co-founded with Nuno Martins, a  multimillionaire serial entrepreneur, venture investor, international keynote speaker, and scientist in Europe. It’s a part of Ocgrow Ventures but has a specific focus on health and longevity startups.

We’re absolutely open to investing in India through both Ocgrow Ventures and Hanu Ventures, particularly in the longevity space. If there are Indian startups innovating in this area, we’d love to hear from them.

We see immense potential in this space, and India is very much a part of our long-term investment strategy.

Inc42: What challenges do you see for the Indian startup ecosystem?

Harish Consul: India has made tremendous progress, but bureaucracy remains a major challenge. Regulatory hurdles, like delayed approvals for international investors and the complexity of compliance processes, are frustrating. The banking system needs modernisation—while UPI is world-class, global money transfers and forex operations remain outdated. Streamlining these processes would greatly improve the ease of doing business for both founders and investors.

Inc42: Can Indian fintech startups resolve these challenges long-term?

Harish Consul: Absolutely. We’re very interested in the FinTech space because young, tech-savvy founders understand these challenges firsthand. They live and breathe digital solutions. However, breaking into the traditional banking ecosystem can be daunting due to RBI regulations. While some founders have grown tired of navigating the red tape, those with the determination to challenge the status quo have a huge opportunity to drive change and innovation.

Inc42: In the past, we’ve seen international funds like SoftBank and Tiger Global face setbacks in India, investing large sums but not achieving expected exits. Do these stories impact the momentum of international investors, particularly for larger rounds?

Harish Consul: It’s true that such stories make investors more cautious, but I don’t think they dampen the global interest in India. India is emerging as a superpower and is on track to rise from the third-largest economy to possibly the largest in the coming decades. The ecosystem here is vibrant and brimming with talent, which makes it very attractive.

What has changed is the approach—investors are now more focussed on prudent growth and profitability from day one. The era of “grow at any cost and worry about profits later” is over. Business models must demonstrate both scalability and financial sustainability.

Sovereign funds, family offices, VCs, and private equity firms are all actively looking to increase their exposure to India. The momentum remains strong, and it’s an exciting time to invest here.

Inc42: Where do you see Indian startups heading by 2025?

Harish Consul: The Indian startup ecosystem is among the best in the world. India is on track to become the third-largest economy globally, and it’s already the fastest-growing major economy. Digitally, India is ahead of many other countries. In areas like facial recognition for boarding and payment systems, it surpasses even places like Dubai and North America.

While the ecosystem is strong, challenges persist in the financial and regulatory environment. Still, Ocgrow Ventures remains very optimistic. More founders are choosing to stay and build in India, though some still migrate abroad.

It’s a dynamic time, and India’s global influence is growing. Everywhere I go, people are talking about the India story, and we’re proud to be part of that journey—helping founders scale globally while staying rooted in India’s innovative spirit.

The post Decoding Rebel Foods Backer Ocgrow Ventures’ Early Stage Playbook For India appeared first on Inc42 Media.

India’s rapid growth in the digital economy has caught the attention of many countries, including Dubai. India is expected to become a trillion-dollar digital economy by FY26, which means it is becoming a key player in the global innovation scene.

Dubai has recognised this and is looking to grow its ties with India. Since 2022, the India-UAE Startup Corridor has been working to support startups in both countries. The goal is to help 50 startups over five years and turn at least 10 into unicorns by the end of this year. This is part of Dubai’s broader plan to boost its digital economy.

The UAE and India have strengthened their relationship in various areas, from government collaborations to business growth. Projects like India’s GIFT City and Dubai Internet City are helping create more opportunities for cooperation. The rise of Indian tech companies in Dubai shows a shift toward a more digitally focussed economy.

In October 2023, India and the UAE signed an important agreement to work together in areas such as AI, renewable energy, healthcare, and advanced manufacturing. These efforts aim to drive innovation and strengthen industries. Dubai’s D33 plan, which aims to create 30 unicorns over the next 10 years, reflects its commitment to boosting its economy with innovation.

Dubai has become a key destination for tech companies in the MENA region. Events like Step Conference, GITEX Global, and Expand North Star bring global startups and investors together. With its strong business network, Dubai Internet City plays an important role in supporting these efforts.

In a significant move, Dubai Internet City partnered with India’s Nasscom at GITEX Global 2023 to encourage knowledge sharing and collaboration. This partnership helps Nasscom members connect with Dubai’s growing tech ecosystem, supporting the goals of Dubai’s Economic Agenda ‘D33’.

Further, a recent report from the Dubai Chamber of Commerce, part of the Dubai Chambers network, highlighted that Indian businesses led the way in new non-Emirati companies joining the chamber in the first nine months of 2024. A total of 12,142 new Indian companies established themselves through the chamber, underscoring Dubai’s growing appeal to Indian investors and entrepreneurs.

To understand these developments better, Inc42 spoke with Ammar Al Malik, executive vice president of commercial at TECOM Group and the managing director of Dubai Internet City. 

He explained how India’s growing talent and an ever-expanding economy are attracting international investors. Besides, he also explained how Dubai has become a highly attractive launchpad for Indian startups looking to expand operations and access global markets.

Here are the edited excerpts…

Inc42: How has Dubai positioned itself as a hub for Indian tech startups looking to expand globally?

Ammar Al Malik: Dubai is the destination of choice for tech scaleups and startups with global ambitions, leveraging its strategic location to international markets, and a distinctly pro-business environment invested in nurturing innovators and disruptors.

Dubai Internet City has played a pivotal role in cultivating the city’s position as a global tech hub for more than 25 years, providing purpose-built infrastructure to more than 4,000 customers, including multinationals, startups, and Fortune 500 companies, such as Google, Meta, Visa, Mastercard, and Dell.

Our vibrant community, home to leading Indian tech giants such as Tata Consultancy Services, Tata Communications, Infosys, and HCL Technologies, offers a fertile ground for Indian businesses to scale, connect with peers and global markets, and advance their growth ambitions.

Inc42: Can you elaborate on the support programmes or incentives Dubai provides to Indian tech startups setting up operations there?

Ammar Al Malik: A report by Startup Genome estimates that Dubai’s startup ecosystem value crossed AED 84.4 Bn by the end of 2023, placing us ahead of other Gulf countries and second in the region, promising a flourishing startup landscape accessible via Dubai.

Dubai Internet City also nurtures startups through synergies within TECOM Group to enable entrepreneurship, especially through in5, a startup incubator for businesses across tech, media, design, and science.

Since its inception in 2013, in5 has supported over 1K startups by offering a platform to scale up with access to advisory, mentorship, networking, and potential investment opportunities, further enhancing Dubai’s entrepreneurial opportunities.

This includes in5 Tech, housed at a dedicated in5 Innovation Centre at Dubai Internet City, which is also home to the in5 Investor Hub. In this space, angel investors, venture capitalists, and institutional investors can directly engage with startups for funding and partnership opportunities.

in5’s networks also include global organisations such as The Indus Entrepreneurs (TiE), which was founded in 1992 and has been operating in Dubai since 2002. The incubator’s strong relationships with such industry bodies offer greater access and ease of set-up or scale-up to Indian enterprises foraying into Dubai.

Inc42: How can Indian scaleups/startups leverage Dubai Internet City’s infrastructure and network to scale their operations?

Ammar Al Malik: Dubai Internet City provides Indian scale-ups and startups access to a thriving ecosystem comprising more than 4,000 industry leaders, 31,000 professionals, and 19 Innovation and R&D centres, including those operated by global leaders such as 3M, IBM, HP, Ericsson, and Cisco.

This co-location of innovators ignites knowledge exchange and unlocks mutually beneficial partnerships, helping established companies tap into fresh perspectives and collaborations that propel business growth. Our holistic tech ecosystem features premium infrastructure and knowledge-sharing opportunities for the world’s brightest minds to work, connect, and innovate.

This includes phase I of Innovation Hub, launched in 2018 and home to industry leaders such as Gartner and Snap. The upcoming phases II and III of Innovation Hub at Dubai Internet City will add over 530,000 sq ft of premium spaces to the district. These are being developed at a cost north of AED 780 Mn.

The strategic acquisition of two Grade-A buildings at Dubai Internet City, announced by TECOM Group in August 2024, adds 334,000 sq ft to address the demand for high-quality spaces in our community. In October 2024, TECOM Group also completed the acquisition of Office Park, a high-occupancy Grade-A asset in Dubai Internet City that is home to multinational companies like Uber, through an AED 720 Mn transaction.

Startups also have access to D/Quarters’ modern coworking spaces, launched in June 2022 at the heart of two of Dubai’s most vibrant business districts, Dubai Internet City and Dubai Media City. D/Quarters – which also doubled its offering at Dubai Science Park in December 2024 – provides open coworking spaces for startups and talented individuals in the city, including professionals granted Golden Visas for their exceptional contributions in the knowledge- and innovation-based sectors.

Inc42: What are the key sectors where Dubai sees the most potential for collaboration with Indian startups/scaleups?

Ammar Al Malik: Sector-agnostic innovation is the bedrock of Dubai’s and the UAE’s future-focussed programmes, and the market is brimming with opportunities. A vital opportunity for tech companies looking to expand from Dubai lies in the convergence of technologies like artificial intelligence (AI), blockchain, cybersecurity, and the metaverse.

We also see inspiring businesses at in5 accelerating advancements in agritech, healthtech, food waste, and data management making impressive strides in their growth trajectories. For example, Desert Control, which converts arid sand into fertile soil and is now part of in5’s alumni network, raised AED 85 Mn in a successful IPO in 2021. in5 alumnus Grubtech raised AED 55 Mn as part of its Series B round in May 2024.

Inc42: How does Dubai facilitate funding opportunities for Indian startups through its local investors or global connections?

Ammar Al Malik: Dubai and the UAE are an increasingly attractive investment market for global venture capitalists and private equity firms. This makes our city a destination of choice for innovators and startups. Alongside proactive government strategies to drive entrepreneurship and innovation, Dubai’s global business ecosystem delivers unique investment, partnership, and corporate innovation opportunities that can power sustainable expansion.

Platforms like in5 also forge a bridge between startups and investors through exclusive networking and engagement events or by showcasing them at larger industry conferences to amplify startup visibility.

The results speak for themselves – in5 startups have raised over AED 7.8 Bn in funding to date, with many of our alumni continuing to secure capital across Series A, B, and C rounds.

Inc42: What advantages does Dubai offer in terms of regulatory frameworks, tax benefits, and ease of doing business for Indian founders?

Ammar Al Malik: Dubai offers a highly attractive environment for Indian startups looking to expand operations and access global markets. Its pro-business legislation pairs with regulatory frameworks that focus on streamlining the ease of doing business.

This agile ecosystem is bolstered by proactive strategies such as the Dubai Economic Agenda ‘D33’, Dubai’s Universal Blueprint for AI, Dubai Research and Development Programme, and the National Tech Skills Enhancement Programme that offer blueprints to enable innovation and entrepreneurship.

At Dubai Internet City, we further enhance the ease of doing business by providing a dedicated support system for our community. Through axs – TECOM Group’s dedicated smart platform that offers access to over 200 government and corporate services – we also offer streamlined and digital licensing, visa processing, and business set-up pathways, minimising administrative burdens and allowing founders to focus on their business.

Our ongoing investments in infrastructure and commitment to fostering collaborative communities across our 10 business districts in Dubai further strengthen the city’s appeal as a premier destination for Indian entrepreneurs.

Inc42: Can you share some success stories of Indian startups that have benefited from setting up in Dubai?

Ammar Al Malik: We have seen numerous Indian startups flourish in Dubai. One compelling example is AstraGene, the Middle East’s pioneering molecular diagnostic manufacturing company.

A member of in5 Science – the science-focussed vertical of in5, launched alongside Dubai Science Park in June 2023 – AstraGene produces advanced molecular diagnostic products through its in-house R&D and innovation teams, focussing on longevity, genomics, and gut microbiome solutions. AstraGene’s journey underscores the strength of Dubai’s supportive business ecosystem and resources.

Another success story is ShopDoc, a digital healthcare company under in5’s umbrella that plans to establish a luxury medical tourism corridor between Dubai and India’s Malabar-Mangalore region. With an investment exceeding AED 183 Mn, the company is partnering with healthcare and wellness providers to offer a mix of traditional ayurveda- and herbal-based treatment and rejuvenation programmes, leveraging Dubai’s tech, healthcare, and business platforms to redefine medical tourism and wellness.

Inc42: How does Dubai’s strategic location help Indian startups access markets in the Middle East, Africa, and Europe?

Ammar Al Malik: Nearly a third of the world’s population is accessible via a three-hour flight from Dubai, while two-thirds is within an eight-hour flying distance, making it a gateway to the Middle Eastern, North African, and European regions.

Dubai is the epicentre of the global business ecosystem and an attractive logistics hub that makes it the place to be for international businesses of all sizes, helping them develop agile, robust supply chains by better connecting them to global audiences.

Moreover, Indian engineers – renowned globally for their expertise – are ideally placed to leverage Dubai’s strategic location within an eight-hour flight from two-thirds of the global population.

Residency pathways such as Golden and Green Visas for talented individuals and a thriving community exceeding 3.5 Mn Indian residents in the UAE make Dubai an attractive destination for Indian talent. Offering long-term stability, access to global peers and professionals, and a familiar cultural landscape, Dubai is the cradle for engineering talent from India and beyond to live, work, and invest in.

Inc42: What role has the Indian government/investors/stakeholders played in boosting Dubai’s tech ecosystem?

Ammar Al Malik: Government leaders, investors, and stakeholders in both India and the UAE have played a significant role in bolstering Dubai’s tech ecosystem for global impact.

High-level engagements, such as the meeting between His Highness Sheikh Khaled bin Mohamed bin Zayed Al Nahyan, the Crown Prince of Abu Dhabi, and Indian Prime Minister Narendra Modi in September 2024, as well as Prime Minister Modi’s participation in the World Governments Summit in Dubai in February 2024, reaffirm the strength of these bilateral ties.

In July 2023, His Highness Sheikh Mohamed bin Zayed Al Nahyan, President of the UAE, and Prime Minister Modi witnessed the signing of two MoUs between the Central Bank of the UAE (CBUAE) and the Reserve Bank of India (RBI).

CBUAE and the RBI plan to develop a framework that promotes the use of their respective national currencies in cross-border transactions. They also seek to streamline payment services in both countries by linking their instant payment platforms (IPPs), local payment card systems, and financial messaging systems.

Inc42: Are there any collaborations or partnerships planned to further strengthen the India-Dubai tech ecosystem?

Ammar Al Malik: Several collaborations are in motion to further solidify the India-Dubai tech ecosystem. The Comprehensive Economic Partnership Agreement (CEPA) agreement already provides a robust framework for enhanced cooperation. Our collaboration with Nasscom is aimed at attracting leading Indian technology companies to Dubai, fostering growth and innovation within the city’s tech landscape.

This partnership will also provide Indian tech firms with access to Dubai Internet City’s world-class infrastructure – including Grade-A offices and D/Quarters’ coworking spaces – in addition to our business-friendly ecosystem of global innovators and inventors.

Moreover, Dubai Internet City’s sister districts, Dubai Knowledge Park and Dubai International Academic City, are home to world-class Indian institutions such as Symbiosis University Dubai, Amity University Dubai, BITS Pilani Dubai, and the Manipal Academy of Higher Education.

This concentration of academic excellence creates a talent pipeline for startups and businesses in Dubai, helping to fuel innovation and empowering entrepreneurs and professionals with opportunities for continuous learning and development. This robust educational infrastructure further solidifies Dubai’s position as a leading global hub for Indian talent and investment.

Inc42: What are some other key investment trends we can see for Indian startups in 2025 in the Dubai startup ecosystem?

Ammar Al Malik: Dubai and India share synergistic economic priorities for 2025, with a strong focus on opportunities that can enhance life for future generations, such as AI, cleantech, and healthtech.

This alignment creates significant opportunities for Indian startups, with such innovative companies poised for increased traction not only within Dubai’s thriving business ecosystem but also across international markets.

Their expansion can be facilitated by leveraging the extensive networks of global partners and peers based at in5, Dubai Internet City, and TECOM Group.

India’s continued improvements in entrepreneurial awareness education, will further strengthen the capabilities and potential of these emerging Indian ventures.

This combination of aligned priorities, robust support networks, and enhanced entrepreneurial skills positions Indian startups for continued success in Dubai in 2025 and beyond.

[Edited By Shishir Parasher]

The post Dubai Internet City’s MD Explains Why India Is A Magnet For Dubai Investors appeared first on Inc42 Media.

The year 2024 was a mixed bag for ecommerce, shaped by economic uncertainty, cautious consumer spending, and selective investor activity. Despite these challenges, the focus shifted toward profitability and strong unit economics, signaling a new wave of investor priorities, just as we entered 2025.

Yet, if one trend truly stood out, it was the meteoric rise of quick commerce, and how these consumer services startups have changed the ecommerce game. What once seemed like an ambitious dream—a 20-minute grocery delivery—has now become the standard. Anything slower feels underwhelming, highlighting how much consumer expectations have evolved, and therefore how marketplaces and brands need to adapt to the new reality.

Quick commerce disrupted traditional ecommerce marketplace models, redefining business models and how customers shop. Even direct-to-consumer (D2C) brands, that once favoured marketplaces, are more focussed on the quick commerce channel today.

The numbers back up the buzz. Blinkit reported a 186% year-on-year revenue growth for FY24, while Swiggy Instamart is contributing significantly to Swiggy’s impressive INR 10 Cr revenue run rate in FY24. Despite being a relatively young startup, Zepto doubled its revenue to INR 4,454 Cr in FY24, and outpaced both these giants.

New players like Waayu, Slikk, and Swish are entering the game, inspired by the success of incumbents. This has forced ecommerce giants such as Flipkart, Amazon India, JioMart, Nykaa and others to explore new models.

Dhruv Kapoor, partner at Anicut Capital highlighted how Myntra’s move to offer “30-minute” delivery has set a new benchmark for consumer expectations in ecommerce. This shift is not just a game-changer for existing companies but also for anyone planning to enter the ecommerce space in the future.

“When ecommerce started around 2014-15, it was all about price—offering the best deals was the main attraction,” Kapoor explained. “But now, the focus has shifted to convenience. Customers prioritise speed and ease over price, and that’s redefining the industry.”

He believes this growing demand for convenience is the biggest disruptor in how ecommerce operates today and will continue shaping its evolution in the years ahead.

Moreover, the tech stack for ecommerce has also evolved drastically, with AI-driven customisations transforming customer interactions. As Krishan Agarwal, Director at DigiHaat, noted, the appetite for innovation in this space remains relentless.

Additionally, global data privacy regulations have pushed companies to strengthen compliance, while the expanding reach into India’s Tier II and Tier III cities has broadened the customer base. Together, these factors have significantly reshaped the ecommerce landscape in 2024.

Overall,  the ecommerce market in 2024 grew steadily, driven by greater digital penetration and higher consumer spending, particularly in non-metro locations. The outlook for 2025 remains positive, with a trend toward improved omnichannel experiences, sustainability-focussed initiatives, and broader expansion into emerging markets.

Looking ahead to 2025, questions remain: Will ultra-fast delivery continue to dominate, or will consumer demand shift in new directions? How will technology drive the next wave of innovation? Will investors open their purse strings again for ecommerce in 2025? Here’s a glimpse into what the future might hold.

Ecommerce Investors To Go Cautiously In 2025

In 2024, ecommerce startups raised $1.5 Bn through 203 funding deals. This marked a decline of 36% from the $2.04 Bn raised across 198 deals in 2023. Although the number of deals increased year-on-year, the average funding size dropped by almost 41% from $13 Mn to $7.6 Mn, reflecting a shift in investor sentiment.

Many investors attributed their reduced interest in the sector to challenges like unsustainable business models, lack of unique differentiation, and weak unit economics. Despite these hurdles, industry experts remain optimistic about the future of ecommerce funding.

Ankur Mittal, Co-Founder of Inflection Point Ventures and Partner at Physis Capital, highlighted that ecommerce funding in 2025 is likely to grow. He expects investors to focus on technology-driven platforms, specialised D2C businesses, and industries prioritising profitability. Segments like ecommerce SaaS and quick commerce are poised to attract significant attention due to their innovative and scalable nature.

Also,  domestic investment is likely to increase due to favorable legislation and the success of local companies. International financing will remain consistent, with global investors looking for scalable, creative Indian ecommerce firms.

“According to Inc42’s projections, the ecommerce sector could raise $1.8 Bn in 2025, a 20% increase compared to 2024, signaling renewed confidence and opportunities in the space.”

Seed Stage Funding To Gain Priority

Early-stage funding is expected to rise as investors back fresh ideas and emerging categories. Growth-stage investments may remain steady, with VCs prioritising scalability, while late-stage funding will likely focus on profitable companies with clear paths to IPOs or acquisitions.

Ashutosh Valani, Co-Founder of Renee Cosmetics, echoed this optimism, emphasising the revival of funding driven by new venture capital funds focussed on seed stage startups.

According to Inc42 data, in 2024 alone, more than 81 new funds were launched, with almost 44% of them having ecommerce segments in focus such as D2C, SaaS, quick commerce, and consumer brands. Notable funds with ecommerce include Sauce VC, Stride Ventures, Anthill, Arigato Capital, and Huddle Ventures among others.

Anicut Capital’s Dhruv Kapoor added,”We’re definitely seeing a lot of activity happen in the D2C side where new age consumer brands are still coming up and addressing market opportunities,”

Further, in 2025, the ecommerce sector is expected to see the emergence of new unicorns, notably in specialty categories such as quick commerce, ecommerce SaaS, and innovative direct to consumer brands. These firms will be notable for their profitability potential, creative offers, and scalability in both domestic and international markets, emphasised Ankur Mittal..

Multi-Channel Approach Will Be A Must 

In conversation with Inc42, several industry stakeholders emphasised that adopting a multi-channel approach has become a must for channelising every quick conversation, irrespective of the stage at which the ecommerce player has been operating.

For instance, a D2C brand often started with ecommerce marketplaces, and then extended to its own website and then cracking offline trade was considered the biggest milestone. Even today, the investors consider offline as a big game changer in the journey of any ecommerce startup.

However, today one can’t go offline unless they’re doing a couple of crores of revenue a month because there is a high cost of distribution and lower profit margins. Plus, the new age brands have all the playbooks in front of them, and with quick commerce at the forefront, adopting a multi-channel approach is kind of a must to achieve scale and achieve investor confidence.

“Quick commerce has become an integral part of early channel expansion, and as we have already seen, the entry of marketplaces like Flipkart, Myntra, Nykaa, Amazon among others is further validating this trend that having a multi-channel approach cannot be regarded,” added Alok Mittal, cofounder and executive chairman at Indiffi Technologies.

Sachin Dixit, Internet Lead Research Analyst at JM Financial Ltd, presented a different view though. He shared that 2025 is expected to see a revival in consumer discretionary spending, creating new opportunities for ecommerce players across the ecosystem.

He noted the growing buzz around quick commerce, suggesting it could surpass traditional ecommerce. However, he emphasized that only time will reveal its true potential. “Quick commerce has impressed the early adopters—around 5–10 million experimentative users—but the real test lies ahead. As brands aim to reach the next 20–50 million users, they’ll need to prove whether their business model can scale nationwide or extend into new verticals beyond their core offerings,” he explained.

Dixit highlighted that online performance will be a decisive factor for quick commerce in the coming year. While 2024 brought significant valuations for the sector, 2025 will determine if it can deliver sustainable success.

Marketplaces, feeling the heat from quick commerce, have started adapting defensively as quick commerce begins to influence their key categories. Alok Mittal predicts that quick commerce may eventually become essential for every ecommerce marketplace, pushing platforms to continue diversifying their offerings.

Dhruv Kapoor of Anicut Capital noted that investors are now cautious, prioritising differentiation over more players in an already crowded market. This could lead to increased consolidation and new business models in the ecommerce space.

He also highlighted opportunities for vertical growth in quick commerce, where players could specialize in specific categories with streamlined supply chains for faster deliveries. Additionally, expanding quick commerce to rural areas with 15-30 minute delivery models could unlock untapped potential, marking the next frontier in this fast-evolving industry.

IPO Exits Will Become A Norm

India’s strong position in the equities market, compared to global peers, has experts predicting a bullish IPO trend for 2025. Public offerings are expected to exceed $20 billion, up from $16 billion in 2024. Companies with international reach and innovative strategies are likely to lead this surge, attracting significant interest from investors.

In 2024, major IPOs like Swiggy and FirstCry showcased the growing strength of ecommerce in public markets. Looking ahead, several ecommerce players with solid growth and profitability are gearing up for their debut. Notable names include BlueStone, boAt, CaptainFresh, CarDekho, EcomExpress, Infra.Market, OfBusiness, Zappfresh, Zepto, and Zetwerk.

The pipeline for tech IPOs is also gaining momentum. Industry experts highlight Flipkart’s plans to “reverse flip” and list in Indian markets as a key factor boosting enthusiasm. Successful listings like Zomato and Swiggy have dispelled concerns about tech businesses being overly reliant on burning cash, proving they can be profitable while continuing to innovate.

With rising investor confidence, the IPO market for tech and ecommerce companies is thriving. Many businesses are actively preparing to go public, signaling a vibrant and dynamic future for the sector.

Cross-Border Ecommerce To Witness Significant Growth

Cross-border ecommerce is experiencing strong growth as Indian startups increasingly target international markets. Sectors like fashion, beauty, and home décor are set to drive this expansion, fueled by improved logistics, rising demand for foreign brands, and export-friendly government regulations.

Indian brands are no longer just appealing to NRIs; they’re reaching a global audience, including customers in the US, Europe, and Canada. A prime example is Ayurveda Experience, which sells hair and skincare products rooted in Indian traditions to 98% of its customers overseas.

“This shift is possible because Indian businesses have raised their game, meeting global benchmarks in quality, timely delivery, and customer experience. With these improvements, cross-border ecommerce is poised to unlock even greater opportunities in the years ahead,” added Anicut Capital’s Dhruv.

Premiumisation To Dominate D2C Segment

Premiumisation and niche markets are expected to lead the way in the direct-to-consumer (D2C) segment. Investors remain highly interested in D2C brands because of their potential for high margins, strong customer loyalty, and growth in specialised areas like sustainable fashion, organic beauty products, and luxury goods.

They are particularly drawn to emerging D2C companies that offer unique value propositions, with a growing focus on sustainability, subscription models, and hyper-personalisation.

Alok Mittal from Indiffi highlights the importance of category expansion in D2C. He points out that markets like premium stationery, which haven’t been fully tapped yet, present exciting opportunities. While some categories like shoes have been explored, there’s still a vast potential for growth.

Looking ahead to 2025, he predicts more category and product expansion in the D2C space, with even larger players diversifying their offerings beyond just one brand or product.

AI To Revamp Ecommerce Operations

As consumer price sensitivity grows, companies are shifting their focus toward profitability, aiming to scale operations without burning through cash. They’re also adapting to new ecommerce and consumer protection regulations to stay compliant. Meanwhile, aggressive international players are expanding into India, ramping up competition at a rapid pace. One major challenge is managing logistics costs, especially for last-mile delivery in smaller cities (Tier 2 and Tier 3).

Analysts believe that artificial intelligence (AI) will be key to driving growth in the ecommerce sector. AI-powered tools, particularly in the ecommerce SaaS space, will help with personalisation and inventory management, improving operational efficiency.

Other factors fueling this growth include the rising demand for hyper-personalized shopping experiences, increasing consumer awareness around sustainability, stricter data privacy laws, and the broader use of AI and machine learning to enhance both operations and customer engagement.

The post Indian Ecommerce In The Quick Commerce Age: 8 Predictions For 2025 appeared first on Inc42 Media.

The year 2024 was a defining moment for India’s startup ecosystem. Despite global economic headwinds such as rising inflation, interest rate hikes, and geopolitical tensions, Indian startups displayed remarkable resilience.

According to Inc42’s ‘Indian Tech Startup Funding Report 2024’, homegrown startups cumulatively netted more than $12 Bn in funding during the year, more than 20% higher than 2023. As of  December 28, 2024, more than 993 deals have been recorded in 2024, 11% higher than 2023.

The emergence of six new unicorns in 2024 also underscored the bullishness after a bleak 2023. Last year marked a 19% increase in funding compared to $9.87 Bn raised across 908 deals in 2023.

Additionally, 12 startups debuted on the public markets in 2024, offering partial exits to top venture capital (VC) and private equity (PE) firms. Prominent VC funds such as Peak XV Partners, Accel, Matrix Partners, Tiger Global, SoftBank, Temasek, Elevation Capital, Prosus, and Alpha Wave reaped extraordinary returns and cashed in on these IPOs.

Adding to the exit momentum, 81 new funds with a collective corpus of over $8.7 Bn were launched in the year, well exceeding the 2023 tally.

All this shows that Indian startups are on the right track after 15-18 months of stabilising. What can we expect from a funding perspective in 2025?

The stage is set for another dynamic year for India’s startup ecosystem.

For one, VC and PE investors and industry insiders predict heightened interest in climate tech, deeptech including AI and semiconductors as well as spacetech, which are seen as the next big sectors in India.

At the same time, a stronger focus on profitability and sustainable business models is likely to guide funding decisions in the late stage. Startups that have used the past 18 months to get to more sustainable unit economics will continue to see investor interest. However, this will come with clauses that necessitate exits through public listings, as we saw during the 2019-2020 era.

So-called pre-IPO rounds and secondary deals will continue to gain traction among those companies that do raise funding in the next year.

Startups On Course To Raise $15 Bn In 2025

Inc42’s annual funding report projects that compared to 2024, the total funding amount and deal count are likely to increase by 25% and 29% respectively.

Venture capital investment in India’s native generative AI startups has surged, growing 4.4 times from $277 Mn in 2020 to over $1.2 Bn by 2024. The AI boom is expected to fuel the next big wave of investments, with companies raising funds to set up the tech stack needed to become AI-first companies. These and other positives such as the increase in large pre-IPO rounds are the basis of Inc42’s projection for 2025.

According to Bhaskar Majumdar, founder and managing partner at Unicorn India Ventures, a stabilisation in global markets is likely to lead to a cautious recovery in funding.

Even in 2024, despite the higher YoY funding, there was a risk aversion among investors prioritising profitability over hypergrowth, focus on smaller early-stage deals due to limited late-stage opportunities and lower valuations across startups due to macroeconomic pressures. “In 2025, we expect that the decline should stabilise as startups align with realistic valuations and improved operational efficiency,” added Bhaskar.

While the investors don’t expect a return to the peak exuberance of 2021, the public markets have set more consistent expectations for private market investors, driven by heightened selectivity for companies that are prioritising fundamental resilience and predictability in setting and meeting guidance, and justifying capital allocation responsibly.

More global capital is expected to enter India next year owing to India’s strong economic position, mature startup ecosystem and undercapitalisation of emerging sectors. This balance will likely push private market funding volumes higher than the more cautious levels of the past two years.

Seed Stage And AI Drive Investor Optimism

Early stage funding has been and should remain steady, with a focus on founders who are capable of building towards clear product-market fit with efficient operating models.

Growth stage deals are expected to rebound with flat to marginal uptick for companies that have become more efficient and better positioned for scale with profitability. Value expansion is another key area as companies look to integrate the vertical ops and own the full stack rather than rely on ecosystem partners and enablers.

On the late stage side, PE and VC funding is expected to be flat or suffer slight decline, but a lot of this depends on the exit momentum. Clearer exit pathways for companies will result in late stage funding, as seen in 2024 with the likes of PhysicsWallah, OYO among others.

Investors May Get More Exit Opportunities 

After a dozen IPOs in 2024, investors expect another “year of IPOs” in 2025, leading to a surge in secondary rounds as companies look to restructure their cap tables.

“The legacy of Indian companies creating multi-decadal shareholder value is the best amongst all emerging markets globally, including China, and we hope that this new cohort of startups going public will continue this vital function for the economy,” said 3one4 Capital’s founding partner Pranav Pai.

As for exits outside of IPOs, these will be few and far between. The number of mergers and acquisitions slipped to their lowest point in a decade in 2024, after dipping consistently in the past two years.

Inc42 analysis projects that the ecosystem may see a 58% YoY increase in mergers and acquisitions as well as more than 25 startups to go public in 2025, offering a clear and lucrative exit path to the investors at all stages.

Sandeep Bhammer, founder and managing partner at Green Frontier Capital believes that M&A is a much larger possibility than IPOs, because a lot of companies are flush with cash and they’re not nimble enough to innovate fast enough, so they’re all looking for companies that can extend their own businesses in the shortest period of time.

Sectors such as climate tech and deeptech (electric vehicles, green hydrogen, native AI applications and infrastructure startups, robotics) as well as B2C segments in fintech, entertainment and consumer services all have high potential for startup acquisitions in 2025.

Listed companies looking to maximise profits want to increase vertical integration which makes acquisitions an attractive route for these capitalised companies.

Gemba Capital’s founding partner Adith Podhar believes that startup M&As will only pick up when there are enough large, profitable startups that have the resources to acquire smaller ones at attractive valuations. Many companies might also sell off verticals — Paytm Insider to Zomato, for instance — to boost the bottom line or make an acquisition push.

In contrast to Silicon Valley, Indian conglomerates and business houses have been very conservative in their M&A strategies. Over the next decade this is bound to change, Podhar added.

Pre-IPO Rounds To Become Highly Prominent

As Inc42 outlined in our look at the expectations from the IPO market in 2025, pre-IPO rounds have become commonplace in India.

“In addition to traditional crossover funds, lots of new pre-IPO funds have come up. We’ve seen family offices and HNIs being exceptionally active in this market. We expect this trend to continue,” Lightspeed India managing director Anuj Bhargava told Inc42 earlier, adding that the firm will certainly use pre-IPO rounds as an opportunity to exit some of its portfolio startups.

In 2025, marquee VC funds will eye hefty gains by offloading stakes in both pre-IPO rounds and during the listing. Even though some VCs and PEs might sell some stakes at a loss, it will be compensated by high returns from other portfolios, especially as several VC funds are nearing their expiry dates.

“Our focus is to continue to invest with a strong belief that we, in the venture capital industry, now have a very viable path to exit, not just a very strong IPO market about that, but also a strong pre-IPO market,” Bhargava added.

Domestic LPs See The Startup Light

India’s startup ecosystem is hitting its stride as domestic capital pools expand, creating exciting opportunities for startups and investors alike. Pension funds, insurance companies, family offices, and increasing retail equity participation are now fueling innovation and growth. With a stronger base of Indian investors, startups are finding new ways to tap into this local capital and build long-term value.

The country’s booming economy is a key driver here. Rising consumption and market expansion are creating the perfect environment for new businesses to thrive. Add to this, the government’s push for innovation through the Startup India initiative — via early-stage funding initiatives like the Startup India Seed Fund Scheme and support for IP-based companies — and the stage is set for startups to make their mark.

As Padmaja Ruparel, cofounder at Indian Angel Network pointed out, “Favorable policy changes like the removal of the Angel Tax, PLI/DLI incentives, and IP-focussed initiatives are making it easier for investors to back startups. With traditional asset classes offering diminishing returns, startup and angel investing have become more attractive, promising higher potential returns and helping high-net-worth individuals diversify their portfolios.”

Family offices are also stepping up in a big way. HNIs are now writing larger direct cheques — often in the range of $30 Mn–$40 Mn — and focussing on sectors where they have expertise.

Domestic investors have learned valuable lessons from the period of FOMO investing and the “spray-and-pray” approach of 2020 and 2021, and now, there’s a lot more focus on value than valuation. Instances of governance lapses at unicorns have also led to some fears about a startup bubble. But fund managers claim domestic family offices and limited partners are more diligent at times because of how well they know the market.

Alternate Debt Financing To Increase

Founders are increasingly turning to alternative financing options. Solutions such as cashflow-based funding (CBF), seller financing, lines of credit, and fixed-term facilities are redefining how startups fund their growth.

“Founders are now more aware of diverse growth capital options and are adopting non-dilutive methods to scale while preserving equity,” says Bhavik Vasa, founder of Getvantage which offers non-dilutive growth capital to startups.

According to him, CBF is expected to grow across all startup stages. Early-stage startups favor non-dilutive financing to scale without sacrificing equity. Growth-stage companies leverage marketing and inventory funding, while late-stage startups opt for short-tenure inventory financing and lines of credit for working capital. Tailored options like seller financing and fixed-term facilities are also gaining traction, making CBF a critical tool in navigating the current funding environment.

“This shift highlights a broader trend where startups prioritise scalable, efficient models and alternative debt financing to maintain control over their businesses,” Vasa added.

The Push For Profitability Will Continue

As we step into 2025, the Indian startup ecosystem finds itself at a critical juncture. Challenges such as reducing customer acquisition costs (CAC), identifying the right channels, and optimising marketing and tech spending are some of the biggest markers for entrepreneurs.

These issues continue to complicate the journey towards positive unit economics, even for scaled up companies. However, over the past two years, the changing tunes of VCs have more or less compelled companies to move in the direction of profitability after years of chasing growth.

In 2025, this transition is expected to continue as VCs seek returns and outcomes from their legacy bets. This does add some pressure on founders, but it also outlines exactly what startups need to chase.

[Edited by Nikhil Subramaniam]

The post Funding Boom In 2025? Indian Startup Funding Projected To Touch $15 Bn  appeared first on Inc42 Media.

The Indian startup ecosystem made a strong comeback in 2024 after weathering a harsh funding winter in the previous two years. The market is still in a rational mode. But investors, long been sitting on dry powder, finally loosened their purse strings and injected $11.75 Bn across 994 deals. This marks a 19.04% jump in total funding (between January and December 21) compared to $9.87 Bn raised from 908 deals in 2023.

Conversely, ticket sizes across key industries shrank considerably despite the renewed momentum. Excluding the mega-deals (valued at $100 Mn and above) in 10 key sectors, Inc42 assessed average ticket sizes and our findings indicated an interesting shift in sync with the global trends. As outlined in the table below, cleantech emerged as a standout performer, recording the highest YoY growth in average ticket size at 32.13%, rising from $8.4 Mn in 2023 to $11.05 Mn in 2024. Healthtech followed with a 28.03% increase, trailed by fintech (21.5%), deeptech (10.42%) and enterprisetech (7.2%).

Ashwin Raguraman, managing partner at Bharat Innovation Fund (BIF), an early-stage, deep tech-focussed venture capital firm, noted that deal value and volume would be poised for sustained growth in cleantech and deeptech. The reason? The number of funds investing there is steadily rising, given the global relevance of these sectors.

“Previously, only sector-focussed funds were active in deeptech and cleantech. But 2024 saw a surge in interest from generalist VCs who have completed their due diligence. So, we will come across more deals and higher ticket sizes in these sectors,” said Raguraman.

“The only catch here is the long gestation period. People may not have the appetite for such long cycles. Or they may choose to come in a little later, even if they are ready. That is the only reason, if any, why capital may not flow at the pace we would imagine.”

In stark contrast, logistics saw one of the worst slides in average ticket size. It plummeted by 62.32% YoY, from $11.9 Mn in 2023 to $4.5 Mn in 2024. Media and entertainment followed with a 39.5% drop, while agritech and ecommerce declined by 19.61% and 10.29%, respectively.

A close look at investor sentiment suggests certain sectors become less conducive to equity funding as respective ecosystems mature or VCs gain enough exposure to industries and their potential. This pushes investors to look for sectors and startups with clear paths to profitability, prompting others to explore alternative financing. In the ecommerce sector, for instance, many direct-to-consumer (D2C) startups now prefer revenue- or cash-flow-based loans or go for a debt-equity mix to raise working capital.

“Valuations in ecommerce and D2C are becoming more conservative, which has led to reduced funding per round as investors target realistic growth metrics,” said Sandiip Bhammer, founder and managing partner at Green Frontiers Capital, a US-headquartered and climate tech-focussed VC fund. “Alternative financing such as debt or [debt-equity-based] hybrid rounds help founders avoid stake dilution and focus on more disciplined, profitability-driven growth.”

Again, industry segments such as SaaS (and its many domains), supply chain management (logistics is a subsector within SCM), KYC mapping and big data are emerging as digitally scalable lean operations. Hence, they require smaller initial investments, positioning them as attractive opportunities. Therefore, capex-heavy sectors like edtech, ecommerce [inventory models], or certain fintech businesses are no longer funding priorities for investors with a focus on innovation and efficiency, explained Bhammer.

Is The Decline In Average Ticket Size A Major Concern?

Not quite. According to many investors with whom Inc42 spoke for a deep dive into the current funding landscape and 2025 projections, the situation is, by no means, as grim as it was in 2022 and 2023. Instead, it reflects a maturing ecosystem where startups are working on their progress towards growth milestones and investors are well past their extremes – from a funding downpour to a funding freeze.

As Pranav Pai, founding partner at the early stage VC firm 3one4 Capital, emphasises, the decline in average ticket size in 2024 indicates a market recalibration that started two years ago. It was a knee-jerk reaction after the frenzy of FOMO-driven funding at lofty valuations in 2021 when Indian startups raised $44 Bn across 1,584 deals. Most businesses failed to justify their valuations (and the kind of capital they raised), compounded by exit woes, which left over-optimistic investors in the lurch. Understandably, Covid-19 was a business dampener in many cases.

In the subsequent years, investor sentiment was further tempered by stock market volatility, a prolonged economic downturn and geopolitical conflicts like the Russia-Ukraine war and the Israel-Palestine crisis.

Pai’s observation aligns well with the emerging data trends shown below.

Amid these market corrections, investors became more selective, backing fewer startups and expecting strong governance and sustainable unit economics.

“Venture capital itself is a power-law game, which means a few investments in a portfolio tend to generate maximum returns. As a result, fewer companies win over time, while most fail,” said Bhammer. It also explains why VCs today are looking for a few ‘quality’ companies capable of providing astronomical returns but are wary of investing too much in startups which do not tick all boxes.

This pattern of writing big cheques for ‘quality’ companies alone while limiting the ticket size for others could be as disturbing as the previous trend of overfunding. Does it mean businesses raising mega-rounds at this point will be under tremendous pressure to deliver at the earliest by hitting profitability and enabling quick exits?

Some recent examples: Despite the collapse of edtech in India, Physicswallah (with a similar business model like the former decacorn BYJU’S and now facing similar operational challenges) bagged $210 Mn in September 2024 while Eruditus Executive Education raised $150 Mn a month later. Globally, Mistral, the Paris-based OpenAI challenger, raised a whopping €468 Mn equity round in June this year after raising €385 Mn in December 2023.

However, not too many industry insiders think large-scale but selective VC funding is chomping off the average ticket size of promising startups minus the ‘celebrity’ tag. After all, if the VCs have the dry powder to deploy, they are bound to chase a few opportunities more intently.

“In sectors with high mortality rates, mitigating risk is critical. This involves spreading smaller investments across a wider pool of startups and geographies, or structuring rounds into milestone-based tranches – practices that naturally result in reduced ticket sizes,” said Padmaja Ruparel, cofounder of Indian Angel Network (IAN).

Which Sectors Will See Bigger Ticket Sizes In 2025?

During an interaction with Inc42, BIF’s Raguraman talked about a critical metric which helps assess investor sentiment – the interplay between the deal volume in a specific sector and their average ticket size. These two components can be directly or inversely proportional depending on investor interest, and the analysis provides a lens to where investors’ focus will likely shift.

Let us look at the table below to understand the interplay and the emerging trends.

Key sectors likely to capture maximum investor interest: According to our analysis, investors will be most bullish about five sectors in 2025. These include cleantech, deeptech, enterprisetech, healthtech and fintech, as they have shown YoY growth in both deal volume and average ticket size in 2024, signalling strong investor confidence.

Among these sectors, investment in healthtech saw a major increase in 2024. If we do not consider the $216.2 Mn fundraising by PharmEasy (a down round where the e-pharmacy took a 90% valuation cut), the sector raised around $499.5 Mn across 77 deals. This marks more than a 100% rise from the total funding secured in 2023 – $248.74 Mn from 65 deals.

Namit Chugh, principal at the healthtech-focussed VC fund W Health Ventures, attributed this growth to targeted subdomains that have demonstrated scalable and successful business models. Among these are healthtech SaaS, AI-based tools and a host of startups providing domain-specific solutions for eye and dental care, IVF and maternity care, weight control, cosmetology, remote patient monitoring and more. Their viability as standalone businesses away from traditional hospitals will continue to attract investor interest. Notable examples include startups like Dozee, Qure.ai, Toothsi, Element5, Mylo, Elevate Now and Nivaan.

However, healthtech funding rounds have been relatively modest in the past five years, as the sector is growing at a calibrated valuation and ticket size. In 2024, Qure.ai raised $65 Mn, the largest healthtech round minus the mega-deals. In contrast, the fintech and D2C sectors saw much bigger rounds. For instance, alternative lending startup Finova Capital raised $135 Mn, while fine jewellery D2C brand BlueStone bagged $107 Mn.

Talking about these roller-coaster trends among the few bright spots, Chugh emphasised the importance of sector-specific dynamics in shaping funding patterns. “Customer acquisition costs are a major factor,” he said. “Financial services and D2C businesses often require higher investments due to elevated acquisition costs, resulting in larger deal sizes.”

Funding data between 2022 and 2024 solidify this point. Lending-focussed fintech startups raised $4.7 Bn during this period, accounting for 45.19% of the $10.4 Bn total funding secured by fintechs. Similarly, D2C startups netted $3.9 Bn, or 52.7% of the total ecommerce funding at $7.4 Bn. On the other hand, healthtech startups raised only $2.25 Bn during 2022-24, with fitness and wellness ($258 Mn across 47 deals), healthcare SaaS ($362.3 Mn from 47 deals) and telemedicine ($376 Mn across 45 deals) leading the charge.

“The sector is still maturing, but customer acquisition costs in healthtech are lower because healthcare spending is often a necessity, not discretionary, unlike consumer-facing sectors. Preventive healthcare further reduces the need for aggressive customer acquisition efforts. Hence, there is a high possibility that we may not see a flurry of mega-deals similar to fintech or consumer-focussed industries,” said Chugh.

However, a deep dive into unique areas will drive the growth trajectory of this sector. Healthtech startups in India primarily focus on digitalising data and processes, service aggregation, early detection of medical conditions and hardware development (read medical devices). But few are exploring transformative areas like ground-breaking R&D or AI-driven drug discovery although these have tremendous growth potential. Consider this. IIT-Bombay, Tata Memorial Centre and other research partners announced a homegrown gene therapy to fight cancer earlier this year. Ambitious startups may soon follow suit across domains to impact the investing landscape.

Key sectors which may attract selective investor interest: A look at other outcomes per our analytics chart reveals that investors may continue to explore opportunities in edtech, agritech, ecommerce and media & entertainment. For one, the average ticket size increased in edtech despite a dip in deal volume in 2024. The other three sectors witnessed a rise in deal volume, although the average ticket size shrank. However, logistics may face a decline in deal volume and size in 2025, given its overall decline in 2024.

Edtech funding, in particular, will remain shaky. Although Physicswallah and Eruditus bagged mega-deals, the sector could only manage $208 Mn across 27 deals if we leave those two out. The Indian edtech space, once lauded globally for its meteoric growth, is now struggling after industry giants like BYJU’S and Unacademy were knocked off their pedestals.

In spite of these headwinds, optimism persists. PhysicsWallah, preparing for a public listing in 2025, recently transitioned to a public company. Singapore-based Eruditus is also mulling reverse flipping, the option to shift the parent company back to India, as it looks to list on the BSE or the NSE. Will they bring the spotlight back on building a sustainable landscape in the post-BYJU’S era, signalling a continued belief in India’s edtech market?

Investors are also eyeing niche subsectors like edtech SaaS (raised $45.79 Mn from four deals) and skill development ($35.76 Mn secured across 11 deals). Together, they accounted for 55.55% of the total edtech deals in 2024 and 39.20% of the total funding of $208 M excluding mega deals. Among these were startups such as Kreedo, Beyond Odds, byteXL and more.

“Edtech has already absorbed substantial capital, but the returns have yet to materialise fully,” said an angel investor who did not want to be named. “Now, investors are shifting to startups offering strong product differentiation and a solid go-to-market (GTM) strategy.”

Will VCs Bounce Back In 2025 To Boost Indian Startups?

All said and done, the Indian startup ecosystem entered a new phase in 2024, marked by adaptability and business maturity, which paved the path for sustainable growth. Capital inflow into promising sectors, an uptick in IPOs and new fund launches are bound to drive robust recovery and forward momentum, boosting investors’ confidence. Founders and investors must shift gears to take on the challenges ahead. Meanwhile, Inc42 has zeroed in on four emerging trends of 2025.

Early stage funding will remain stable, but the approach will be more selective, with a clear shift towards quality over quantity. Investors will look for founders who can achieve product-market fit while running lean and efficient operations. In a maturing ecosystem, the focus will be on businesses that are innovative and operationally sound, capable of scaling while managing risks in an increasingly competitive market.

Growth and late stage deals may pick up momentum for companies that have weathered the recent market turbulence and come out stronger for scale and value addition. Late stage startups may see a significant funding boost when global investors regain confidence. Clear exits, a growing appetite for tech-driven startup narratives and investor trust in India’s maturing public market will intensify the growth drive.

A deep pool of domestic capital will create long-term value. Indian startups will see a significant surge in capital flow as homegrown limited partners (LPs), pension funds, insurance companies, family offices and retail equity investors step in to support the next wave of innovation. In fact, a fast-growing pool of local investors can create many opportunities for startups and the broader economy while reducing their reliance on foreign capital.

“This trend is supported by India’s rising economic stature, policy confidence and the ongoing shift of household assets from idle savings into more productive vehicles like mutual funds and equities. As a nation, we must nurture and grow the next generation of companies that will drive shareholder value, akin to the legacy of the best Indian corporations such as Infosys and HDFC, which have been doing it for the past three decades,” said Pai of 3one4 Capital.

Public markets will be ready to support startups’ innovation culture: Perhaps the most critical development will be the increasing number of startups going public. Entering the public markets will create new opportunities for innovation, investment and long-term cycles of value creation and economic growth. The next chapter for startup innovation is just beginning, and the outlook has never been more exciting.

[Edited by Sanghamitra Mandal]

The post VCs Cut Ticket Sizes Amid Uncertainty; Will 2025 Fare Better? appeared first on Inc42 Media.

The rise of direct-to-consumer (D2C) brands in India is one of the biggest retail revolutions outside Silicon Valley. The concept has been around for more than a decade now. However, these brands have gained significant traction since the outbreak of the pandemic, as they leverage targeted social media metrics, personalisation and digital-first strategies to build huge consumer followings. The rapid ascent of quick commerce has further accelerated D2C growth, enabling better discovery by a younger, trend-seeking audience and fast delivery for extreme convenience.

The sector’s prominence in recent years is underscored by IPOs, mega funding rounds (deal value of $100 Mn or more) and the emergence of unicorns (valuation of $1 Bn and above). For instance, pure-play D2C unicorn Mamaearth was listed on the mainboard BSE and NSE in 2023. Male grooming and lifestyle brand Menhood debuted on NSE Emerge in July 2024. And Brianbees Solutions (FirstCry) had a mainframe IPO worth INR 4K Cr+ in August this year. Jewellery brand BlueStone also filed its draft red herring prospectus (DRHP) for an INR 1K Cr initial public offering.

Between 2019 and 2024, the D2C ecosystem saw 16 mega deals. Among these were prominent players such as Lenskart (raised $1.15 Bn across five mega-rounds); FirstCry ($396 Mn from two mega-rounds); FreshToHome ($225 Mn via two mega deals); boAt ($100 Mn); Licious ($342 Mn from two mega-rounds); Furlenco ($140 Mn); MyGlamm ($150 Mn), Country Delight ($108 Mn) and latest BlueStone, which raised its first mega deal of $107 Mn in August this year.

Overall, the sector has thrived on the consumer front, with innovations across health, beauty and lifestyle brands grabbing market attention.

All these should have made the sector a darling of venture capitalists in the foreseeable future. But there is a sobering flip side.

VC funding in D2C startups has taken a significant hit in the past three years. It was not unusual during 2022-23, when the broader market experienced a harsh funding winter. However, there was a thaw in 2024, and many sectors rebounded, except for D2C.

According to Inc42 data, D2C brands raised approximately $595 Mn across 115 deals in 2024, a steep decline from $1.4 Bn from 134 deals in 2023. The average ticket size across stages also plunged by 66% (65.68%, to be precise) to $4.18 Mn this year from $12.2 Mn in the previous year.

More interestingly, the overall D2C funding plummeted by 57.5% between January 2019 and December 2024. It is the steepest decline for a six-year period despite the pandemic-driven FOMO and the subsequent funding boom right before the capital crunch.

Have Investors Lost Interest In D2C Brands?

Not quite, although the global sentiment indicates that VCs have put in money for nearly a decade when the D2C model was at the forefront of retail innovation. However, these startups are no longer very high on their priority list and many will think twice before funding pure-play D2C brands.

The reason: Their sales channels are practical table stakes for young consumer brands but may not be a sustainable business model. After all, deep-pocketed retail behemoths are already there with greater control over supply chains and typically enjoy brand loyalty that runs deep.

Additionally, thriving on niche products may not be possible in the long run, as homegrown and global conglomerates can quickly enter any subsector if it has growth potential. In fact, one brand can rarely rule the market unless it is a breakaway company in some ways or using irreplicable tech.

However, VCs deeply ingrained in the Indian D2C landscape feel more optimistic. No doubt, the funding numbers reflect a cautious approach. But the dip in deal value likely indicates a greater alignment with leaner business models.

“Think of it like this. Platforms [D2C websites and apps] and ecommerce marketplaces require heavy investments even before sales take off. But emerging D2C brands can scale faster at low cost and get more visibility through quick commerce entities. Hence, the smaller ticket size,” said Alok Mittal, angel investor and cofounder & executive chairman of Indifi Technologies, a debt financing company.

Again, investors could be recalibrating funding deals based on category potential. For example, packaged foods have yet to deliver breakout stars, while cosmetics have thrived (Mamaearth, MyGlamm, Wow Skin Science & more). Investments in fine jewellery slowed earlier. But it is now making a comeback, thanks to success stories like CaratLane (acquired by the Tata group-owned Titan) and BlueStone, observed Mittal.

Sandeep Murthy, managing partner at the VC fund Lightbox, thinks quite a few investors are grappling with the challenge of differentiation. Consider the beauty and personal care space, the fastest-growing D2C segment with a CAGR of 28%. Standing out in that segment among multiple brands is tough, prompting investors to pause and evaluate existing bets, he added.

“Investors will refine their focus and double down on proven winners. All that is part of the usual cycle, the usual sentiment,” said Mittal. Essentially, D2C brands will remain a promising investment in the long term despite a dip in funding.

VCs Find Seed Funding In D2C Lucrative; Growth & Late Stage Deals Are Down

Although some investors have stayed away from D2C brands and consumer product-based businesses, several VC firms, including DSG Venture Partners, Fireside Ventures, Inflection Point Ventures and Rainmatter Capital, among others, have actively invested in this space.

Inc42 data shows that seed stage D2C startups raised $121 Mn in 2024, up 147% from $49 Mn in the year-ago period. The deal volume also remained steady, with 60 deals in this period compared to 64 in 2023.

Ticket sizes at the seed stage also improved. As many as four startups – Foxtail ($14.4 Mn), Libas ($18 Mn), TechnoSport ($25 Mn) and Hocco ($12 Mn) – raised more than $10 Mn each. In contrast, the largest seed round in 2023 was a modest $4 Mn, raised by the fashion app Freakins.

The rising interest can be attributed to three major factors: Opportunities for early exits with high returns, low-risk investments and the ability to explore niche markets.

Growth stage D2C brands, on the other hand, saw a more cautious approach. They raised $152 Mn across 19 deals, and the biggest round amounted to $34 Mn bagged by Kushal’s, a fashion and silver jewellery brand. It was a significant drop compared to  2023 when growth stage D2C businesses raised $331 Mn across 29 deals. At the time, D2C sportswear brand Agilitas netted the biggest haul, around $52 Mn.

Late stage D2C brands fared even worse, raising $232.9 Mn across 10 deals in 2024, compared to $914 Mn raised across 10 deals in the year-ago period. BlueStone ($128 Mn), Country Delight ($51.8 Mn), Lenskart ($19 Mn), Curefoods ($25 Mn), Bombay Shaving Company ($3 Mn) and High Street Essentials ($6 Mn) were the top fundraisers in 2024.

The key issue with growth and late stage brands is that many have already raised too much too quickly but are delivering poor RoI. Among the 13 D2C startups which reported FY24 financials, nearly 50%, including BlueStone, boAt, Lenskart, Purplle, Ustraa and Wrogn, were in the red. Those claiming profitability included Zappfresh, CaratLane, iD Fresh Food, Mamaearth, Milk Mantra, Minimalist and Rare Rabbit.

According to Mittal, there is still a funding pipeline covering up to Series C, but future investments will primarily depend on the size of the VC fund. Smaller VCs managing funds worth $200 Mn or thereabouts may target startups with a valuation of $40 Mn or so. Larger VC firms handling more than $1-2 Bn corpus may focus on businesses nearing billion-dollar valuations.

“That said, there won’t be those mega deals where more than $100 Mn was pushed into ecommerce marketplaces in a single round. D2C funding is unlikely to see that. Founders will have to prove their mettle and become profitable. Huge funding to enable scaling up or support growth at all costs – trends we saw in the marketplace era – is no longer viable.”

Alternative Debt Financing: Will It Be A Game Changer For D2C Brands?

Although traditional investors have tightened their purse strings, it does not mean that a slow fade or a hard pass will hurt the D2C segment for good. Capital is still available to drive sustainable growth across stages but does not come as typical equity funding. In sync with the current landscape, revenue as well as cash-flow-based alternative debt financing platforms like Velocity, Indifi and GetVantage are redefining funding access with data-driven financing solutions. These platforms assess real-time sales data, GST returns, bank statements and digital transactions to provide non-dilutive working capital without collateral.

Revenue-based debt financing differs from the more popular venture debt model. Most venture debt funds require a company to provide warrants to the venture debt lender. This means shareholders will experience dilution with venture debt. Also, one must pay high interest rates, repay the money within a short tenure and return a fixed amount every month regardless of the cash flow. In contrast, repayments are flexible in revenue-based debt financing and calculated based on the revenue earned by the debtor in the preceding month.

“These [debt] financing platforms integrate with marketplaces like Shopify, Amazon and Flipkart to analyse online revenue streams,” explained Abhiroop Medhekar, cofounder and CEO of Velocity. “This allows brands to secure growth capital quickly, often with term sheets issued within 48 hours of data submission. It is an efficient way to meet requirements during peak sales cycles.”

He claims that the scalable financing model helps D2C brands navigate seasonal demands while maintaining growth momentum. Here is a case in point. The 2024 festive season saw more than 1 Lakh Cr in sales on ecommerce platforms, while Black Friday sales saw a 28% surge in D2C order volumes. Therefore, brands relied heavily on debt financing solutions To avoid supply chain bottlenecks and manage limited supplier credit.

The growing appeal of debt financing was evident in 2024. Unlike the previous year, when equity deals ruled the startup ecosystem, 2024 saw late stage D2C brands increasingly opt for alternative debt financing.

While this approach to financing is quite new, a quick look at the numbers will solidify the trend. In 2024, only six late stage D2C brands managed to raise funding, with most deals involving debt or a mix of debt and equity. Take Country Delight, for instance. It secured $28.3 Mn in two rounds – $20 Mn in equity from Temasek Holdings and Venturi Partners and $8.3 Mn in venture debt from Alteria Capital. BlueStone also raised $21 Mn in debt funding through two rounds – $9 Mn in venture debt from Trifecta Capital and $12 Mn in cash flow-based financing from Neo Asset Management.

According to Indifi founder-angel investor Alok Mittal, the lending platform collaborated with more than 400 D2C brands in 2024 for debt financing across various stages. “Many of these debt financing rounds go unreported, though. Nonetheless, we are seeing robust activity, as a growing number of D2C businesses are going for this kind of financing,” he said.

Challenges Galore: Does The D2C Ecosystem Face An Existential Threat?

Ask industry experts, and you will get a mixed response. Most investors think there is no shortage of opportunity, but brands need to address the core problems to thrive in the long run. And it all evolves around efficiency and cost-effectiveness.

For the majority of D2C businesses, distribution remains a crucial challenge even today. Most have adopted a 360-degree omnichannel strategy – a seamless mix of online and offline via their websites/apps, ecommerce marketplaces, quick commerce and collaboration with brick-and-mortar retail. They also expand their global footprints, requiring efficient operations and distribution, scalability and sustainable growth, and better unit economics.

The next hurdle is creating a ‘meaningful’ differentiation. As Ninad Karpe, founder and partner at 100X.VC, points out, the market is nearly saturated, and “more of the same” is not cutting it anymore. Investors are now looking for brands that stand out through true innovation, whether by offering unique products, adopting disruptive business models, or building a strong narrative.

Talking to Inc42, many VC players have stressed that to scale successfully and secure growth capital in 2025, Indian D2C brands must focus on profitability, operational excellence and customer retention. These evolving strategies will gradually build long-term resilience rather than short-term growth.

Others say engaging more with shoppers and being where they are will be critically important because that is how the buying happens. Targeted social media campaigns can be excellent at times for customer acquisition and retention. But one must be able to analyse what kind of traction drives sales. (Amazon versus Instagram will be an interesting case study here.)

Additionally, the rising costs of digital ads and the diminishing returns tend to drive customer acquisition costs (CAC), making this strategy increasingly unsustainable. The key to success lies in timely and strategic shifts from the classic D2C model.

Murthy of Lightbox thinks D2C brands must learn to walk and chew gum at the same time. Overall, a delicate balancing act is required to grow without sacrificing profitability. “The downturn forced companies to focus on profitability. The challenge now is accelerating growth while maintaining that focus,” he said.

“Striking that balance is critical for attracting growth capital. We are seeing that in our portfolio. Nua, a brand specialising in female hygiene products, became profitable in June this year and has continued to grow rapidly. This ability to achieve profitable growth has generated significant interest from investors.”

Through The VC Lens: Five D2C Trends In 2025 

The ecosystem will mature: The D2C landscape in 2025 is set to evolve due to dynamic consumer preferences and innovative approaches to scaling. The recent decline in deal value and volume may seem a matter of concern. But it actually reflects a maturing ecosystem rather than shrinking opportunities. This will lead D2C brands to innovate boldly, build deeper consumer connections and address gaps in profitability to harness growth.

New execution standards on the cards: As new-age consumers increasingly explore quality, affordability and convenience, brands will set up impeccable execution standards and adapt ahead of time. Quick commerce will continue to reshape retail, creating opportunities for D2C players in popular categories like beauty & personal care, electronics and household goods. Fast delivery will no longer be an added advantage but a must-have capability for instant gratification.

Marketplace integration will diminish: Established D2C brands may rely less on online marketplaces and sell directly through their websites and apps. This approach will give them greater control over their brands and supply chains, reduce marketplace commissions and fees and foster stronger customer relationships.

AI/GenAI will enhance D2C retail: Cutting-edge technologies, especially AI/GenAI, will take D2C retail to the next level. By leveraging these tech tools, brands can personalise offerings, automate workflows and enhance customer engagement. The growing adoption of digital platforms in Tier II and III cities will also open doors for further expansion.

Rural markets will drive growth: Brands that meet the unique requirements of rural consumers, create affordable yet aspirational products, or focus on niche markets will stand out from the rest. Rising incomes and growing interest in personalised and premium experiences will make this an exciting time for the D2C sector.

Is the D2C ecosystem all set to cope with the changes ahead? Many VCs and angel investors think so and pin their hopes on D2C 2.0. If D2C founders make informed decisions aligned with the evolving market, the sector will thrive again.

Edited by Sanghamitra Mandal

The post Are Indian VCs Still Bullish On D2C Startups? appeared first on Inc42 Media.

TVS Capital Funds (TCF), set up in 2007 by Gopal Srinivasan, has carried forward the entrepreneurial legacy of the iconic TVS Group for nearly two decades. A third-generation entrepreneur from that prominent business family and chairman of TVS Electronics, Gopal, too, had a unique but clear vision when he explored the PE space. Backed by TVS and Shriram Groups, he went on to launch India’s largest rupee-only capital fund to “empower next-generation entrepreneurs building multi-decadal businesses”.

As Gopal mentioned in an earlier interview with Inc42, one found little regulatory control when TCF entered private investments. But despite the risks of turmoil in an under-regulated market at the time, institutional and individual investors had a strong interest in funding innovative, forward-thinking businesses.

Banking on this enthusiasm, the PE firm launched TSGF (TVS Shriram Growth Fund) 1A in 2008 with backing from several institutions and large family offices. With a corpus of INR 585 Cr, the first fund invested in as many as 13 companies across sectors, including DCB and RBL Banks, 9.9 Media, Papa Johns, Dusters, MaxiVision Super Speciality Eye Hospitals, MedPlus, TVS Supply Chain Solutions and others. The team worked relentlessly, but it barely managed to return the original capital to limited partners (LPs) after five years, effectively costing investors five years of potential interest.

The regulatory landscape changed in 2012 when the Securities and Exchange Board of India (SEBI) paved the path for registering and managing alternative investment funds (AIFs) with a structured mechanism and greater transparency. TCF did not squander the opportunity and formally registered as an AIF CAT II PE fund with SEBI.

The team wanted to raise a second fund but was reluctant to ask LPs for more money, given the lacklustre performance of its maiden fund. However, as Gopal said, the response from the stakeholders was overwhelmingly positive. Everyone encouraged the team to continue and reassured that they were on the right path.

Launched in 2012, TSGF 1B (Fund II) had a corpus of INR 600 Cr, was primarily sector-agnostic like its predecessor but narrowed in on a few emerging sectors such as financial services, banking, agriculture, direct-to-consumer (D2C) brands and real estate. The fund made ten new investments in Nykaa, RBL, IEX, NSE, Suryoday Small Finance Bank, City Union Bank, Prabhat, Wonder La, Karur Vyasa Bank and Texmex Cuisine.

As Gopal mentioned earlier, the partially selective investment strategy paid off. The second fund delivered a gross IRR of 27.4% and a net IRR between 15.6% and 17.6%, helping it emerge as one of the top-performing funds in the Indian market.

TCF has raised more than INR 3,000 Cr across its three funds and fully exited the first two. TSGF 3 (Fund III), with a corpus of INR 1,918 Cr, was launched in 2018 and deployed 96% of its capital in 13 companies. Among these are Digit (partially exited), InsuranceDekho, Yubi, Vivriti Capital, PhonePe, SarvaGram, Increff, Finnable, Five Star Finance (exited) and Leap (exited).

In January 2024, TCF got SEBI approval for its fourth and largest fund (so far), targeting INR 3,000 Cr. With INR 2,500 Cr already raised, the latest fund will focus on financial services and technology as broader themes and may explore ‘zero-stage’ companies founded by seasoned CXOs and successful entrepreneurs.

Here is an overview of the TCF funds launched so far.

How The Investment Thesis Has Evolved At TVS Capital Funds

Between 2007 and 2024, TCF launched four funds, each reflecting an evolving investment thesis. The first fund was sector-agnostic, casting a wide net, but the second narrowed its focus, targeting a number of sectors which were well understood. When Fund III was rolled out, TCF had already zeroed in on financial services and tech-for-finance startups, those offering tech products and/or services for financial services companies.

“From Fund II, we invested in select sectors we understood well. By Fund III, we had deepened our selective approach with a sharper focus on financial services where we had strong expertise, robust research capabilities and extensive networks,” said Krishna Ramachandran, who came on board as TCF’s managing partner, chief operating officer and chief finance officer in 2023.

Introducing a multi-stage investment model at this point helped gain further leverage from the sector shift. The first two funds focussed mainly on growth stage investments, but Fund III backed early and late stage startups. “This strategy allows us to exit early with high returns within the fund’s lifecycle, reinvest the money and make the capital work harder,” said Krishna. “By the time Fund III was almost fully deployed, we achieved an investment efficiency ratio of 98% [it indicates how well a PE firm can invest its capital to generate returns] – arguably the highest in the industry.”

The strategic pivot had a clear goal: Deliver optimal returns and manage risks efficiently. In Fund II, around 75% of the capital was allocated to financial services and B2B, but it grew to 100% in Fund III.

With Fund IV, TCF is expanding its horizon and embracing two core themes – financial services and technology. The fund will focus on sub-segments such as lending, distribution, wealth, insurance and fintech within financial services. Within technology, key focus areas will be tech for finance, IT services and tech for business.

“We are diving deeper into financial services and also exploring technology, which is a new focus area for us,” said Krishna. “About 40% of GDP is driven by financial services and technology. The growth potential in sectors like lending and insurance is significant, with insurance expected to grow 5.6x over the next decade and lending expected to grow by over 4x.”

As these sectors become increasingly intertwined and shape the future of business, TCF’s evolving investment focus aims to tap into high-growth opportunities based on its industry expertise.

How The Genesis Of TCF 2.0 Has Started With A ‘Neo’ Team Of Experts  

Despite its notable achievements, TCF is not resting on its laurels. The investment firm has embarked on a transformation journey to emerge as a ‘Neo TCF’ and reach the next level.

To begin with, the PE firm is building a robust, process-driven organisation instead of depending on its people alone. “It is about creating a system where talent, processes and tech tools will work seamlessly, but the organisation will not rely on any single individual,” said Krishna.

Known as the investment firm’s conscience-keeper (and often as the face of the neo team), Krishna wears many hats as a chartered accountant, management accountant and company secretary. His career spanned stints at Royal Philips, Allianz, KPMG and Vodafone, and he had previously served as the managing director for Chennai operations at Accenture.

Right now, he is part of TCF’s platform team, overseeing operations, client requirements, risk management, hiring and talent development. Overall, Krishna balances backend processes with client-facing tasks, ensuring seamless functionality. In fact, his diverse background across industries like insurance, advisory and telecom has proven invaluable for refining processes, reviewing portfolios and ensuring operational efficiency.

Asked if he missed his big MNC days, Krishna came up with a firm ‘no’. “It is never boring here. Something is always happening, whether investing, exiting, or evaluating opportunities. Moreover, I work closely with the CFOs of our portfolio companies, focussing on audits, risks and governance. It adds to the fast-paced, exciting vibe of the organisation.”

Additionally, TVS Capital Funds continues to bolster its leadership team to promote excellence and usher in new perspectives. This practice is in sync with Gopal’s vision, as the founder built a sound board of directors, besides advisory, investment and platform teams for long-term strategic direction and timely innovation.

For instance, apart from Gopal, TCF’s investment committee includes industry veterans such as D. Sundaram, former vice-chairman and CFO of HUL, and R. Dinesh, executive chairman of TVS Supply Chain Solutions, who are further strengthening the investment business.

But when the PE player pivoted to multi-stage investments and backed more startups, bringing in new people to sustain its mission of supporting new-age entrepreneurs became essential.

Accordingly, TCF expanded its leadership team between 2022 and 2024 and made several high-profile appointments. In 2022, Anuradha Ramachandran joined the investment team as a managing partner, bringing nearly two decades of experience in strategy, investing and portfolio management across sectors like fintech, technology and life sciences. She now leads investments and portfolio management in the financial services vertical.

The following year, the firm onboarded Naveen Unni as a managing partner alongside Krishna. Unni, a McKinsey veteran of 20 years, has expertise in manufacturing, mining, oil & gas, infrastructure and utilities across India, Southeast Asia and Australia. At TCF, he drives investments and manages portfolios in the technology sector.

In the same period, TCF strengthened its ranks by adding Ravi Krishnan as VP of finance and former McKinsey executive Chandrasekar V as partner in research. Long-time team members Rajalakshmi Vaiyanathan and Suraj Majee were promoted to principal and VP, respectively.

Setting The Gold Standard In Due Diligence

As Krishna emphasises, TCF has followed a comprehensive, feedback-driven assessment framework before funding any company. This proprietary system, known as the ‘1080’ process, ensures rigorous evaluation of potential investments by engaging extensively with the company, its leadership team, current and past employees and its overall ecosystem.

Although the fund house does not typically invest in seed stage companies, it often engages with promising ventures for extended periods to track their future growth potential. By the time an investment decision is made, TCF will typically know the founding team for at least a year. This ongoing engagement helps it understand founders’ evolution and the organisation’s progress.

During due diligence, it also conducts more than 80 interviews, often involving 20+ key stakeholders of the company. These people include not only senior management and board members but also customers, suppliers, former employees and distribution partners. Additionally, it enlists independent HR experts who can further verify findings through detailed interactions with founders and their teams.

As managing partner Anuradha Ramachandran describes it, the ‘360° times over’ approach helps gather insights from diverse sources to understand the target company and its promoters comprehensively. Next, senior leaders, including Gopal and other experts, review and analyse the findings to identify key trends and validate possible outcomes, ensuring a thorough understanding of the company and its leadership.

“The extensive nature of the 1080 process is proprietary to TCF, reflecting the significant time and effort invested in the details. Insights from these assessments are discussed during investment committee meetings, ensuring that decisions are backed by rigorous analysis and validation,” added Krishna.

A Tech Makeover For Efficient, Process-Driven Operations

As a 17-year-old legacy PE firm, TCF faces critical challenges in its growth journey. To enhance financial efficiency, it must reduce idle cash, recycle capital effectively and deliver the best possible returns to clients. But achieving these goals requires moving away from ad-hoc practices and building robust, process-driven systems to ensure efficiency and consistency across operations.

Much of TCF’s journey involves streamlining opportunity identification, investment management and good governance for portfolio reviews. It will also enhance engagement with portfolio companies to ensure regular and meaningful interactions. Additionally, it focusses on establishing systematic approaches for seamless fundraising, effective client engagement, efficient handling of investor queries and robust succession planning for long-term continuity.

Understandably, technology is at the core of this transformation. TCF is integrating new-age digital solutions and tools to reduce manual dependencies and minimise the risk of process failures, thus building a more resilient and scalable foundation for the future.

For instance, it has implemented Salesforce solutions across all investor and client interactions. These include onboarding all Fund IV clients digitally and automating KYC processes. It has also integrated Microsoft tools for better team collaboration.

TCF incorporates artificial intelligence selectively to enhance research and investment processes. Although most of its internal tools currently operate without AI, the firm uses AI-driven solutions like CoPilot and ChatGPT for extensive data mining and analysis across internal and external databases. For example, CoPilot facilitates internal searches within TCF’s systems, while ChatGPT supports external data exploration.

An intranet and knowledge management portal will go live soon, followed by a comprehensive HRMS by the end of 2024. These initiatives will help transform the fund house into a fully digital, agile, scalable organisation.

“It is unique for a [legacy] fund of our size to have fully digital processes for investment management, fund accounting, HR and client engagement,” said Krishna.

A Disciplined Approach Is Key To Success

The Indian startup ecosystem has been on a roller coaster ride in the past few years. After the FOMO-driven funding surge of 2021, the sector was hit by a harsh funding winter throughout 2022 and 2023. Investment activity has resumed in 2024, but it has yet to peak. Nevertheless, TCF has distinguished itself with a methodical and disciplined approach amid this turbulence.

The reason?

The firm prioritises rigorous evaluation, relationship building and in-depth assessments via its proprietary 1080 process before investing.

“We have always been cautious and prudent,” said managing partner Naveen Unni. “While asset availability at the right price has been challenging, we have not succumbed to the frenzy of overvaluation during the boom nor faced difficulties in finding quality opportunities. Added to this is the capability capital we provide to investee companies, which sets us apart.”

Going forward, TCF will continue to invest in category leaders and businesses with enduring growth potential. Its portfolio features trailblazers in sectors like rural co-lending platforms and MSME lending, led by visionary founders. This disciplined strategy ensures that the PE player can always spot attractive opportunities, even during turmoils.

“Our philosophy is to build multi-decade businesses,” said Krishna. “We aim to invest in companies that not only thrive during our holding period [five to eight years] but also continue to create value for decades.”

As TCF prepares to deploy its fourth fund, its meticulous, process-driven and long-term approach will continue to shape its investment strategy, setting it apart in the fast-evolving startup landscape.

[Edited by Sanghamitra Mandal]

The post How TVS Capital Funds Is Reinventing Its Investment Playbook After Two Decades appeared first on Inc42 Media.

Impact investment, funding ventures which deliver positive social outcomes alongside strong financial returns, is steadily gaining momentum in India, with climate tech emerging as a key theme. Between 2021 and 2024, more than 15 funds have been launched by venture capitalists, with many prioritising climate technology, according to Inc42 data. Leading the charge are VC firms like Unitus Ventures, Capria Ventures, Asha Ventures, Omnivore and Transition VC, among others.

Among the early adopters is Green Frontier Capital, a US-based climate tech VC fund led by Wall Street veteran Sandiip Bhammer. The fund applied for an AIF (alternative investment fund) licence in India in 2020. Then Covid-19 hit the world, and launching an AIF was not possible. Bhammer, the founder and managing partner, was not daunted and decided to take the FDI route. Green Frontier entered the Indian market in 2020 through foreign direct investment (FDI) and has deployed $30 Mn across 10+ companies in four years, with an average ticket size of $2.4-2.5 Mn.

Its portfolio spans transformative startups, including BluSmart Mobility, Chupps, ElectricPe, Euler Motors, KisanKonnect, Nutrifresh, EMotorad, RAS Luxury Oils, Revfin Services, Zero Cow Factory, Project Clean Food and Project Clean Ocean. The fund exited BatterySmart with 18x returns within three years. It is now eyeing another significant exit.

In November 2024, Green Frontier Capital reached another milestone and launched its first India-based CAT II AIF under the Securities and Exchange Board of India (SEBI). The Green Frontier Capital India Climate Opportunities Fund, India’s pioneering climate tech VC fund, comes with a target corpus of INR 1,500 Cr, has secured an anchor investor and aims for a first close of $50–60 Mn by Q1 (January-March) 2025.

An alumnus of Boston College, Cornell and Stanford, Sandiip Bhammer has been on Wall Street since 1994 and headed investments across CLSA, HSBC, Citigroup and many US-based hedge funds. He also helped mobilise more than $50 Bn of capital in India before 2000.

After spending years as an investor in public and private markets, he shifted gears in 2020, embracing academia at the University of Massachusetts, Amherst. Bhammer taught equity investing, focussing on ESG (Environmental, social and governance) and mentored Indian startups.

“Climate investing was gaining momentum in the US, but no one was betting on it in India. That presented a huge opportunity. We entered the Indian market early, leveraging our U.S. networks and based on our earlier success. Without that groundwork, we would not have a sound track record. Thanks to that, we are now considered India’s pre-eminent climate investors,” said Bhammer.

As part of Inc42’s ongoing Moneyball series, Bhammer had an exclusive interaction, delving deep into the fund’s investment strategy, the competitive advantage the new fund offers to its portfolio companies compared to traditional VC funds, the climate tech opportunity in India, funding trends in 2025 and more. Here are the edited excerpts.

Inc42: Tell us about the investment thesis of Green Frontier Capital.

Sandiip Bhammer: We are raising an INR 1,500 Cr ($177 Mn) fund and plan to make 15 investments, averaging $10 Mn per company. The fund will invest in pre-seed to Series A rounds, but we will provide follow-on funding for portfolio companies as they grow beyond Series A. Investment sizes will vary depending on the stage. It could be $500K for pre-seed, $1 Mn for the seed round, $1.5 Mn for pre-Series A and $2-3 Mn for Series A.

Our investment thesis revolves around ‘three Ds’ – digitisation, disruption and decarbonisation. Digital technologies are the cornerstone of our strategy as digital-first businesses often require less capital upfront and can be scaled rapidly. The second D, or disruption, refers to businesses challenging existing technologies [and incumbents] in terms of cost and effectiveness. Many of these startups are working on replacing fossil fuel applications. Finally, the businesses we invest in must have a measurable impact on decarbonisation.

We received SEBI approval as Category II AIF nearly three years after applying. This will allow our Indian investors to leverage our experience, track record and the robust pipeline of opportunities we have built in India.

Inc42: Why do you think it is an ideal time to invest in climate tech?

Sandiip Bhammer: As early movers in the climate tech space, we have become a go-to source for validation among startups. When generalist VCs flooded this sector a few years ago, we took a step back to avoid overpaying in an overheated market. With many of those investors shifting their attention to the newfound GenAI boom, climate tech companies are returning to us. This renewed focus has strengthened the pipeline for our AIF and gained support from the US-based limited partners. Meanwhile, our team in India remains a vital asset, positioning us well for the journey ahead.

Inc42: What about India’s climate tech ecosystem? How do you see it evolve?

Sandiip Bhammer: As the world’s fastest-growing economy, India stands at a critical juncture in the climate narrative. Given its rapid economic expansion, there will be a significant rise in its greenhouse gas emissions. While China and the US remain the largest emitters today, India is on track to witness the fastest growth in emissions, although it will not surpass them in total global emissions. As the fastest-growing economy in the world, India’s emissions will rise alongside its economy. Currently a $4 Tn economy, India is projected to reach $16 Tn in the next 25 years, growing four times over.

Also, most climate tech innovations are happening across the Global North. But India runs on jugaad – quick and affordable solutions for diverse use cases instead of original, groundbreaking inventions. It partially stems from cultural resistance to failure, which is not well-accepted in India. Unlike in the US, where failure is seen as part of the innovation process that encourages disruptions, a founder who fails in India finds it difficult to raise funding.

Inc42: What unique opportunities do you see in India, given your experience as a cross-border climate tech VC?

Sandiip Bhammer: As a climate tech investor operating in the US and India, we have the advantage of looking at opportunities from two geographies, which gives us a broader perspective. The US plays a crucial role in capital mobilisation and shapes much of the global climate narrative. Without a U.S. presence, Indian VCs might struggle to tap into the capital available there for global climate investments. That’s why establishing a strong network in both countries is essential.

At Green Frontier Capital, we prioritised building our U.S. network before expanding to India. Also, our board includes globally recognised experts such as Soumitra Datta, dean of Oxford’s Said Business School; Hessa Bint Sultan Al-Jaber, Qatar’s former minister of information and communication technology; Nishith Desai, founder of the global law firm Nishith Desai Associates; and Roy Salamé, former managing director and head of the Global Investment Opportunities (GIO) Group at J.P. Morgan Private Bank. These distinguished advisors closely work with us and our portfolio companies, providing invaluable insights and support.

Again, partnering with a climate-focussed VC is key for companies seeking validation for their sustainable approach. Generalist VCs often lack the technical expertise to guide startups effectively in this space. A case in point is RAS Luxury Oils, an Indian beauty brand committed to eco-friendly solutions. It came to us for product and process validation, and our endorsement opened the door for other climate investors. Our expertise and stamp of credibility firmly position our portfolio companies in the market.

Inc42: What are your focus areas within the broader climate space? What kind of businesses are you exploring?

Sandiip Bhammer: I won’t discuss specific startups we are targeting, as that is part of our competitive edge, and I don’t want to disclose it. However, I can give you an overview of our existing investments and future focus.

In the past, we invested heavily in electric mobility across the spectrum, including battery swapping, charging infrastructure, battery chemistry, EV ride-hailing and manufacturing for two-wheelers and three-wheelers. The EV ecosystem is so vast that it can warrant a dedicated fund to explore all its subsectors. Besides mobility, we invested in food tech, agritech and consumer lifestyle innovations.

In the future, we want to focus on renewable energy, especially rooftop solar. We are also looking at plastic circularity, having identified a promising company developing an eco-friendly alternative to single-use plastic. Additionally, we are evaluating investments in waste-to-energy technologies and battery recycling, both critical for a sustainable future.

Inc42: What about due diligence when you evaluate startups and their projections?

Sandiip Bhammer: At the stage we invest in startups, fully validating projections is nearly impossible since many of these markets are emerging for the first time. Consider our investment in BatterySmart. The battery-swapping model was not initially proven, but it surpassed expectations.

Our due diligence is more about spending time with the founder/s,  understanding their commitment and assessing their willingness to work hard and make sacrifices. It is also about evaluating what they aim to disrupt and the scale of that disruption.

We typically invest in businesses that disrupt fossil fuel technologies in terms of pricing and performance. In climate tech, price reduction alone isn’t enough; the product has to match or preferably exceed the performance of existing options, particularly in a market like India, where adoption hinges on value. To ensure this alignment, we rely on people with deep expertise who can thoroughly assess these companies and confirm their dedication to climate goals.

Inc42: What key metrics do you focus on to assess a startup’s performance after investing in it?

Sandiip Bhammer: We closely monitor the outcomes reported by our portfolio companies to measure their climate impact. You will find their reported impact if you visit our website and explore any company we have invested in. Take BluSmart, for example, a zero-emission ride-hailing service. It has reported preventing more than 58,267 tonnes of carbon dioxide generation, equivalent to the annual absorption capacity of 2.2 Mn+ fully grown trees.

We review these metrics monthly, and no other VC in India’s climate tech space offers this level of transparency. This data is not for our limited partners alone. These insights are publicly available on our website. When there are significant changes in these metrics, whether positive or negative, we engage with the company to understand what has triggered the change. If the impact has declined, we explore potential issues and work collaboratively to address those.

As climate tech investors, we are not just vocal about creating impact; we rigorously measure it and hold our portfolio companies accountable. Any noticeable fluctuation in impact metrics triggers a deep conversation to ensure we stay aligned with our environmental goals.

Inc42: So, when does revenue kick in as a performance metric?

Sandiip Bhammer: Revenue is undoubtedly a critical metric. But if we only look at financial metrics like revenue, EBITDA or profitability, we may miss the bigger picture. In the startup ecosystem, [positive] EBITDA and net profit typically don’t materialise until the venture scales significantly, which often takes five to seven years.

By that time, startups begin to generate higher revenues while keeping expenses, especially fixed costs, under control. When fixed costs remain stable and revenue growth accelerates, EBITDA and net profits will start improving.

While we monitor revenues closely, our portfolio companies are often growing from a very low base. Hence, their revenue growth may appear exceptionally strong, reflecting the steep trajectories of early stage growth.

Inc42: What’s the limited partners’ take on this approach?

Sandiip Bhammer: There is growing excitement among investors. People are more interested than ever to invest in areas that not only offer financial returns but also allow them to feel that they are making a positive impact on the planet. For many LPs, making a profit while protecting the environment has become just as important, if not more, than simply generating profits.

Inc42: Where do VCs in India fall short?

Sandiip Bhammer: Many of them come from the software background or management consulting or startups. But they often lack experience in public markets and managing exits. The success parameter in venture capital is distribution of paid-in capital, or DPI, which reflects the cash-on-cash returns from exits. Unfortunately, most VCs in India have not demonstrated a strong record of meaningful exits.

We have positioned ourselves differently by generating sound exits for our investors. The exit from BatterySmart is one such example. It delivered an 18x exit multiple in three years, de-risking our investors’ capital and allowing us to give them early returns. The outcome gave them the confidence to make bigger bets on extraordinary companies.

Inc42: What is your key learning as a climate tech VC operating in India?

Sandiip Bhammer: Quite a few nuggets, I would say. A critical lesson is understanding India’s unique approach when it comes to fundamental, high-risk innovation. This country thrives on price-led and use case-driven solutions. Essentially, it tries to gain market share based on the price advantage and tweaks and scales existing products or technologies to solve problems.

I think the fundamental breakthroughs in climate technology are more likely to come from the Global North. In contrast, India’s strength lies in tailoring these advancements to its needs and scaling them efficiently. Basically, India is a ‘scale’ market and the focus here is adapting and applying proven innovations rather than developing them from scratch.

Now, let’s look at emissions. Around 45-50% of emissions in India stem from transportation, food production and consumption, and waste management. These areas are our primary focus, and within them, we see immense potential in sectors like EVs and their ecosystems, food and agritech, plastic circularity and sustainable waste management. Scalability in these areas will heavily depend on technology, with disruption and digitisation serving as two critical pillars of our investment strategy. No serious investor in India’s climate space can disregard these pillars.

The government, too, is pushing this transition so that India emerges as the largest and fastest-growing green economy. Both central and state governments foster this vision and provide a robust policy framework to support climate investments.

What matters most at this point is India’s vast potential to grow as a green economy. Take EVs, for instance. Despite strong unit economics and product-market fit, less than 3% of vehicles on the road, particularly two-wheelers and three-wheelers, have been converted to EVs. This indicates a massive growth opportunity.

Inc42: What will be the funding trends in climate tech as we move into 2025?

Sandiip Bhammer: Well, the startup ecosystem is getting back on its feet after two years of funding constraints. This pause happened because many technologies took a long time to show returns, and it frustrated investors. In India, these challenges are compounded as implementing Central policies across states faces roadblocks due to different priorities [political or otherwise]. But a greater alignment between the states and the central leadership now ensures smoother execution, signalling a positive shift.

Globally, thighs are also looking up. Now that the uncertainties over the U.S. Presidential polls are over, we may see lower interest rates, potentially boosting investments in long-term assets like venture capital. Besides, businesses prioritising climate protection are gaining momentum as people realise the urgency to combat the climate crisis.

However, we must do something quickly. Without decisive action, we risk losing some of the most beloved destinations. Iconic places like the Maldives, the Seychelles and many other low-lying countries will cease to exist in the next 30 years if we don’t immediately address global warming and rising sea levels. And we are already VERY late.

Funding climate initiatives is a step in the right direction. Climate-focussed funds serve as strategic filters, channelling capital towards the most promising technologies that deliver maximum impact within the shortest timeframe.

Inc42: What is your advice for Indian startups specialising in climate tech?

Sandiip Bhammer: Follow your passion and don’t be afraid to fail. Focus on India and the global South, where you will find the biggest growth opportunities. As these regions are among the largest emitters of greenhouse gases, there’s always a chance to make a real impact. Finally, don’t forget to use technology to your advantage to scale your business as fast as possible.

Edited by Sanghamitra Mandal

The post Decoding Green Frontier Capital’s INR 1,500 Cr Bet on India’s Climate Tech appeared first on Inc42 Media.

Impact investments or funding for positive social impact, along with strong financial returns, may not be a new concept for Indian investors. However, the dynamic model only gained traction in the past decade. Earlier, the landscape was dominated by not-for-profit organisations. But by 2010-2011, investors realised that creating a lasting impact required a more sustainable structure, something akin to the venture capital model. That shift in perception boosted domestic funds like Capital 4 Development (C4D) Partners, which has been making waves since 2017.

C4D’s journey began in 2013, when it was known as ICCO Investments, a subsidiary of the Dutch NGO ICCO Cooperation. Backed by the Dutch Ministry of Foreign Affairs, it started with a $20 Mn fund and focussed on small and medium enterprises (SMEs) across Latin America, Africa and Asia. By 2016, it had invested $15 Mn in more than 30 companies but ran into a host of challenges like regulations, limited partners’ lack of enthusiasm for evergreen funds and the need for stronger management ownership.

The team spun out in 2017, rebranded as C4D Partners and hit the ground running. By 2018, it closed the $30 Mn C4D Asia Fund, while ICCO Cooperation was later acquired by Cordaid Investment Management.

Today, C4D Partners stands out as an early stage impact investor with a private equity mindset. Unlike the shotgun approach of investing in dozens of companies, it carefully picks 15-20 businesses which can become profitable within 18-20 months.

C4D prefers businesses that grow steadily, around 40-50% annually, without relying on aggressive sales tactics. It also uses stress-test models to ensure portfolio companies can weather harsh conditions and remain cash flow-positive.

“We don’t need 100x growth,” said founder and CEO Arvind Agarwal. “What matters is manageable, sustainable growth and profitability within a year or two.”

C4D Partners has zeroed in on agriculture, waste management, the circular economy, climate action, skilling, education and rural-focussed businesses as its primary focus areas. Financial inclusion is another critical area, although it steers clear of microfinance, a sector that has already matured.

The fund house does not invest in EV-as-a-service models (think of delivery startups using electric two-wheelers) or any industry on its ESG-negative list. In essence, it maintains a well-chalked-out and disciplined investment strategy that reflects its mission-driven but clear-eyed approach to emerging opportunities.

As part of our ongoing Moneyball series, Inc42 had an exclusive conversation with Agarwal, who discussed the evolution of impact investing in India, C4D’s investment thesis and where the industry is headed. Here are the edited excerpts.

Inc42: How has been your India journey in the past six years?

Arvind Agarwal: In the six years of India operations, C4D has invested in 13 companies and has a portfolio mortality rate of less than 20% [compared to 60-70% often seen across VC funds]. We have made six exits – three full and three partial – and returned 50% of the LP capital.

Our first fund was launched in 2017 and the second, the C4D Bharat Shubharambh Fund, came in May 2024, with a target of INR 375-550 Cr. We target to achieve its first close by 2025.

C4D’s notable exits include Ananya Finance for Inclusive Growth, Freyr Energy, Ecotasar Silk and Alpine Coffee. We have also invested in well-known startups such as Mirakle Couriers, Saahas Zero Waste and LabourNet.

We have a clear focus on sustainable growth and meaningful exits. We have also proved that impact investing can deliver solid financial returns and real societal changes. It is not about chasing the unicorns. It is about building businesses that solve real problems, and that’s where we shine.

Inc42: Did your investment thesis change between the two funds?

Arvind Agarwal: The core investment thesis has not changed. The first fund was Asia-specific and we invested in India, Indonesia, Nepal, Cambodia and the Philippines. It was a hybrid fund offering debt and equity funding. We did equity in India and debt or mezzanine investments in Southeast Asia.

Based on our experience with the first fund, we soon realised that managing a multi-country fund with mixed instruments was challenging, especially when we want to set ambitious targets for returns. So, the second fund entirely focusses on India but sticks to the same strategy as the first fund.

Inc42: C4D focusses heavily on women-led and women-owned enterprises. What is the rationale behind this approach?

Arvind Agarwal: Diversity was at the core of our strategy when we started with ICCO. As we raised our first fund, a limited partner only investing in women-owned businesses suggested that a percentage of our AUM should go to such companies to align our mission with real-world impact. We agreed, set a target to put in at least 30% of our AUM and linked it to our carried interest [a share of the GP profits]. If we exceed 30%, we gain additional carry, but falling short of the goal means losing carry, with a floor and ceiling of 15-25%.

In our first fund, 42% of the total AUM was invested in women-led enterprises; in India, it reached 58%. It was a stark contrast compared to the global VC industry with its single-digit allocation to similar companies. So, our strategy is all about setting higher benchmarks and creating meaningful change.

For us, gender lens investing [GLI] goes much beyond representation. Our proprietary toolkit helps us identify exploitative practices in sectors where women dominate supply chains. Take waste management, for instance. Most women working as waste segregators are poorly paid and face hazardous working conditions. When we invested in a waste management company, we assessed its ability to change these practices. We didn’t look at the average salary but ensured that the minimum wage paid to employees would exceed the minimum living salary of INR 16K. In this case, the company paid a minimum wage of INR 17K, a tangible improvement.

Therefore, it’s not just about funding women-led businesses but also ensuring that these investments drive systemic changes in exploitative industries. We align financial and non-financial metrics to create measurable impact.

Inc42: Isn’t it challenging to find Indian startups led or owned by women?

Arvind Agarwal: Well, finding such companies is not a challenge. It is more about refining the process to make sure that we are genuinely inclusive and transparent. For instance, we have seen that women founders don’t often approach us through investment bankers. So, we have simplified the process. Anyone looking for funding can apply directly on our website, and the entire team reviews applications to eliminate personal biases.

Again, looking closer, we have noticed something really interesting. Women founders tend to be more cautious about standard clauses like drag-along rights [a clause that lets a majority shareholder compel others to take part in the company sale]. In contrast, male founders don’t worry about the fine print. They focus on the matters at hand, the funding amount and valuation. To make things easier, we have started sharing detailed term sheets much earlier, explaining the nitty-gritty before taking these deals to the investment committee. This way, we have improved access and created a more diverse and inclusive portfolio pipeline.

Inc42: What about LP’s interest in impact funds operating in India? How has it evolved since 2015-16, a watershed year for this dynamic new field?

Arvind Agarwal: Their interest has dwindled for a few reasons. First, the line between an impact fund and a typical VC fund has blurred over time. When you look at the landscape today, you will often see a wide range of funds coming under this category, making it difficult to distinguish between the two. Therefore, many global LPs have pulled back, feeling their work in India is done. Their focus has now shifted to new geographies like Africa.

Besides, some limited partners had sub-par experiences, and they now hesitate to invest. Others with more mature strategies prefer to invest directly instead of parking their money with impact funds. These factors combined to lead to a decline in the funds available for impact investments.

As I said earlier, the challenge lies in clearly defining an impact fund, its unique role and the outcomes investors may expect.

Inc42: Talking about exits, what are the listing challenges, especially on the NSE Emerge, the SME platform of the National Stock Exchange?

 Arvind Agarwal: We are actively exploring this area over the past two years. The main challenge for SMEs looking for an IPO is valuation. These are businesses still in their growth phase. They have yet to reach the maturity or EBITDA margins typically seen in companies with a turnover of INR 100-300 Cr. This means their IPO valuations heavily rely on EBITDA multiples, a sticking point as this framework doesn’t always capture their growth trajectories and overall potential.

The best approach in such cases is to first secure the growth capital that helps them stabilise and then go for better profit margins. We are already working with a few companies which are eyeing mainboard IPOs. However, the ideal path should be to go through an SME IPO first and give themselves around three years to solidify their market position before opting for the mainboard. Of course, at C4D Partners, we always consider SME IPOs. But the valuation constraints tied to the growth dynamics of these businesses tend to pose a significant challenge.

Inc42: You have been vocal about the PE/VC fund structure. What is the core problem investors face?

Arvind Agarwal: It’s time we address the core issue in private investing: An outdated funding structure we rely on. From my conversations across the industry, it is clear that the 10-year fund life, coupled with a five-year exit horizon, is no longer practical.

There’s no inherent reason why PE/VC firms can’t shift to a 12-year fund life. But these  proposals are routinely dismissed because the market standard is 10 years. Ironically, even the 10-year model struggles to wrap up in 12 years, a discrepancy the industry is willing to overlook.

As an industry, we must come together and rethink our operations. We should align a fund’s structure with the market dynamics of each region. What works in India may not be suitable for Southeast Asia or the Middle East, and a one-size-fits-all approach is no longer viable.

We can foster sustainability and long-term success if the industry collaborates and innovates to embrace new models.

Inc42: What are the key areas impact funds should focus on?

Arvind Agarwal: Impact funds must prioritise primary and secondary sectors [agriculture and manufacturing, respectively] over the tertiary ones to drive long-term growth and inclusive development. The first two are critical for India’s progress but remain significantly underfunded.

Take agriculture, for example. Shifting focus upstream or pre-harvesting processes such as technology adoption and yield improvement receive far less attention than downstream or post-harvesting activities like storage and deployment. This imbalance is evident when you compare India with other countries like the US, where upstream investments are more robust. India should adopt a similar approach.

In manufacturing, there should be a stronger push to build small-scale industries, especially in rural areas, rather than focussing solely on large industrial projects. Small enterprises can boost the secondary sector by creating jobs and promoting balanced economic growth.

Inc42: Finally, which sectors will attract maximum impact investments in 2025?

Arvind Agarwal: Climate-related investments will likely dominate the impact investment landscape. With the global focus on climate risks and opportunities, a substantial flow of funds will target this critical area.

The circular economy is another promising sector where innovative and sustainable business models are gaining traction. Health, too, is emerging as a focus area, but the scale of investments is still uncertain. Agriculture will continue to attract interest, especially as investors try to address the gaps in upstream and downstream funding.

We are also noticing a shift in the SME space. They were content to stay small earlier but aim to scale up now. The challenge here is the capital mix. Small and medium enterprises need more debt than equity, as they have historically operated on a profitable, cash flow-driven model. Equity investments are critical to professionalise these businesses. But their growth hinges on access to affordable debt. This nuanced approach fosters SME growth, especially when they pivot towards large-scale operations.

[Edited by Sanghamitra Mandal]

The post Impact Investing Is About Solving Real Problems, Not Chasing Unicorns: C4D Partners’ Arvind Agarwal appeared first on Inc42 Media.

According to a 2023 report by the World Economic Forum, India is emerging as the key hub for impact investments.

This is perhaps the first opportunity for global investors to back businesses capable of bridging the gaps in sustainable development goals (SDGs) from the get go. With thousands of new startups and ventures emerging every year, impact investors have a significant role to play.

For those unfamiliar with the term, impact investing seeks to deliver positive social or environmental outcomes alongside financial returns.

In India, impact investing predominantly follows a venture approach, focusing on early-stage investments in for-profit enterprises that serve vulnerable and underserved communities.

However, a gap exists in growth-stage funding for impact enterprises, which limits their ability to scale solutions capable of driving substantial, global-level change. Often the core vision has to be diluted for business considerations to attract big ticket investments

While the initial wave of impact investing predominantly targeted financial inclusion—such as microfinance and affordable lending to underserved populations—the scope has broadened significantly in recent years.

This is visible in the recent impact investment data across sectors shared in a monthly report published by industry body India Impact Investors Council (IIC). The report indicates that a total of $2.3 Bn has been invested in first six months of 2024 (January-June) within the impact investment domain.

In line with this growth, India’s domestic ecosystem of impact investors has grown substantially over the years, with key impact investors like C4D Partners, Ankur Capital, Omnivore Capital and Caspian Impact Investments among others leading the charge.

Among these is Asha Ventures, an early-to-growth stage impact fund founded in 2014 by former Morgan Stanley India head and president Vikram Gandhi, and former Genpact president and CEO Pramod Bhasin.

Between 2014 and 2023, the founders invested in startups, climate solutions and financial services companies such as Adda 24×7, Vaastu Housing Finance, Avanti, Nepra, Greenway, Jana Care, Saahas Zero Waste, Swarna Pragati Housing, Varthana, Gramophone and Janaadhar.

But with the launch of the maiden $100 Mn Asha Ventures Fund 1, Gandhi and Bhasin are stepping into the institutional investor territory. Launched in December 2023, the fund has seen a first close at $50 Mn. Targeting investments in the range of $2 Mn to $10 Mn, Asha Ventures is looking to lead rounds in business built around three core themes: sustainability, healthcare and inclusion.

“We target the emerging middle class in India, a segment of around 50 Cr individuals with annual incomes between INR 2 Lakh-INR10 Lakh. This group has unique needs and aspirations that differ from the wealthier segments typically targeted by mainstream PE/VC funds,” Amit Mehta, managing partner at Asha Ventures, told Inc42.

Mehta held leadership roles at IIFL Private Equity and Motilal Oswal Private Equity before joining Asha Ventures. Currently, he leads the firm’s strategy, fundraising and investment decisions.

Through the fund, Asha Ventures has made three investments from this corpus including Ascend Capital, Truemeds and AutoMony. “Over the next three to four years, we aim to make 10–12 more investments,” the managing partner claimed.

Unlike funds that prioritise trends such as 10-minute delivery, crypto, or gaming, Asha Ventures focuses on underserved markets. Mehta told us that the firm’s thesis on impact investing is built around scalable business models that not only benefit society but also generate sustainable returns.

How different is this from building a regular VC fund and what challenges do impact investors face when raising from LPs looking for quick returns, even as impact investing by itself is a patient capital game?

Edited excerpts

Inc42: Many VCs are now adopting sustainability as an investment theme. How is Asha Ventures aiming to make a difference?

Amit Mehta: Climate change is a major challenge we all face. The world is in a crisis and India, as a large country, must urgently work to reduce its carbon footprint. At Asha Ventures, we are making significant investments in the climate space, focusing on both adaptation and mitigation.

The middle class, particularly farmers, is among the most vulnerable to climate change. We explore ways to support sustainable consumption and back innovative brands that position themselves as sustainable consumer companies. These brands are also improving their supply chains to reduce their environmental impact.

We are particularly interested in startups addressing the carbon footprint of hard-to-abate sectors like steel and cement. Innovations in these areas are critical to making a difference. Similarly, we explore bio-alternatives across various industries, such as replacements for plastics and agricultural inputs.

In the renewable energy sector, we avoid asset-heavy investments, like power plants, because of their slow growth and lengthy project timelines. Instead, we focus on enabling sectors within the renewable supply chain. For example, as India becomes less dependent on China for solar components, we see opportunities to invest in companies emerging within this ecosystem.

We’ve also invested in an NBFC that finances EV three-wheelers, helping rickshaw drivers earn a sustainable income while promoting clean energy. Although we generally avoid direct EV investments, this opportunity aligns with our themes of sustainability and inclusion.

At Asha Ventures, our goal is to back innovations that drive impactful change, whether by addressing climate challenges, supporting sustainable industries, or creating inclusive economic opportunities.

Inc42: Can you elaborate more on the other two themes: healthcare and inclusion? These are broad sectors that need widespread impact. 

Amit Mehta: Healthcare is a basic necessity and we are seeing many innovations aimed at making it more affordable and accessible. For example our portfolio company Truemeds is an online platform that focuses on generic drugs.

The likes of PharmEasy and 1MG primarily cater to upper middle-class customers who may need medicines along with services like annual health checkups or wearable devices to monitor vitals. However, millions of people across India, especially those managing chronic conditions like high blood pressure or diabetes, cannot afford branded medicines.

Generic drugs, which are non-branded versions of the same medicines, offer a solution. For instance, Crocin is a normal paracetamol drug. While the branded version might cost INR 10, the generic version could be as low as INR 1. This significant cost reduction makes essential medicines more accessible to a larger population. Our investment in True Meds focuses on tapping into this mass-market opportunity.

On the inclusion side, we primarily work in the financial sector. Despite significant progress over the past decade, there is still much to do. Our investments focus on areas like affordable housing, commercial vehicles and education, providing opportunities to underserved communities and driving greater economic inclusion.

Inc42:  Inc42 data shows that between 2021 and 2024 over 15 new impact funds were announced with a total corpus of $1.3 Bn. How do you see this competitive landscape and what is your pitch to founders given the number of new investors? 

Amit Mehta: When an entrepreneur seeks to raise funds, they look for an investor who aligns with their vision and understands their business model. This alignment often depends on how well the investor understands the target customer base. For example, take a used commercial vehicle NBFC targeting low-income individuals with a household income of ₹2–3 lakh annually in a tier-2 city.

The entrepreneur will want to know: Does this investor have experience working with such customers? Have they invested in similar businesses before? Do they understand the growth potential and risks involved? These are critical questions when choosing an investor.

When it comes to Asha Ventures, we have over a decade of experience working with companies that serve this customer base. This gives us a deep understanding and expertise that many traditional VC funds may lack. For instance, while some VCs might focus on metro-based digital models offering personal loans to tech-savvy users, we focus on understanding the needs, behaviours and aspirations of underserved, price-sensitive customers.

We know that this customer base may not fully adopt digital models and often values a strong, low-cost core product over unnecessary add-ons. Our focus is on ensuring the product is efficient, affordable and impactful. Entrepreneurs targeting the emerging middle class will seek investors who understand these nuances.

Our expertise extends beyond financial services into sustainability and healthcare, allowing us to support businesses transitioning from early to growth stages while staying connected to their customer base

Inc42: Can you share a few examples of how Asha Ventures has helped its portfolio companies nurture and scale?

Amit Mehta: Take, Vastu Housing Finance, an early affordable housing finance company founded in 2016. We invested in the company when it was just a concept on paper. Our understanding of the target customer base enabled us to help design the product and build the technology to deliver it effectively. Additionally, our credibility within the financial ecosystem played a key role in helping the company raise both equity and debt.

Today, Vastu Housing Finance has over INR 10,000 Cr in assets under management (AUM) and is highly profitable. We continue to be involved with the company and plan to take it public within the next two years.

Truemeds is another example. When we invested, the startup was generating only INR 50 Lakh in monthly revenue. Now, its revenue is nearly 100x that.

We’ve also worked with sustainability-focused companies like Greenway, which manufactures efficient stoves as affordable alternatives to traditional chulhas. These stoves not only provide value at a low price point but also earn carbon credits.

These examples demonstrate how we support our portfolio companies in transitioning from the early stage to the growth stage, leveraging our expertise across inclusion, healthcare and sustainability to help them scale effectively.

Inc42:In India, impact investments are still largely driven by international investors. Why do you think Indian impact investors have not yet created a mainstream VC-like presence?

Amit Mehta: The impact industry in India has evolved significantly over the past two decades. Historically, much of the capital has come from development finance institutions. However, we’re now seeing a growing interest from domestic investors and limited partners who are becoming more conscious about investing in impact funds.

We believe that over the next decade, domestic equity investors will become an integral part of the impact investing ecosystem. This shift is already beginning, including within our own investments.

You’re correct that offshore capital has historically led the way in impact investing. One challenge we face is the perception that “impact” means low returns. At Asha Ventures, we aim to debunk this myth and demonstrate that it’s possible to deliver strong financial returns while creating meaningful social and environmental impact.

As we continue to prove this, we expect more domestic investors to join and help grow the impact investing space into a more mainstream model in India.

Inc42: From regulatory and LPs perspective how can the ecosystem help promote impact investing in India? 

Amit Mehta: Currently, there isn’t a separate regulatory category for impact funds; they are treated the same as other AIFs. Impact funds also face generic challenges and the industry has been engaging with regulators to address them. There is potential value in creating a distinct category for impact funds and these discussions are ongoing. When regulators deem it appropriate, they may introduce specific frameworks for this sector.

From an LP perspective, the key is addressing the perception that investing in impact funds might compromise returns. Many investors still hold this belief, but it’s important to demonstrate that impact investing can deliver competitive returns alongside social and environmental benefits.

Additionally, government-backed LPs, like SIDBI and other similar institutions, could play a pivotal role by prioritising investments in impact funds. If such entities adopt a clear agenda to fund impact-focused AIFs, it would significantly strengthen the ecosystem. This would not only attract more capital but also align with the government’s push to address the needs of the mass market and drive solutions for underserved communities.

By creating the right regulatory framework and encouraging domestic LPs to invest in impact funds, the ecosystem can grow more robustly and channel capital into sectors vital for uplifting the broader population.

Inc42: How does impact investing in India compare to the global scenario?

Amit Mehta: India is one of the top markets for impact investing globally, thanks to its large population and immense market potential. Unlike other impact markets such as Africa or Latin America, India offers a more stable and well-regulated environment, making it highly attractive to both local and international investors.

Additionally, many family offices are showing growing interest in this space. While some approach it from a business perspective, there’s a broader understanding among successful entrepreneurs that doing good and doing well can go hand in hand. This mindset is driving increased investments in businesses targeting underserved customer bases in India.

Inc42: Where do you see impact investing heading in India over the next few years?

Amit Mehta: As I mentioned, the potential in this market is enormous. There are around 50 crore people in the middle-income bracket, which is a much larger market than the upper middle-class segment. With limited capital currently targeting this demographic, we believe now is a great time to invest.

We anticipate strong returns in this market over the next couple of decades, driven by the significant rise in earnings among this consumer class. They are set to become the largest consumer segment in the next decade.

Our approach focuses on the consumer’s needs. What are they seeking? Financial stability, good health and resilience against unexpected setbacks like health crises, natural disasters, or economic shocks. These challenges align with our focus on sustainability, healthcare and financial inclusion.

For example, sustainability addresses the risks of environmental shocks that can disrupt lives. Healthcare ensures people remain productive and avoid earnings losses due to poor health. Financial inclusion empowers consumers by providing the tools they need to improve and stabilise their income.

By viewing these sectors from the consumer’s perspective, we see tremendous opportunities to deploy billions of dollars over the next decade. That’s why we remain committed to these sectors and confident about the future of impact investing in India.

The post Decoding Asha Ventures’ $100 Mn Playbook For Impact Investing appeared first on Inc42 Media.

In 2020, Pratilipi founders found themselves in a tough spot.

The Bengaluru-based self-publishing platform had just completed six years of operations and had already raised $29.6 Mn from investors like Tencent, Omidyar Network, WEH Ventures, Times Internet and Nexus Venture Partners since inception in 2014.

While its monthly active user base ballooned, Pratilipi lacked a clear revenue model. By June 2020, the platform had over 100,000+ writers and more than 20 Mn monthly active users. But the absence of a strong monetisation strategy was always a pain point.

In fact, in cofounder and CEO Ranjeet Pratap Singh’s words, “we didn’t have any revenue model in place at all.”

Pratilipi’s Early Subscription Bet

Looking at the competitive landscape at the time, most domestic self-publishing players did not have the funding to grab market share like Pratilipi, while global publishers lacked the depth and nuance needed for the Indian market.

“When the lockdown initially hit, we had about 8-10 months of runway and investors were moving very slowly given no one knew how the pandemic would play out,” Singh revealed.

That’s when Pratilipi added subscriptions, betting that it would be a force multiplier for the business. Plus, in those early days of the Covid pandemic, any hope of a funding round from investors had dissipated. So there was nowhere to go but turn to subscriptions, and this is a big step for a company that had thus far never asked users to pay.

The startup put all its eggs in the subscription basket. “I wanted to ensure everyone could access content without barriers like language, money, or devices. We aimed to avoid blocking access just because someone couldn’t pay. However, we still needed a way to earn, so we introduced a subscription model,” the CEO recalled.

Pratilipi immediately saw an engagement jump from those who paid the subscription fee, starting at INR 25 per author and going up to INR 150 per month for unlimited access. Free users spent about six hours per week on the app, but paid users were spending 14 hours a week.

The CEO and cofounder also took matters into his own hands for working capital during the pandemic.

He first sold shares in two of his angel investments and decided to lead a round himself with INR 90 Lakh (a little over $100K today). He rallied fellow founders to invest $2 Mn into the company, and Pratilipi also raised debt.

In a twist of fortune, Krafton, one potential investor, exceeded Singh’s expectations. What started as a $2 Mn round surged to $48 Mn by July 2021, a lifeline that would take Pratilipi to its next stage.

But operating a subscription-based media company in India is neither cheap nor efficient.

Pratilipi continued operating in the red in the next few years. In 2024, the situation became even more precarious. Between February and June, Pratilipi’s balance sheet showed a negative cash balance. The startup’s current liabilities were greater than cash in its accounts.

Where did Singh go next?

Building A Leaner Business

As it often happens, the first step was controlling costs. After raising a minor debt round, the startup slashed marketing and IP development budgets by over 90% and implemented a company-wide salary deferment.

Marketing expenses fell by about 85%, dropping from INR 40 Cr in FY23 to INR 6 Cr in FY24. But this had its own reverse impact. Where the company’s revenue grew by 50%, user acquisition and download rates slowed.

The app’s monthly active users (MAU) declined to around 2.5 Mn, while website MAU reached approximately 5-6 Mn. “But this decision reflected a strategic shift toward engaging a more dedicated, quality-focussed user base too,” Singh told Inc42 in a recent interaction.

Pratilipi’s perseverance finally paid off. With 26,000 monthly active writers and 1.6 Mn daily active users across India, Pratilipi officially became cash-flow positive in July 2024.  In August 2024 alone, Pratilipi paid out over INR 1 Cr in royalties to writers, marking a rare achievement in an industry where digital storytelling platforms often struggle to turn a profit.

Losses shrank 22% year-on-year (YoY) as it posted a loss of INR 152.64 Cr in FY23 against INR 196.44 Cr in FY22. Later, its losses further reduced by almost 62% YoY to INR 58.13 Cr in FY24.

After reinitiating full salaries, the startup handed out bonus ESOPs for the entire deferred amount. The deferred salaries will be paid back as arrears in full in November 2024, the cofounder claimed.

Reflecting on Pratilipi’s recent challenges, Singh said, “The last six months (January to June 2024), we had less than zero cash or near zero on the balance sheet. But we became cash flow positive in July. Once you’re cash flow positive, your destiny is in your hands.”

Pratilipi’s IP & Tech Stack

Controlling costs is one aspect. The product still has to serve the consumer and Pratilipi restructured its tech and product stack significantly in the past few years.

Singh believes that Pratilipi and ShareChat were among the first companies to build user-generated storytelling platforms at a large scale.

Between 2020 and 2022, Pratilipi launched Pratilipi Comics (for the graphic novel format) and Pratilipi FM, an audio storytelling platform. Focussing on content IP, the company acquired podcast studio IVM Podcasts in 2020. It also took over The Write Order Publications in 2021 and Westland Books in 2022.

Over the past four years, Pratilipi has built a repository of 15 Mn stories, which it describes as “the largest IP catalogue in the country by like 5x-10x margin.”

The next step was acting on these IPs. In October 2023, Pratilipi began licensing its stories to partners for formats it couldn’t develop directly, such as TV shows, OTT content, and films. Acquiring the IP rights to books and podcasts allowed the company to pitch itself as a content factory for digital and traditional media.

“Last year, we realised there are some formats we can’t approach directly—either because we don’t know how or because it’s too expensive. So, we started licensing our stories to ecosystem partners, like TV shows, OTT platforms, and movies. From a business standpoint, we have launched five TV shows and one OTT show, with around 15 others in production,” Singh told Inc42

Pratilipi also partnered with Disney Star for a unique multi-series content deal. This collaboration allows Disney Star to adapt Pratilipi’s stories into fiction TV shows across different languages, airing on its TV channels and digital platforms.

Pratilipi’s recent marketing efforts have also focused on leveraging these IPs across various media formats, so that these stories gain traction and are adapted for non-Pratilipi IP.

The other big shift, the CEO claimed, came from the adoption of machine learning and AI. Pratilipi claims to have implemented a multi-layered strategy to maintain content quality, protect intellectual property, and enhance user engagement. “In the last four or five years, advancements in technology have become so effective that nearly all of these tasks are now handled by it. So we have different models for different things.”

Here’s a breakdown of how the company is using these systems:

Will Profits Come Before IPO?

After the rollercoaster of the first eight years, Pratilipi is eyeing a public listing by 2026. The company is aiming for INR 110 Cr in revenue by FY25 and INR 180 Cr by FY26.

With IPs changing the monetisation momentum, Singh said that Pratilipi will focus on growth rather than profitability in FY25, with plans to flip the focus before the IPO. “We are now at a stage where we can become profitable whenever we want by reducing forward-looking investments or expenditures. We want to grow as quickly as possible before the last two quarters,” the cofounder noted.

This vast IP base provides a significant edge in the fiction domain, offering both competitive leverage and licensing opportunities across formats like comics, movies and TV. In nonfiction, Pratilipi expects traditional competitive dynamics, where market share will be distributed among various platforms and publishers.

However, the path to profitability remains uncertain in an industry marked by constant change and fierce competition. While Pratilipi has shown the ability to adapt and expand into new formats, it’s still dealing with persistent challenges such as increasing operational costs, changing consumer preferences for content, and evolving market dynamics on the content front, with AR and VR also being seen as the next big things.

Even prioritising cost-intensive IP capacity building over short-term profits carries inherent risks, given that even digital media and OTT companies are looking at creating and owning IPs for long-term profits.

Will Pratilipi’s publishing platform and IP inventory remain relevant in the long run or will Singh & Co have to claw back one more time before that IPO push?

The post Pratilipi Built A Content Universe; Will Profitability Follow? appeared first on Inc42 Media.

India, an agricultural powerhouse where more than 42% of its 1.4 Bn population rely on farming for their livelihoods, stands at a critical juncture and requires a wave of transformative push. Consider this. Agriculture accounted for 18.2% of the nation’s GDP (at current prices) but grew at an average annual rate of 4.18% in the past five years, per The Economic Survey 2023-24.

The anomalies don’t end there. India still leans heavily on cash-strapped, ill-equipped smallholder farmers for agri operations. Even the latest Economic Survey emphasised the need to shift them to high-value crop production, spotlighting the role of agritech startups in this transformation. But these startups may not be a panacea for all agribusiness issues.

In spite of success stories like DeHaat, WayCool, Ninjakart and Absolute Foods – each raised $100 Mn+ in funding – many are now struggling to stand out in a crowded field filled with similar services and business models.

Take WayCool, for example. At one point, the startup was said to be on track for a 2025 IPO, it has hit a rough patch, marked by layoffs and mounting losses.

Others like Mooofarm and Reshamandi face similar setbacks and continue to search for a breakthrough. Even Dehaat reported INR 1,133 Cr in loss in FY24, higher than the net loss in the previous year. So what went wrong?

Sandeep Sabharwal, founder and CEO of Sohan Lal Commodity Management (SLCM), a 15-year-old agri-warehousing and agri-financing platform believes the problem is that entrepreneurs do not focus on solving the real problems for agri stakeholders. “The real challenge in agriculture lies in perception. We need solutions built for the specific and complex requirements of farming, not borrowed solutions from other industries. It often leads to misrepresentation and failed ventures,” he added.

A team of four started the business in 2009 with an initial investment of about INR 16 Lakh, SLCM’s Sabharwal claimed the company looked to solve the challenges in agriculture with ‘phygital’ solutions and a bootstrapped mindset.

Among these are secured commodity storage, AI-powered quality checking, market linkage, procurement at best prices for buyers and agri supply stakeholders. The other focus area is agri-financing via Kissandhan, a rebranded NBFC acquired a decade ago to facilitate agri-loans.

Today, SLCM has set up a tech-enabled network of more than 17K agri-warehouses across 13 Indian states and a portfolio of 350+ diversified warehousing facilities (a combination of agricultural and non-agricultural storage) in Myanmar. It runs 19 cold storages in India covering more than 304 Mn sq ft, with a throughput capacity of 4,507.88 Mn metric tonnes (MMT) and a DAUM (daily assets under management) of approximately INR 11K Cr (as of October 31, 2024).

“Despite this expansive infrastructure, we don’t own any warehouse space ourselves, not even a single foot. SLCM operates solely on a leasing model,” Sabharwal told Inc42, underscoring the benefits of third-party warehousing.

“This arrangement keeps our capex low and increases operational agility. For example, we can set up storage facilities in any part of the country within 24 hours as per client requirements. Our asset-light model has proven to be a profitable, long-term strategy that has succeeded in the market,” the SLCM CEO added.

While the company has raised close to $50 Mn in its lifetime, the last round came in 2019 and since then SLCM has relied purely on its revenue to scale up. That’s largely thanks to the asset-light model and a reliance on technology, the very same pillars that agritech startups rely on, but without the profits to show it like SLCM.

Putting The Tech In Agritech

But there’s more to its success than asset-light strategies. SLCM secured two path-breaking technology patents. The first was awarded in 2021 for a real-time data management method integrated with a centralised process to monitor and manage crop security. Due to regular audits and meticulous tracking, it reduces the risk of crop damage to 0.5% across the company’s warehouses and secures storage against theft and fraud. India loses an estimated 10% of its food grains annually due to a lack of storage and outdated techniques.

The Federation of Indian Chambers of Commerce and Industry (FICCI) assessed food crop waste using this model and published a report highlighting its potential to enhance storage efficiency.

The second came in 2022 for an AI-based app that initially assessed wheat quality on the spot by analysing the crop image for multiple parameters. The app’s capability will gradually increase to quality-check major crops and pulses. SLCM also launched Agri Suraksha, a centrally controlled and monitored 24×7 warehouse surveillance system.

Sabharwal attributes the success to the company’s innovation culture and a divisional focus minus the silos. “At SLCM, we have always viewed agriculture as a physical and digital blend. Agritech is a subset of this phygital world. Now that we are at the forefront of this phygital world, turning crops into an asset class, it validates our model,” he said.

A quick look at the financials also supports this uptick. The agritech firm reported revenue of INR 482.36 Cr and created more than 5K direct and indirect jobs in FY24. Net profit jumped 475% YoY to INR 17.65 Cr from INR 3.1 Cr in the previous fiscal year.

It is a significant milestone as SLCM posted consecutive losses during FY20-22 and turned profitable only in FY23. For context, the numbers provided here are consolidated, with its Myanmar operations contributing about 8% of the net revenue.

Buoyed by the growth, SLCM registered as a public limited entity in July 2024, a strategic move indicating it is now on course for a public market listing. According to Sabharwal, the shift marks a deep commitment to corporate governance and better organisational maturity.

Reinventing Agri-Warehousing

As agri-warehousing is the cornerstone of SLCM’s operations, Sabharwal recognised that the company needed to build systems for rigorous quality audits, real-time security monitoring and instant data communication to prevent crop loss, theft and fraud.

The founder was aware of common vulnerabilities like pilferage by local employees or the lack of constant monitoring in remote warehouses with limited infrastructure. Setting up traditional CCTV systems is not always feasible due to logistics hurdles and prohibitive costs.

SLCM employs three critical safety components for a multi-layered security system to minimise these warehousing risks. These include:

AgriReach: Developed in-house within a year of inception, this patented method integrates real-time security monitoring, audits and other essential processes to safeguard warehouses, keep tabs on crop health and provide a standard operating procedure (SOP) in all facilities.

Using geofencing, bar-coded storage receipts and internal audits backed by a Maker-and-Checker policy (dual authorisation), SLCM carries out real-time monitoring of goods and personnel and the same is updated via a management information system (MIS). It also helps monitor temperature and humidity within the warehouses.

As this unique management system reduces food grain losses to a meagre 0.5%, it can save more than INR 87K Cr annually, claimed Sabharwal. Additionally, SLCM implemented SAP in a record six months to automate the entire process, the first company to do so in the agri-warehousing space.

Under AgriReach, there is a centralised digital directory connecting farmers with buyers, traders, food processors and exporters. With around 2 Lakh registered users and 88 commodities listed, the directory enables seamless transactions anytime, anywhere, providing critical market access across the country’s agricultural community.

Agri Suraksha: Launched in 2020, Agri Suraksha uses solar-powered, weatherproof CCTV cameras with 3G SIM connectivity to relay live footage from warehouses to a central command centre in Delhi. This low-cost, mobile-enabled security solution covers all warehouses, even the most remote or temporary units, bypassing the need for stable power sources.

E-lock: SLCM has launched a centralised e-lock system for high-value warehouses storing agri produce worth INR 10 Cr or more. This digital lock can be opened from the command centre alone, eliminating the access of local managers to physical keys and ensuring continuous surveillance of valuable stockpiles. This phygitisation, or digital tech security measures for physical assets, provides 360-degree protection regardless of locations and infrastructural constraints.

“Currently, around 60% of SLCM’s AUM is under real-time surveillance, strengthening security and reducing risks,” said Sabharwal.

How SLCM Turns Crops Into An Asset Class

To elevate the value of agricultural staples like wheat and turn them into an asset class, these must meet a host of critical criteria for securitisation. While weight can be reliably measured at weighbridges, quality checking or QC services must be expanded. NABL-accredited labs typically perform these quality checks, but only around 300 cater to the agricultural sector. This limited capacity leads to the following logistical and financial bottlenecks, slowing down transactions and access to capital.

• Long delays: Sending samples to full-fledged labs for quality checks results in a long turnaround time
• Risk of fraud: The possibility of sample switching raises questions about the credibility of QC reports
• High costs: Due to delays in obtaining QC results, farmers and traders have to bear opportunity costs. This impacts cash flow and leaves buyers needing clarification about product quality

To address these pain points, SLCM developed an AI-driven app under the AgriReach umbrella to redefine the QC process. By capturing a single photo of a commodity, the patented app delivers QC results in just 90 seconds, a massive reduction from the conventional two-day timeframe that enables banks and FI to process loans within hours.

The company also runs a NABL-accredited central analytical laboratory to ensure quick and accurate testing, and its results are accepted in several countries.

“In a world where consumers can return an online purchase within hours, waiting days to verify crop quality seems obsolete,” said Sabharwal.

Developing this app involved extensive research, analyses of more than a million samples and rigorous trials. SLCM eventually secured an NABL accreditation for its QC app, the first of its kind in India and possibly worldwide, claimed Sabharwal. By October 2024, the app had done 213K quality checks across 22 states, covering 9.32 Mn metric tonnes of crops.

The breakthrough spurred rapid growth, with assets under management soaring from INR 1,039 Cr in 2020 to INR 12K Cr+ in 2024. Although the NABL accreditation applies only to wheat, SLCM is working to obtain certifications for other crops like maize, rice and chana (chickpea).

“India produces 325 Mn metric tonnes of dry agricultural commodities, and our app has tested 9.3 Mn metric tonnes or 2.66% of the total. This shows our scalability and removes the infrastructural bottlenecks from the collateral process and value chain management,” said Sabharwal.

Beyond this, SLCM has developed a commodity facilitation platform to create a streamlined digital marketplace across the sector. It serves as a business hub, enabling companies to present their products and services. Users can also buy and sell food grains and find logistics/transport partners based on location preferences, making the supply chain more accessible.

To expand its QC initiative, SLCM has introduced the AgriReach Krishi Quality Janch Kendras. These centres will do rapid quality checks and provide on-the-spot QC certifications for food grains, reducing wastage and creating rural employment tailored to local skill sets.

“So far, Krishi Quality Jaanch Kendra has appointed 300+ authorised QC partners in 11 states,” said Sabharwal.

The Last Piece In The Puzzle: Agri-Financing

Kissandhan, the finance arm of SLCM and an RBI-regulated NBFC, is redefining agri-finance with innovative products. Its flagship is commodity-based financing (CBF) for flexible and collateral-free loans across locations and commodity types. Unlike other NBFCs, this flexible approach has positioned Kissandhan as a vital resource for farmers and agribusinesses all over India.

As Sabharwal emphasised, diverse financial solutions enable farmers and agri-businesses to access flexible, need-based funding that promotes sustainable growth and strengthens economic resilience. So, SLCM has recalibrated its lending portfolio to become more granular.

Earlier, the loan amount ranged between INR 3 Cr – INR 5 Cr, but now SLCM offers tailored products for FPOs with loans averaging INR 8 Lakh for each unit. This has positively impacted as many as 80K farmers.

As smaller, targeted loans are now available for a broad range of clients, more than 37K women borrowers receive INR 35K each for a maximum tenure of 18 months, marking a shift towards more accessible, retail-level agri-financing. The maximum loan amount extended to a woman borrower has now reached INR 1 lakh for a flexible tenure of 12-24 months, with no collateral required. In total, loans disbursed to women currently amount to INR 155 Cr.

This strategic move towards more granular and inclusive financial support has boosted SLCM’s return on investment and enhanced borrowers’ loyalty and continuity. “It aligns with our diversified warehousing model of building a robust, wide-reaching base and is expected to drive growth and profitability by 2027,” said Sabharwal.

As of June 2024, Kissandhan cumulatively disbursed INR 2,927.52 Cr and supported 36,839 clients, 107 FPOs and 36,444 women beneficiaries. The impact has been broad-reaching and economically empowered more than 7.6 Lakh people.

Agritech Startups Hamstrung By Challenges

After investing more than INR 9.5 Cr in technological advancements in the past two and a half years, SLCM is eyeing net revenue of INR 781 Cr in FY25, a 62% jump from INR 482 Cr in FY24.

Its EBITDA is projected to climb from INR 39.48 Cr to 63 Cr, while profit after tax is expected to reach INR 24 Cr. However, the company must overcome operational and industry hurdles to hit these numbers.

A key challenge is expanding its loan book without pushing costs. SLCM has successfully reduced sourcing costs and boosted ROI from 12.1% to 16.5% by doubling the average loan tenure from nine to 18 months. This approach enhances customer retention and grows the company’s wallet share in agri-financing.

“Our goal is to capture the entire financial life cycle of customers,” the company states, likening its strategy to the models used by financial services powerhouses like Bajaj Finance.

It is also testing artificial intelligence for enhanced loan management. But this is still a work in progress, as commercial rollouts require a cautious approach.

Although these measures will solidify SLCM’s position as a trusted agri-financing resource and one-stop destination for all post-harvest needs, the company faces industry-wide challenges like its local and global peers.

For starters, crop quality assessment is critical for agricultural commodities and constant benchmarking is required to strengthen India’s position as a global supplier. Ongoing geopolitical conflicts have also prompted the company to delay planned expansions into Southeast Asia despite promising socio-economic similarities in markets like the Philippines and Laos (officially, Lao People’s Democratic Republic or LPDR). Additionally, SLCM will carefully consider IPR protection before licensing its technologies abroad and only focus on countries with robust legal frameworks.

While global growth remains on the cards, the company is exploring the domestic market, given the country’s positive trajectory in agriculture and agritech space. The agriculture market size in India is estimated to reach $473.7 Bn by 2029, while agritech is expected to hit $25 Bn by 2025, signifying a transition from a nascent stage to mainstream prominence.

SLCM is carefully building its strategic roadmap and sustainable initiatives around finance, phygital solutions and global expansion, which will resonate with the new era of action in agriculture. Of course, a perfect storm of risks is brewing outside as agri produce needs to be cleaner, greener and more ethically procured despite climate woes and socio-economic hurdles that have long hindered farmers’ productivity and a relevant increase in their net economic value.

However, mindsets are changing, laws are becoming more favourable, and innovations are coming to the fore to transform this landscape. And it is nothing but good news for smallholder farmers in India and agri-service providers like SLCM.

[Edited by Sanghamitra Mandal]

The post Behind SLCM’s 6X Profit Surge And Asset-Light Agritech Playbook appeared first on Inc42 Media.

Until 2020, Indian spacetech startups were not on the public radar. Space missions were primarily under the purview of the government-run Indian Space Research Organisation (ISRO), and even VC funds did not have a clear view on investing in spacetech.

All that has certainly changed with liberalised policies for spacetech investors, more public-private partnerships between startups and the government as well as the growing talent base for spacetech applications and operations.

Indian startups are today increasingly making waves at much lower costs than their international counterparts, and often with faster execution, underscoring the innovation-first mindset in spacetech in India.

For example, Agnikul Cosmos, a spacetech startup that builds customisable and mobile launch vehicles for space journeys, has found a way to 3D print rocket engines in under a week, as opposed to months.

The likes of Bellatrix – developer and manufacturer of advanced propulsion technologies and Pixxel – provider of hyperspectral earth imaging datasets are few other names that have been driving innovation in the spacetech space.

In 2022, Hyderabad-based Skyroot Aerospace became the first private Indian space company to launch a rocket into space with its Vikram-S rocket series. Such stories are becoming increasingly commonplace in India.

More than 150 spacetech startups have emerged across areas such as launch vehicles, satellite constellations, earth observation, satellite communication, space data analytics and in-space technologies among others leading to a high degree of innovation. To facilitate startup participation, the government established the Indian National Space Promotion and Authorisation Centre (IN-SPACe).

The Indian Space Policy 2023 gave further momentum to the spacetech sector. New Space India Limited (NSIL) has engaged private firms to manufacture its largest launch vehicle, LVM3, which successfully launched missions like Chandrayaan-2 and Chandrayaan-3.

Further, in this year’s budget, finance minister Nirmala Sitharaman announced the government’s intent to establish an INR 1,000 Cr VC fund. Spacetech startups also got a big boost with the 0% GST implementation in 2023.

And with the road opening up, venture capital firms, corporate venture funds and angel investors have swarmed to the spacetech opportunity.

VCs Shoot For Spacetech 

According to data from Inc42, there are currently more than 150 spacetech startups in India catered to by an active VC ecosystem comprising 50+ venture capital funds – both domestic and international.

Prominent Indian VCs backing this new class of startups include pi Ventures, Speciale Invest, Kalaari Capital, Blume Ventures, Peak XV Partners, Lightspeed, Force Ventures, and growX Ventures among others.

While the expanding private space tech startup landscape and ongoing government support present a lucrative opportunity for investors, the presence of VCs is equally vital for the sector’s long-term growth.

Vishesh Rajaram, managing partner at Speciale Invest, underscored the importance of VC investments in the development of the Indian spacetech ecosystem. Despite favourable conditions, the sector still requires substantial capital investment, particularly for upstream technologies that often have longer gestation periods and higher capital expenditure needs.

“In tandem, a robust domestic market—both governmental and private—must emerge for these technologies. Otherwise, startups will struggle to commercialise their innovations, impacting their ability to generate revenue and raise subsequent funding,” Rajaram added.

Do Indian Spacetech Startups Have The Edge?

India’s heritage in spacetech is more than six decades old. This has resulted in a strong talent and advisory pool, educational institutes with the relevant coursework amongst others.

Indian spacetech players are developing faster, more efficient, and cost-effective solutions at scale. A prime example of this is the Mars mission, which was completed on a budget smaller than that of Hollywood space movie Gravity.

“As the Indian spacetech companies continue to innovate, grow and show traction, I see more and more Indian spacetech startups going global as the problem statement is truly ‘universal’,” Laxmikanth V, managing partner, Pavestone Capital told Inc42.

At the same time, the ecosystem offers a very mature supply chain for vendors and manufacturers for space components, acting as a backbone for future growth. Inc42’s 2023 report on spacetech notes some of key MSMEs in this regard such as Ananth, Ajista, Capronic Systems and RMSI among others.

These MSMEs offer services in some of the key areas such as aerospace component manufacturing and testing; satellite component manufacturing and ground station equipment; automated testing equipment; launch vehicle engine manufacturing and assembly and GIS consulting.

As Hemant Mohapatra, partner at Lightspeed India Partners said in an earlier interaction, India has the opportunity to become a space technology partner for the world, given the mindset of building at low cost. “A lot of countries would look at India as their supplier of choice for semiconductors, spacetech, defence tech. For the first few years, this would probably be the ASEAN nations that trust India. It would be followed by friendly Western nations, and then many more countries over a period of time,” Mohapatra said.

AI Fuels Space Applications 

Where there’s innovation, AI cannot be far behind. And within spacetech, AI has a significant role to play when it comes to processing satellite sensor data, imagery and catering to next-gen solutions as spacetech matures.

A prominent example is GalaxEye, which is building a sensor that fuses synthetic aperture radar (SAR) and optical data providing earth observation (EO) data even through cloudy weather or night time for use cases in sectors such as agriculture, marine, defence and insurance. The company has signed a deal with Elon Musk’s SpaceX to launch these EO satellites.

Moreover, startups like InSpace Technologies and Digantara are figuring out solutions for in-space debris management which help maintain the safety of space assets from space debris. Mumbai-based Inspecity is building robotics, sensing and propulsion technologies that can extend the life of satellites in space, thereby increasing the amount of revenue that the satellite operator can make.

The advent of AI is expected to drive and accelerate these innovations not only due to productivity efficiency but also thanks to next-gen data analytics

Rajaram believes that AI will accelerate the design process for space systems and components, as well as optimise mission planning, fuel consumption, time of flight and other critical indicators.

Further, autonomous systems could potentially carry out more complex missions on the moon, Mars and other untouched territories, while improving processing of massive data from space and provide more relevant and accurate insights to scientists and researchers.

However, Pavestone’s Laxmikanth has a slightly different viewpoint here. He emphasises that data analytics is already being used at scale in this industry and it is still early in the hype cycle of AI / ML for its use cases to be established in an industry like spacetech.

“I believe role of AI-ML would not lie in mission critical use-cases where the data must be accurate and not probabilistic. It would rather lie in areas with huge datasets with non-mission critical use cases utilising geospatial data, telemetry data, and more,” he added.

India Spacetech Beyond 2030 

From the launch of India’s first satellite Aryabhata in 1975, to Chandrayaan-3’s historic moon landing, India’s spacetech ecosystem has made significant strides. And now startups are carrying the torch forward.

Despite these achievements, challenges remain.

It would be fair to say that across the Indian spacetech ecosystem, startups are currently in the growth stage, and no one has scaled up enough to hit the late stage and attract mega deals.

While investor interest in spacetech is growing, nearly 74% of investors have made only one deal within the ecosystem. Also, in 2024, no new fund specifically focused on spacetech startups has been launched so far.

This raises an important question: Are Indian VCs ready to increase their investments in spacetech startups with larger funding rounds, given the sector’s need for patient capital?

Roopan Aulakh, managing director at pi Ventures, acknowledges this issue. “In India, the availability of growth capital for spacetech startups remains a challenge. While seed funding is abundant, there are limited options for tech-mature, pre-revenue spacetech startups to secure the necessary capital to scale,” she said.

The potential, however, is undeniable and vast as space itself.

Spacetech is already integral to daily life, from weather forecasts to live television and navigation. Global space spending was recorded around $570 Bn+ in 2023 and is projected to nearly triple to $1.8 Tn by 2035 within the next decade.

For India’s spacetech ecosystem to thrive, it is imperative to drive adoption of space-centric applications by companies on the ground.

Unlike other sectors, spacetech can be a very unforgiving business, because the cost of failure is catastrophic. So it’s also natural that venture capital funds and investors are also playing it safe and still gauging the temperature of the ecosystem, before deploying the big cheques.

Speciale Invest’s Rajaram believes that the government’s INR 1,000 Cr fund is finally backing the talk. “It will make a bunch of other people think about this more seriously as a sector. It also sends a very positive signal internationally for investors to consider participating in the space sector in India.”

India is beginning to see more of such funds investing in deeptech sectors but it will always be a smaller market compared to the consumer market. There cannot be a one-size-fits-all model in a market of this size and magnitude, especially with the global opportunity being more clear in spacetech than in other sectors.

The post Time For Liftoff? How The VC View On India’s Spacetech Startups Is Changing appeared first on Inc42 Media.

When Crocs debuted in 2002, the American footwear brand was an outlier in a market dominated by storied incumbents like Puma, Adidas, Skechers and others. As recently as 2021, it still struggled with its image as the most polarising of footwear brands that often pushed the boundaries of fashion and humour.

But in spite of the persistent scepticism, Crocs has emerged as a global powerhouse with a market capitalisation of $8.3 Bn. It has also joined the top 10 international footwear brands, alongside industry titans like Nike, valued at $124.9 Bn.

Aesthetics may not be a strong point for Crocs. But the comfort it provides resonates with consumers worldwide. The brand disrupted the footwear market by introducing a polymer-based material that was lightweight, dustproof and water-resistant – groundbreaking features at the time.

Harshil Salot, founder of the direct-to-consumer (D2C) mattress brand The Sleep Company (TSC), operates in a different space. But he draws parallels between Crocs and his brand’s innovations in the comfort tech industry.

Launched in October 2019 by Harshil and his wife Priyanka (both IIM-Calcutta alumni), the brand differentiates its products by using SmartGRID, a patented technology developed in-house. The startup uses thermoplastic elastomer (TPE), a hyperelastic polymer or natural rubber-like material, made into a grid shape to distribute the body pressure evenly and improve sleep quality.

Talking about SmartGrid’s unique features, Harshil explained how TPE intelligently adapts to body contours and provides cushioning and firm support based on body requirements. For instance, it enhances comfort for body parts like the head and the hips but remains firm around the back/spine as it requires the support. “This adaptability ensures better comfort and long-term spinal support, a critical USP that determined the brand’s early success,” he said.

In contrast, traditional mattresses made from memory foam, latex or springs are either too soft or too firm, but not both.

“SmartGrid is our core technology, and we are bringing this to every category of comfort tech. We have patents granted in India and Japan and have filed for the same in China and many EU countries,” added Harshil.

TSC has also ventured into bedding accessories, including fitted sheets, pillows and comforters. A smart recliner bed was launched in 2021, followed by ergonomic chairs in 2022 and recliner sofas and adjustable desks in 2024. Industry insiders lauded the move, saying it is not enough to remain a SmartGrid-slab company. As mattresses do not figure among frequent purchases, anything less than new products or novelty experiences cannot keep the shoppers glued to the brand’s ecosystem.

India’s mattress market, projected to reach $3.2 Bn by 2029, has undergone a quiet revolution. Once dominated by legacy brands like Kurl-on (now part of the Sleepwell portfolio), Duroflex, Springwel and more, mattress shopping was a routine, in-store experience until the middle of the last decade. But the state of the industry began to change since 2016, with the rise of new-age mattress brands like Wakefit, Sunday, Flo, Sleepycat and The Sleep Company.

Each promises an innovative tech twist to its feature-rich products and claims to redefine what people think of comfort and sleep. Nevertheless, it is a crowded market, and TSC is locking horns with traditional players and new entrants.

Incumbents are not too impressed by the category disruptors or their take on orthopaedic benefits and other tech advantages. In contrast, plenty of ‘woke’ consumers take sleep seriously, track sleep quality and believe these brands are selling innovation and luxury, which will impact comfort and lifestyle. (Remember Crocs?)

It’s not just customers who resonate with new-age mattress brands. So do investors. The Sleep Company raised around $44 Mn+ from well-known investors such as Fireside Ventures, Premji Invest, Alteria Capital, LogX Ventures and Mamaearth cofounder Varun Alagh.

The startup turned a profit within two years of its launch, securing INR 1.04 Cr in FY21. But the pandemic had started just then, and comfort tech products saw a massive spike in demand, pushing TSC to open many COCO (company-owned, company-operated) stores by FY23.

As of October 2024, it runs more than 100 of these stores across 25 cities, with most of the outlets in Bengaluru (21 stores), Hyderabad (15 stores), Mumbai and Delhi NCR (12 stores each), and Chennai (10 stores). All its products are made in the company’s two manufacturing units, one located in Bhiwandi, Maharashtra, and the other in the Nelamangala taluk of Karnataka, employing 141 people.

The aggressive expansion fuelled its top-line growth nearly 28x, from INR 11.74 Cr in FY21 to INR 328.19 Cr in FY24. But the rapid scale-up came at a cost and resulted in year-over-year losses. TSC posted a loss of INR 48.31 Cr in FY24, up from INR 37.06 Cr in the previous fiscal year, a 30.35% rise.

Expenses surged as well, reaching INR 386.69 Cr in FY24 compared to INR 166.68 Cr in FY23 and INR 67.94 Cr in FY22, reflecting the financial strain of its ambitious growth strategy. For context, FY24 numbers are unaudited at the time of publishing this story.

“In FY22, 70-75% of our revenue came from online sales, but FY23 was all about building a solid business foundation,” said Harshil. “We invested in the right technology, expanded offline and strengthened the team, which enabled us to achieve almost 160% YoY revenue growth in FY24.”

How The Sleep Company Got On Track To Begin The Mattress March

For the Salots, the idea behind The Sleep Company rose from a personal requirement. The couple hadn’t been getting a lot of rest when they became new parents, and they soon realised the importance of a good mattress for comfortable sleep. It was 2016, but in spite of an extensive search, they could not find a product that met their expectations.

The mattress quality in India lagged behind Western standards, and the buying experience disappointed them. Most mattresses were sold through exclusive brand outlets (EBOs) or multi-brand outlets (MBOs), but the sales staff often lacked the technical knowledge to address customer concerns.

“Conversations felt superficial,” recalled Harshil. “The salespeople focussed more on the price than explaining product benefits and their unique features.”

Around that time, the duo also learnt about the bed-in-a-box, compressed mattresses in cardboard boxes or plastic wrappings delivered straight to buyers’ homes. After hassle-free unpacking, these will expand to their full size within a few hours. The innovative technique transformed the logistics process, which was previously a messy and labour-intensive method of shipping heavy slabs that could be damaged if folded.

“It’s when we realised that the category was ripe for disruption, and we must do something to improve product quality and ensure smart packaging,” said Harshil.

The duo was ready to take the challenge, but The Sleep Company did not happen overnight. At the time, Harshil managed his family business, which exported high-end engineering products to the EU and North America, while Priyanka was a marketing head at Procter & Gamble. In April 2018, she left her job to focus on research and led a team of scientists headed by former DRDO scientist Dr. AK Tripathi. Harshil eventually joined her, and the project became a shared passion.

Their initial plan was to complete research and launch the product in three months. But it took nearly 18 months to perfect the material and the manufacturing process. “Seven or eight months into R&D, we were not even sure if we would be able to launch any product at all,” admitted Harshil.

“Consumer preferences in India were changing, but how fast the market would grow was still uncertain. We kept pushing, though, and launched in October [2019] on Amazon India and our D2C website.”

Market Strategies, Techvantages Keeping The Sleep Company Ahead

Just like many emerging brands, The Sleep Company experienced a slow start. The founders left no stone unturned to gain traction, daily interacting with customers to gather feedback. “Our products mostly got a five-star rating, as users could cope better with sleep issues like insomnia. Nevertheless, it posted a modest revenue of INR 11-12 Lakh in the first five months post-launch but managed to secure a small profit in FY21.

“Then the pandemic hit hard, and it turned out to be the biggest turning point for us,” said Harshil.

The series of lockdowns forced most manufacturers and service companies to stop operations. But mattresses came under essential commodities, and the Salots kept their factories running. It helped the newcomer gain online traction, win consumer trust in troubled times and solidify its product-market fit. By April 2021, the startup hit a monthly revenue stream. Going ahead, it broke into offline retail (more on that later) and recast itself as ‘the Apple of mattresses’ that helped develop a lucrative affection for the brand that thrived on ‘experience’.

Here is a close look at how the founders developed The Sleep Company to climb from zero to one.

Building For The Mass-Premium Segment

Harshil and Priyanka discovered that a single manufacturer made mattresses for multiple brands, which were sold under different labels but at slim gross margins to drive volume. Understandably, this approach was not ideal for a new entrant eyeing recognition and robust returns.

They went for premiumisation and put the brand price slightly higher. Earning better margins helped them invest more in marketing and brand-building. Their proprietary technology and disruptive advertising created a unique brand identity in a competitive market.

Early Buzz Through Endorsement, Word-Of-Mouth 

The founders took another bold step early in their journey by bringing in Bollywood actor-producer Anil Kapoor for celebrity endorsement. They did it as soon as The Sleep Company started generating INR 1 Cr in monthly revenue, creating a lot of early buzz and boosting consumer confidence.

Word-of-mouth referrals followed as happy customers recommended the brand.

Consistent Marketing For Brand Recall

The brand’s USP lies in material-based patented innovation, which sets it apart from the competition. The founders frequently compare TSC’s features and benefits with other market alternatives like memory foam and latex, highlighting the former’s adaptive support and 2.5K air channels on the top layer to cool body heat.

Such consistent marketing drives home the same core message every time – its product superiority remains unmatched in the market. This communication focus from Day 1 has gradually attracted customers and has built trust over time, positioning it as a business with strong brand recall.

The Tech Behind Successful Storefronts 

The Sleep Company has developed data-driven solutions to target customers and validate store expansion. With the help of an experienced team and advanced technology, the brand collects and analyses 300+ variables per customer when delivering products from experience centres. These variables could range from average rental prices in the vicinity to dining costs, gym and salon density and much more to create internal profiles and identify common traits among its customers.

Armed with this information, the brand maps customer density across a specific locality’s micro-markets and pinpoints target areas. Next, it uses a specialised tool to analyse foot traffic patterns on specific streets (of a target area), understand who is visiting and when, and help the team select ideal locations for new stores.

TSC’s business development team then negotiates rental deals with landlords and property owners. This systematic, tech-first approach, honed over two years, enables the startup to predict potential store performance accurately.

Vertical Integration For Business Success

As Harshil emphasises, the startup’s integrated approach – from material innovation to in-house manufacturing and COCO outlets – has eliminated intermediaries from the entire system. The result is a streamlined, efficient and cost-effective supply chain.

In a highly fragmented mattress industry where dealer commissions typically range between 25% and 35%, this vertical integration allows the brand to maintain competitive pricing while safeguarding healthy profit margins.

How The Sleep Company Cracked Offline Retail

If hitting the profit button in FY21 was the first landmark, The Sleep Company continued to grow in the following fiscal year, given the pandemic push and its ascendancy in online sales. By April 2022, the brand reached an annual revenue run rate (ARR) of INR 100 Cr. But the next strategic move must be a leap from digital-only to omnichannel (online+offline) distribution to keep up the momentum.

“To be a top brand, you need an omnichannel presence. As mattresses are touch-and-feel products, many customers wanted to try and buy, and we used to get loads of those requests,” recalled Harshil. The founders realised that offline expansion would be crucial to emerge as a pan-India mattress destination.

Moving offline was challenging. The traditional mattress market was largely unorganised, and even big players were not earning big as dozens of competitors crowded the market. For example, the country’s largest mattress brand (which Harshil did not name) operates about 12K stores but generates just INR 60-70K per store per month. In fact, the high commissions these brands pay to retain dealers deter them from investing more in product innovation, skilled staff and visual merchandising.

“Within a few months, we met around 8.2K dealers and distributors across geographies but soon realised that our products would only get pushed based on the commission we offer. Dealers also demanded long credit periods, which could affect our cash flow. Sadly, no one talked about technology, product differentiation, or customer experience,” rued Harshil.

This approach did not align with The Sleep Company’s vision. So, the founders set up COCO stores, launching seven outlets in key destinations like Delhi NCR, Mumbai, Bengaluru, Hyderabad and Pune.

To gauge their brand’s performance, the Salots benchmarked their revenue against Duroflex, a competitor also running a chain of company-owned and company-operated stores. At the time, those stores used to earn about INR 15-20 Lakh per month.

“Our goal was to exceed Duroflex numbers by 15-20%. We opened our first store in Koramangala [Bengaluru] in June 2022 and generated more than INR 50 Lakh in the debut month. That was a huge boost for us,” said Harshil.

In pandemic times, sleep became a major health concern for discerning consumers, who were more careful when buying mattresses. In the first month of their offline expansion, TSC’s sales team handled numerous technical questions from customers about mattress density, solutions for back problems and product benefits.

“We knew the limitations of an entirely sales-driven model and realised the need to create an experience to help our customers make informed decisions,” said Harshil.

In sync with this vision, TSC designed its stores as the ‘Apple’ of mattresses with a strong brand identity and an experience-driven customer journey. Each store features a sleep lab to respond to queries on mattress tech, and customers can test the products for 20-30 minutes. Highly trained sales staff provides personalised assistance, focussing on solving customer problems.

The Sleep Company also provides a free trial for 100 nights for people buying SmartGRID mattresses. “Research shows it takes at least three to four weeks for the body to adapt to a new mattress. If our customers are not completely satisfied within 100 nights, we provide a full refund,” said Harshil.

The startup has introduced a referral programme and offers discounts to existing customers who help grow the network. It also provides free shipping, a 10-year warranty and no-cost EMI options to enhance the buying experience.

Key Learnings For The Sleep Company & Plans For FY25

Going by the capital raised, even amid a harsh funding winter, investors have seen enormous potential in TSC and its innovations. But the founders admitted their missteps, saying the insights gained would shape their future strategy. Take, for instance, the decision to launch wooden beds, once a popular category on Amazon. The Salots said they jumped in without full knowledge of that market and pulled out the product after a few months.

“We should not step into areas outside our core competence just because there is market demand,” said Harshil. It underscored the importance of building internal capabilities first and focussing on strengths rather than chasing trends.

“Again, the brand’s offline expansion taught us some valuable lessons. Some places did not perform as expected and we had to close a few outlets. Our initial grasp of consumer behaviour was lacking at the time. But these setbacks led to process improvements and the outcomes will be better when we launch other stores,” he observed.

Harshil, however, believes that experimentation is the key [to innovation and success]. “Startups need to fail fast and learn quickly. The Sleep Company embraces failure as an essential part of the learning curve and uses those lessons to sharpen its vision and strategy.”

Another early challenge was talent acquisition. The business struggled to attract the right people as it was too small and had limited vision. It often hired fewer people even when more hands were needed. However, with guidance from leading investors The Sleep Company began hiring early and building a strong team, which were crucial for success.

TSC also had to shift its business focus and let go of its digital-only approach, which is the classic trait of a pure-play D2C brand. According to Harshil, that is another practical business lesson, as an omnichannel strategy is essential for any D2C brand to scale successfully.

“Consumers are transitional; they research online and purchase offline, or vice versa. To cater to all buying behaviours, you need an online and an offline presence,” he explained. The startup’s focus on consumer obsession and insights from its store chain have helped it scale effectively.

For FY25, The Sleep Company’s goal is clear. It is looking at sustainable, long-term profitability. “We are not targeting profits just for this year. We are thinking about what actions today will drive outsized returns over the next five years,” said Harshil.

With strong unit economics in place, the founders are confident of breaking even in the current financial year and outpacing industry growth. While the startup arrived heralding the SmartGRID technology, it now aspires to emerge as a legacy brand in the comfort tech space, setting up new wellness standards and helping people sleep deep and sit ergo-smart.

[Edited By Sanghamitra Mandal]

The post Behind The Sleep Company’s INR 300 Cr Revenue Run appeared first on Inc42 Media.

India’s emergence as a fast-growing economy and a vibrant startup ecosystem has caught the attention of global private capital for years. Private equity and venture capital firms from all over the globe have transformed the local investment landscape, collectively investing billions of dollars in Indian companies.

The country is now home to the PE/VC industry’s who’s who, from storied VC players like Tiger Global, SoftBank and Sequoia/Peak XV to prominent PEs such as Warburg Pincus, The Carlyle Group, KKR, Blackstone and CVC Capital. Even during the funding decline, PE-VC deal activities in India touched $39 Bn in 2023, returning to the pre-Covid-19 levels. Its role in Asia-Pacific PE-VC activity is also growing significantly. In 2023, India accounted for nearly 20% of all PE-VC investments in APAC, up from 15% in 2018.

However, there is an interesting twist in the narrative. Now that VC funds have pulled back and a funding winter has ensued, PEs are keen to invest more in startups. According to Tracxn data published in The Hindu, as many as 321 Indian companies have raised PE funding since 2021, and all bypassed venture capital in the process.

That does not mean PE and VC players are at loggerheads. It is more of a symbiotic progression as PEs take over where venture capital stops, says Gaurav Sharma, the India head of Investcorp, a Bahrain-based PE firm with a bullish outlook on India. The country’s huge growth potential did not escape the PE’s notice more than a decade ago, prompting it to identify India as a key investment destination.

Set up in 1982, the PE player has an impressive track record, with AUM (assets under management) worth $52 Bn. It initially focussed on high-profile investments in the US and Europe, backing iconic brands like Gucci and Tiffany. But realising the potential of emerging economies, it tested the waters between 2013 and 2018 with investments in a few Indian companies such as Medi Assist Healthcare, InCred Finance and ASG Eye Hospitals.

In 2019, the firm solidified its commitment and launched its India operations by acquiring IDFC Alternatives’ private equity and real estate investment management businesses. The deal brought together Gaurav Sharma, Varun Laul and Anshuman Goenka, who now lead Investcorp’s India team.

Sharma, head of Investcorp’s India investment business since 2019, brings over 19 years of experience in entrepreneurship, private equity, mergers and acquisitions, corporate finance and investment banking. Laul joined the PE firm in 2020 from Zodius Capital and has similar experience in PE, i-banking, management consulting and consumer marketing. Goenka, who previously headed the PE business at IIFL Wealth & Asset Management and handled $3 Bn in assets, came in as a partner in 2019. He has specialised in investing, i-banking and management consulting for more than 25 years.

“When Investcorp entered India, it was primarily a mid-market buyout player in the US and the EU. But we soon realised that even with minority stakes, we could significantly elevate companies with our global expertise,” said Sharma in a recent interaction with Inc42 as part of our Moneyball Series.

The India team now manages an AUM of around $700 Mn and aims to increase this to $1 Bn by the end of 2024. It has completed 18 investments and made notable exits from ASG Eye Hospitals, Medi Assist Healthcare, Safari Industries, NephroPlus, Bewakoof and others.

The global PE firm is also targeting other Southeast Asian countries. However, India remains one of its core markets, underscoring the country’s importance within Investcorp’s broader Asia strategy.

During his conversation with Inc42, Sharma shared insights into Investcorp’s investment thesis, the burgeoning opportunities for private equity in India, target sectors, emerging trends and more. Here are the edited excerpts from the interview.

Inc42: You have been one of the most active investors in India for some time now. What is your core investment thesis driving the operations here?

Gaurav Sharma: Well, first things first. We focus on the mid-market space and write cheques ranging from $25-30 Mn to $100 Mn. We don’t typically invest in early stage startups. Instead, we are a private equity fund investing in growth-to-late-stage businesses, especially those run by first-generation entrepreneurs.

Our key criteria include the existing cap table, unit economics, path towards profitability, disruption potential, scalability and exit opportunities. Whether it is an offline venture, a traditional business, or a new-age technology company, our investment fundamentals remain the same.

Take Wakefit, for instance, one of our recent investments. Although it is a tech-first company, we invested there due to its omnichannel approach. We believe a brand must reach online and offline consumers to grow sustainably. Another example is Global Dental Services, a chain with more than 500 dental clinics in India, creating a sophisticated dental ecosystem.

Of course, mattress brands or dentistry services are not new here. There might be 1 Lakh+ dental clinics in India, and we have popular brands like Sleepwell and Kurlon. But both are very fragmented, unorganised industries.

The question is: How do you disrupt a space already dominated by traditional players and even build an INR 1K Cr+ business from there? We are looking to invest in companies that can achieve this feat and bring high quality and global standards at low costs.

With our global investment experience, particularly in the mid-markets of the US, the EU and Gulf countries, we bring a wealth of expertise to our portfolio companies. We assist them in overseas expansion, IPO, organic M&A, buyout and CXO-level hiring. This capability is our key differentiator.

We typically take significant minority stakes, usually 20-40%, and aim to exit within four to six years.

Inc42: PE funds usually seek controlling stakes in businesses. Given that, how will you explain your strategy regarding minority stakes?

Gaurav Sharma: Let us look at it from another perspective. In growth investing, our primary focus is backing the founders and the founding team. Even if we hold a minority stake in a company, we don’t consider it a disadvantage as long as we can identify the right founders and the most suitable sectors. Those are the most critical factors; the rest will automatically fall into place.

Our shareholder agreement protects our rights from a governance point of view and ensures that all requisites are in place, akin to what you find in a traditional PE deal. No major decisions within the company can be taken without our consent. Even as minority stakeholders, these rules and regulations, checks and balances allow us to exert significant control over critical decisions and enjoy a level of influence typically associated with majority stake ownership. That’s why we are comfortable with minority holding; it is pretty secure.

But ultimately, our investments hinge on aligning with the founders. This is the most critical part of our underwriting. We align ourselves with the founders’ thought processes and assess how we can best support the company’s growth, regardless of whether our stake is 20% or 40%.

Inc42: Investcorp has been actively investing in India since 2019. How have you evolved over the years?

Gaurav Sharma: In many ways, I would say. We have been fairly active in the mid-market space and it has undergone a big shift. There has been a lot of churn within the ecosystem. Take, for example, the consumer tech bubble of 2021. Many got carried away by looking at the top-line growth but neglected growth essentials like unit economics and profitability.

People have learnt from those past mistakes. Both founders and investors now focus more on unit economics and profitability. Again, the ongoing funding winter across the ecosystem has kept even the best investors on the sidelines, waiting for the right time and deals. It was probably not the best of times for startups. But we also gained valuable lessons as investors. We keep tweaking our investment strategy based on what we have learnt. That’s something we have done very successfully.

When we officially started in 2019, we had a modest corpus and focussed on smaller deals while exploring various themes. This led to investments in startups like Zolostays, NephroPlus, Intergrow Brands, Citykart Retail and Bewakoof. But from 2020-2021, we honed our focus, selected specific investment themes and stopped doing smaller deals. Our assets under management grew to $700 Mn, allowing us to write larger cheques and pursue better opportunities.

Moving forward, we will target companies where we can assess the life cycle of those businesses to identify the optimal entry points. This is one of our biggest strategic shifts in the last three to four years.

We are now more inclined to invest in companies like XpressBees, Wakefit and FreshToHome, which have shown significant scale and established themselves as strong brands. Our recent deals with Wakefit, Global Dental Services, NSEIT, and Canpack reflect our consistent strategy, concentrating on our core sectors and private equity fundamentals. We intend to continue this approach in the foreseeable future.

Inc42: What are the most promising sectors for Investcorp?

Gaurav Sharma: In India, Investcorp has positioned itself as a dynamic investor in mid-market companies, especially within consumption-linked sectors and real estate. As a private equity player, we look at opportunities across a broad spectrum, including healthcare/pharma, software and business services, financial services and the consumer space.

In the past four years, we have backed a wide array of companies, including Wingreens, V-Ensure Pharma, Intergrow Brands, Bewakoof, FreshToHome, Zolo, InCred, Citykart, NephroPlus, Unilog, XpressBees and Safari Industries, among others. This approach indicates our deep dive into both traditional and new-age ventures.

Inc42: Tell us more about the sectors at the forefront of your investment pipeline. 

Gaurav Sharma: Our pipeline shows robust activity in the healthcare/pharma sector, which is our top priority. Software services come second in terms of deal flow.

Within healthcare, we strongly prefer single-speciality providers. For instance, the ASG Eye Hospital, currently India’s second-largest eye-care chain, was our investee company. ASG successfully implemented a domestic expansion strategy during our investment tenure to enter new and underserved Indian markets. This led to a 2.5x rise in ASG units and a tripling of revenues.

We exited ASG in September 2022, selling our stake to General Atlantic and Kedaara Capital. This acquisition will bolster ASG’s presence in Southern India.

However, I won’t be able to pinpoint specific sub-sectors within the core sectors where we invest. PE play is highly granular and opportunistic. It is a micro game, and we meticulously assess every deal/opportunity based on its merit.

Inc42: How do investments impact ownership structures?

Gaurav Sharma: Entrepreneurs’ stakes get diluted when VCs come on board. But when we [PE players] step in, we find that most early investors do not hold a majority stake and are not exit-ready. This allows us to make minority investments in a very interesting, different way. Even when holding non-controlling stakes, we can help businesses scale and grow for good exits without going for buyouts.

Venture capital and private equity investments are fundamentally different. VCs come in earlier, and they are willing to take risks that we are not comfortable with. Their return and investment profiles also differ significantly from ours. For instance, when we invested in Wakefit, it had already hit INR 1K Cr in revenue and operated 60 offline stores. On the other hand, VC firm Peak XV had invested much earlier and was on the cap table before we came in.

Of course, some big VC firms run separate investment vehicles for growth stage companies or large follow-on rounds. An Accel Growth Fund and a Peak XV Growth Fund have also been started. But unlike typical VC activities, these funds have distinct investment styles and leverage different capital pools.

Inc42: Earlier, late stage VCs like Peak XV, SoftBank and Tiger Global invested large amounts in Indian startups. Did that disrupt pure-play PE operations?

Gaurav Sharma: That was a trend some time ago when global VC funds used to write large cheques for growth stage Indian startups. Of late, very few venture capital firms are willing to engage in $100 Mn deals as standalone investors.

If you remember, VC funding went downhill during 2022 and 2023. It was evident globally and within the Indian startup ecosystem, owing to global headwinds, business volatility and hyped valuation games. The funding winter has not completely thawed and VC funds are pulling back in certain sectors.

As for PE investors, especially those focussing on growth-to-late stage investments like us, we have our distinct niche. We have always followed our PE fundamentals and never made any VC-like investment. Our recent $125 Mn buyout of NSEIT (the National Stock Exchange’s digital technology arm) is a prime example. Such deals are beyond the VC scope, but we are comfortable in both scenarios.

Inc42: PEs like L Catterton and Great Hill Partners play a crucial role in startup funding. Will PE-VC operations overlap and target the same startups and LPs?

Gaurav Sharma: The investment landscape in India is vast and varied. All investor classes can coexist here for a long time, leverage opportunities, and see a considerable rise in deals. More importantly, VCs and PEs operate under entirely different dynamics.

VCs have been instrumental in startups’ growth. They are the pioneers who identify innovative concepts, take early risks and fund entrepreneurs to help them reach a certain scale. Many startups might not have gotten off the ground without their early support.

Growth-to-late stage PE funds take over after a company reaches a certain scale. We put systems, processes and management teams in place, fine-tune execution, enhance its operational maturity and prepare it for exit – via IPO, secondary sales, strategic acquisitions and more. From VC to PE, it is a symbiotic progression crucial for sustainable growth and long-term success.

Inc42: What’s your take on the AI-GenAI wave? Will it be long-term and sustainable?

Gaurav Sharma: We have always said we back tech-enabled businesses. Technology is undoubtedly a crucial enabler for us. But that does not mean we only invest in tech-centric companies. We have a more nuanced approach, and our investments depend on the sectors businesses are in and the scale they want to achieve.

A new-age, internet-first company or a tech-led first-generation firm is expected to have a robust technology foundation. And they often incorporate AI/GenAI to enhance their processes and operations. But this cannot be the sole criterion for investment. We do not rule out companies operating in core sectors like manufacturing just because they lack AI integration. Our investment decisions are guided by broader considerations, not just the presence of AI/ML.

Unlike venture capital players, which aim to disrupt entire markets through AI/ML innovations, we must recognise AI/ML as an enduring theme. Given the recent data explosion and how businesses leverage it to their advantage, we cannot ignore the importance of this new technology. We are aware of the latest developments and their implications, but we do not have a specific strategy for AI investments.

Inc42: What are your thoughts on the entrepreneurial landscape in India?

Gaurav Sharma: Indian businesses bring significant value, and I have always been impressed by the high calibre of the entrepreneurs here. The country’s entrepreneurial ecosystem is thriving, as the founders are ambitious and precisely know what they want to achieve. Big investors are attracted by what they see as a vast opportunity. But it is up to us to navigate this landscape carefully to avoid fundamental missteps.

As we know, significant shifts have occurred across the consumer tech sector since 2021. The earlier focus on top-line growth has given way to bottom-line profitability. Investors are wary of backing companies that prioritise growth at any cost and burn cash without a clear path to profitability.

Despite the buzz around new-age technology startups, PE funds view manufacturing as a core investment area. This trend will persist, bolstered by government initiatives that foster job creation and economic growth. As a result, PE investors increasingly support B2B ventures, which were less attractive when the focus was predominantly on B2C models.

Regardless of business models (B2B, B2C) or industry segment (manufacturing, for instance), investing in emerging markets like India requires a highly experienced team on the ground. We will always need a team that has been through numerous market cycles and understands the local ecosystem well.

Inc42: Finally, how will you sum up your India plan?

Gaurav Sharma: Well, India is emerging as one of the fastest-growing major economies. We have done well and we are extremely bullish about the Indian market. We will continue to invest here across the themes that we like.

We would love to ramp up our investments rapidly, but there are practical constraints – we can’t go beyond a certain pace. Our capacity to engage in multiple transactions simultaneously is pretty limited as a PE fund. Consequently, we plan to do three to four deals a year. Our growth will be closely aligned with the market here, and we are keen to leverage the substantial growth opportunity that India provides.

[Edited by Sanghamitra Mandal]

The post Investcorp’s Gaurav Sharma On The Global PE’s India Investment Thesis, ‘Minority Stake’ Strategy, And More appeared first on Inc42 Media.

In January 2023, the cofounders of Mygate, a visitor and security management platform for gated communities, were experiencing turbulence. Set up by Vijay Arisetty, Abhishek Kumar and Shreyans Daga in 2016 and widely lauded as a category pioneer, the Bengaluru-based startup was about to close FY23 with dismal numbers. Eventually, it earned INR 77.2 Cr in revenue against a loss before tax (IND AS) of INR 226.4 Cr, a 57.9% YoY increase from INR 143.3 Cr loss in FY22.

Mygate’s financial health raised eyebrows over the years as the startup sold subscriptions to apartment complexes. No doubt its revenue grew significantly year over year, but so did its losses. Plans were afoot to expand beyond its three core services – gate security (visitor and delivery management), in-community operations (booking amenities, managing clubhouses and related payments) and home management system (home services, help desk, household staff management, recurring bill payments). However, more advanced features like end-to-end security (think of integrated security cams or automated boom barriers) or collaboration with ecommerce firms for a ‘hitchless’ delivery ecosystem did not happen on-ground.

The app had reportedly spent a lot of cash on several features it introduced and subsequently took off, especially during the Covid-19 pandemic. But the outcome of FY23 posed dire challenges, and a permanent solution had to be sought.

A key reason behind the growing losses was a runtime error oft-experienced by startups at home and abroad. Flush with investor dollars, Mygate chased expansion without a clear focus on steady revenue generation and sustainable growth.

The startup raised two major rounds, $56 Mn in Series B in October 2019, followed by $12.2 Mn in November 2022. A clutch of major investors, such as Prime Venture Partners, Horizon Ventures, JS Capital, Acko and the homegrown home services firm Urban Company, were initially attracted to the unique concept. However, the business disruptions during the Covid-19 pandemic and the emergence of a few deep-pocketed competitors affected its early-mover advantage.

From Sluggish Growth To Rapid Expansion & Revenue Refocus, At A Cost

“In FY21 and FY22, we scaled aggressively and went from 5K to 25K communities. But throughout the pandemic, most services were offered at minimal prices or even for free. Mygate was burning cash excessively across technology, product development, personnel, sales and operations,” said Kumar in a recent interaction with Inc42.

Earlier, he was the startup’s COO but currently heads the business as the chief executive officer after a recent rejig at the top. Former CEO Vijay Arisetty was elevated to the chairman’s role earlier this year. Kumar did his B. Tech from IIT-Kanpur, got an MBA from IIM-Ahmedabad and was a vice-president at Goldman Sachs before founding Mygate.

The concept of a ‘full-service’ gated living (more on Mygate’s recent rebranding later) initially surprised many. However, Kumar clarifies the fundamental purpose of the app in simple terms. Essentially, it is a B2B2C product, which means an individual can download and use the app only after their resident welfare associations (RWAs) or similar bodies pay for the service and onboard the entire community.

After signing up, front gate guards and society residents can access the Mygate app, which streamlines security and communications. When a delivery executive arrives at the gate, the guard logs the details into the Mygate system, prompting an instant notification to the resident for approval. This approach is more secure and convenient than keeping front office log books and manually filling in the details every time a delivery is in or a guest visits.

Convincing communities to adopt a novel concept and hiring the right people for a young company were particularly challenging. No doubt Mygate was selling a consumer-facing technology service, but it needed extensive support from sales and operations for the service to take off.

“What helped at that stage was our vision to solve a significant problem across gated communities and our goal to emerge as the largest and most comprehensive community platform,” said Kumar.

Growth was sluggish in the early days, with just 20-25 gated communities in its network by 2017-18. But the onset of the Covid-19 pandemic marked a turning point. “With the communities restricting the entry of household help, drivers, delivery personnel and non-residents, manning the gates became increasingly critical, and there was a clear opportunity to scale up,” noted Kumar.

This rapid expansion led to operational glitches and massive cash burn as Mygate and its competitors pursued growth at any cost. At times, these platforms provided free services as a goodwill gesture, and some even offered incentives to RWAs to join their networks. Understandably, this approach was unsustainable in the long run.

“Around February 2023 (FY23), we took a tough call and stopped offering freebies. Our focus shifted from community acquisition to revenue generation, prompting a significant change in strategy. Mygate also laid off nearly 200 employees between December 2022 and February 2023 as part of the business restructuring, bringing the headcount down to 400,” the CEO clarified.

Refocussing on revenue, job cuts and belt-tightening eventually paid off. Within a year, the percentage of member societies contributing to the startup’s revenue rose from 15-20% to 50%. All new communities were acquired on a paid basis to rectify the earlier mistake. Total revenue reached INR 109.1 Cr in that fiscal year, a 41% jump from FY23. Mygate also reduced its cash burn by 85% during FY24, with zero cash burn recorded in Q4 (January-March quarter).

How Mygate Beefed Up Tech To Push Cost-Cutting, Deliver Value    

If culture eats strategy for lunch – a quip attributed to management guru Peter Drucker – such culture needs to be realigned with the most effective approach to deliver competitive advantage. As Mygate is a technology business at its core, it must leverage its tech stack better to eliminate an employee-heavy operating system and provide unique value. Essentially, the business required lean growth or the capability of doing more with less if it had to stay away from the cost trap without giving up on expansion.

Mygate’s founders realised that to scale the business 10x, they could not spend tenfold or grow the team size at the same rate. Instead, they needed to keep expenditures flat and the revenue curve going north. Cofounder and CTO Shreyans Daga emphasises that MyGate runs 24/7, catering to a growing user base and supporting frequent feature additions. Balancing this scale with stringent SLAs (service level agreements) while controlling costs is a formidable challenge.

To tackle multi-pronged issues, the platform has adopted a microservices architecture capable of handling 600K check-in requests per minute. This setup has ensured quick scaling to meet fast-expanding business needs. The platform is technology-agnostic, deploying the best solutions for specific problems – a horses-for-courses approach.

To wit, an enhanced core notification platform now works across various devices, significantly increasing visit approvals. Other features include pre-validated entry integrations for food and quick commerce services like Zomato, Swiggy, Blinkit and Zepto, enhancing community security and convenience.

In addition, Mygate has rolled out many industry-first features such as private guest invites (no personal details needed for entry), pet directories with vaccination reminders and enhanced tech tools for invoicing, dues reporting, user controls and payment workflows for residential communities to boost collections and management efficiency.

Its backend technology stack includes Java, Python, Node.js and Spring Boot. Specific use cases and access patterns determine the choice between RDBMS, NoSQL, or graph databases.

“Despite 100% business growth since 2023, our infrastructure costs have only risen by 10%. We control costs by adopting new technologies and re-architecting bottlenecks,” said Daga.

For instance, Neptune is the preferred database for maintaining graphs in the feed system, while RabbitMQ and Kafka form the core of efficient message distribution across microservices. Its mobile tech stack features Kotlin for Android and Swift for iOS, with some components using Flutter and React to accelerate releases.

Although the startup handles a vast data pile, data privacy and information security remain its fundamental business principles. “We comply with all Indian regulations, including ISO 27001:2022 and the Personal Data Protection Law. We are also certified as GDPR-ready, the EU framework and guidelines regarding information privacy. We do not track or sell data to advertisers, as user privacy is our highest priority,” the founders said.

By leveraging its technology prowess, Mygate anticipates 75% YoY revenue growth in FY25. It competes with Gatekeeper (by ApnaComplex), NoBrokerHood and JioGate and claims to be the largest community management app in India, with a presence in 4 Mn+ homes in 30+ cities.

Mygate Draws Flak, But Its Revenue Hunt Hits Ad Gold

Unsurprisingly, Mygate’s drive to build more revenue streams took the advertising route, featuring online ads via the app and on-premise campaigns (offline promotion) across gated communities. This has always been a lucrative proposition for brands, given the platform’s ready access to apartment complexes that house people with high disposable incomes and the mindset to explore and adopt new products.

For instance, a jewellery outlet opening in a specific postal code can use Mygate to announce its launch and promotions to 100-200 communities within a 10 km radius. The startup’s precise targeting capabilities make it a unique advertising platform at the postal code level.

Even during the pandemic, the startup saw a surge in advertising enquiries from brands eager to leverage the platform. Soon enough, it started running ads on the app, but many users cried foul, saying the push notifications were too intrusive and a distraction they did not like. In response, Mygate introduced an ad-free option for users and communities willing to pay an additional SaaS fee or revise their revenue agreements.

Incidentally, ad revenues earned from offline campaigns are shared with the RWAs, where promotions get underway. This is an additional incentive for communities to opt for the platform’s services. In addition, all communities run by Mygate can access the home services offered by Urban Company under the ‘Services’ tab on its app. Again, the default promotion is not surprising, as Urban Company invested in the startup.

The community management app now earns 65-70% of its revenue from advertising. Schools, hospitals, automobile companies and other businesses increasingly rely on Mygate to run their campaigns.

Major brands like Flipkart, Amazon, Swiggy and Zomato also advertise with Mygate, leveraging its unique capability to display ads to users as delivery executives enter their communities. This targeted advertising has been particularly effective for companies introducing new products, dark stores or grocery services. Hence, they utilise Mygate’s advertising inventory for extended periods.

Working with leading agencies like GroupM, Madison and Dentsu and collaborations with renowned real estate players, have further validated Mygate as an effective advertising platform and boosted its revenue in the past two years.

Mygate’s Endeavours: A Past Imperfect But A Future Secure? 

Mygate’s long run, wrought with trials and tribulations, made everyone curious whether the startup could eventually crack the market. Its initial business model saw few takers and the following splurge to grab market share proved near-disastrous. On the other hand, the platform continues to develop its tech muscle to cater to the evolving requirements of gated living and successfully leverages targeted promotions to amass advertising dollars. Collectively, these strategies, along with other cost control measures, have pulled it out of the high cash burn zone and improved the startup’s financial health to a large extent.

Mygate is still in the red, but a quick look at its numbers shows it is well on its way to long-term, sustainable growth. Consider this. In FY21, it posted INR 8.4 Cr in operating revenue, with expenses soaring to INR 130.9 Cr. By FY24, operating revenue surged to INR 96.2 Cr, while costs remained stable at INR 129.5 Cr, a significant operational milestone for the company.

“Many initiatives were introduced during this period, enabling us to examine the business holistically from a P&L standpoint. We reviewed each revenue item to explore scaling opportunities and analysed each cost item to enhance efficiency and service quality while increasing revenue. The FY24 results are the culmination of those efforts.”

The CEO thinks more business opportunities can be developed on the existing tech stack, as the founders aim to create a comprehensive ecosystem around community living. Mygate has already enabled access to an exclusive classifieds platform, leading to the discovery of local service providers. It is a win-win for consumers within communities, brands and the platform. But the startup is now deep-diving into this approach, integrating home services, healthcare, insurance, property buying and other features with its offerings.

This is in sync with its recent rebranding as a living experience tech company that extends its services across all aspects of everyday living. The Urban Company has already been integrated with the app as a default home service provider. The team is now piloting an emergency ambulance service in collaboration with healthcare providers. Users can request help with a single tap during medical emergencies.

The startup has also partnered with the insurtech firm Acko to distribute its products and obtained a corporate agency licence from the insurance regulator IRDAI. This permit will allow the platform to offer a wide range of policies and exclusive pricing. Mygate currently focusses on car insurance but may soon venture into health, life and liability insurance cover for RWAs.

These collaborations and consumer-facing services will be foundational for diversified revenue growth but also bring to mind what global startups like Flow could be trying to achieve. On the outside, WeWork cofounder Adam Neumann’s Flow is in a completely different sector and pretty drab – rental housing, to be precise. But what has created a lot of excitement is how it may reinvent community-driven living by providing a web of lifestyle, financial and other services around its real-estate offerings.

Mygate, with its recent branding makeover, may take a similar route and breathe fresh life into gated living, creating a bond of care and convenience among people and the places where they reside. Meanwhile, it would do well to identify more growth opportunities, monetise every product and stay sustainable to follow its newfound vision.

[Edited by Sanghamitra Mandal]

The post How Mygate Reduced Cash Burn By 85% In FY24, Turned Ad Sales Into Biggest Revenue Generator appeared first on Inc42 Media.

As the world’s cravings for everyday and exotic spices grew since antiquity and extended beyond the Middle Ages, Eurasian trade routes like the fabled Silk Road emerged and iconic explorers like Vasco da Gama put India on the global spice map. The country’s spice legacy has continued and it sells spice and spice-related products to nearly 180 countries. India’s exports in this sector amounted to 15.4 lakh tonnes and reached an all-time high of $4.5 Bn in FY24.

When Akash Agrawal, with an MBA in marketing, ran his family’s steel business in Raipur during 2010-2015, he was unaware how the global demand for healthy spices and seasonings would drive the Indian market’s upward trajectory. He was, however, exploring promising sectors to launch his startup.

“The steel industry is too structured, governed by too many regulations. But I wanted to do things differently and create a powerful brand. You cannot do that in a family business. There are norms and set patterns to follow,” he said.

His first startup was CheckedIn, a location-based social networking app designed to help people discover like-minded individuals nearby. But his first attempt at entrepreneurship did not go well and he lost INR 1 Cr within two years. After the initial debacle, he had two options: Rejoining the family business or zeroing in on the right business to fulfil his ambition and create a noteworthy brand.

Being the gutsy risk-taker he has always been, the choice was evident. After thorough research and careful deliberation, Akash and his sibling Ashish decided to disrupt India’s ‘spice story’ with a dash of new technology and launched in 2018 the direct-to-consumer (D2C) spice brand Zoff (Zone Of Fresh Food), specialising in ground, blended and whole spice categories, as well as dry fruits.

The Ingredients That Built Zoff’s Unique Spice Story

The ‘timeless’ appeal of Indian spices across cultures, cuisines and culinary arts and the subsequent growth of the genre irresistibly drew the Agrawal brothers. Given the widespread use of single-origin products, including fundamental assortments favoured by home cooks and exotic blends embraced by HoReCa chefs – the branded spices segment has emerged as the most attractive within the food space since the Covid-19 pandemic. In fact, out of the top 20 Indian food companies in 2021, five were spice companies, and their valuations are expected to be up six to seven times by 2030, per an Avendus Capital report.

As people love local/regional flavours, homegrown incumbents continue to dominate this space, making things tough for new entrants like Zoff. Nevertheless, the Agrawals managed to spot many critical areas that would help them wrest a competitive edge.

“Let us start with the whole spice market. If you think of 2047 (a landmark year of sorts as the Indian government claims the culmination of Viksit Bharat by that time), when most Indian consumers opt for ready-to-use packaged spices, where will this market go? The genesis of Zoff Foods lies in that clarity, that understanding of forward-thinking strategy needs and technology requirements,” said Akash.

To spearhead its products past storied players (think Tata Sampann, Patanjali and their ilk, and you know its competition), Zoff has adopted modern technology such as cold grinding to retain the flavour and ingredient quality (oils and vitamins) found in raw spices and well-layered Ziplock packaging to keep the moisture intact and the spices fresh for a long time (more on its spicetech later).

The startup runs a fully automated manufacturing unit and a 10K sq. ft temperature-controlled warehouse in Raipur and sources premium-quality spices directly from their regions of origin to ensure the best crop conditions. It strictly adheres to FSSAI standards for product quality and lab-tests the incoming stock in-house so that ingredients meeting the highest quality benchmarks are processed.

“Our state-of-the-art, automated plant minimises human intervention, underlining our dedication to delivering safe and superior spice products,” said Akash.

Zoff claimed a gross revenue of INR 93 Cr in FY24, nearly a 4x jump from INR 25.79 Cr in FY20, a year that marked its entry into the ecommerce space after its distribution pivot from general trade. It also posted a net profit of INR 1 Cr against the INR 11.86 Cr loss in FY21. By the end of the current fiscal, Zoff aims to clock INR 170 Cr+ in revenue, with a 60-70% rise in repeat business. It will also introduce new SKUs such as flavoured dry fruits and gifting options.

How Zoff’s Tech Stack Helped Break The ‘Legacy’ Barrier

When a D2C brand enters a market teeming with legacy players, it is bound to face the inevitable question: Do you think you can survive? As for the spice segment, where brand loyalty has been paramount over the years (think of Cookme, a brand which was launched in 1846 and is still doing a roaring business), this throws a spanner in the works of onboarding and retaining customers.

Akash remains undaunted, arguing that the dominance of established brands underscores a massive opportunity for new players keen to disrupt the existing market. A rise in the number of new entrants will help expand the market, get it more organised in terms of value and volume and usher in more innovative blends.

The Avendus study also supports this outlook. It is estimated that the organised branded spice market will reach INR 50K Cr by 2025 and blended spices will have a 35% market share by then.

When asked about breaking the ‘legacy’ barrier and creating a cult brand, Akash talked less about the exotic flavours that Zoff might be experimenting with and focussed more on the business plans and practicalities uppermost in his mind. For instance, the key to acquiring customers, he says, is all about finding the market gaps (it can be quality, convenience or something else), creating the right brand positioning and constantly improving one’s strategy.

“We realised that legacy brands are reluctant to change. They are somewhat convinced that the status quo will persist. That’s where we saw the opportunity and seized it. Nothing innovative was happening in the spice market and we decided to change that,” he said.

Since its inception, the D2C spice brand has pioneered innovative strategies to bring fresh, high-quality spices to the market. Unlike most brands, which still offer single-use sachets and large packs, requiring additional containers for storage after the packets are opened, Zoff provides Ziplock pouches to retain freshness and ensure convenience.

“Spices should be used, sealed and stored anywhere without hassles. That’s how we have developed our products,” said Akash.

During their initial research, the founders also tracked another critical issue plaguing traditional spice companies – the use of hammer mills for spice grinding. The heat generated during that process can damage the output quality, melt spices or spoil intricate designer blends. Therefore, Zoff introduced a cool grinding technology that uses air to break whole spices into small particles before grinding, thus minimising heat generation and preserving the original flavours. It further ensures fine-to-superfine grinding and high throughput for regrinds.

“Next comes another critical procedure, grading, to be precise. Our grading process for whole spices remains largely manual to ensure quality. For instance, whole cloves are graded and packed as a whole spice while the broken ones are used for grinding,” said Akash.

Of Target Markets & Marketplaces: Zoff Debunked Popular Myths To Stay Ahead    

In another significant shift from tradition, Zoff has redefined its target customer base and moved away from a woman-centric approach. Although most companies do it even now, Akash, playing a key role in Zoff’s strategy building, believes that the scenario has changed. The kitchen is no longer the exclusive domain of women. On the contrary, Gen Z and the millennials, aged between 20 and 40, are holding sway and emerging as active decision-makers in their households minus any gender bias.

“These are ground realities and we need to design our products for this new generation. Also, with our ecommerce presence, we can reach this younger demographic much faster,” he said.

Zoff was at another strategic crossroads and required to make a pivotal decision to push its growth drive. Should it bolster its presence by selling on third-party marketplaces or transact exclusively via its proprietary website? Most D2C brands do both to optimise sales, but the spice brand has opted for a differentiated strategy.

It currently offers more than 100 SKUs, but only some of its products are available on ecommerce and quick commerce platforms. While Zoff sells its entire product range via its website, marketplaces only stock frequently purchased items like cumin, amchoor (mango powder) and season specials like sesame seeds during the Makar Sankranti festival in January. This selective availability helps the brand balance the reach and convenience of marketplaces with the control and brand fidelity of direct sales.

“Spices are not the kind of products you can sell and scale from your website,” said Akash. “We need readily available items that people can add to the cart along with other goods. No one will visit a site again and again just to order spices. Hence, we need marketplaces. But when people know the brand and realise it has exclusive, value-added products worth buying, they will come more frequently.”

Ecommerce Helped When General Trade Failed To Deliver

Although ecommerce gained prominence around 2014-2015 and D2C brands emerged as niche players, online grocery was struggling at the time. Even a host of well-funded players like Grofers (now Blinkit), Shadowfax, Peppertap, LocalBanya, Townrush (acquired by Grofers), Paytm Zip, Ola Store and Flipkart’s Nearby were fighting to stay afloat, recalled Akash. That’s the reason why Zoff initially focused on general trade (GT) as a distribution model.

“For two years, we worked on cracking the GT market. We expanded to 20 states but eventually realised that GT was a costly affair. Finally, when Covid-19 struck in 2020, we had to let go of our entire sales team of 350,” he rued.

It was the worst of times. The startup was bootstrapped then. The founders had already invested INR 60 Cr to set up the plant. They also burnt INR 30 Cr while trying to master GT operations. And finally, they had no sales team to bring them business. There was no other way out but to opt for ecommerce.

“That’s when players like BigBasket, Zepto and Grofers revolutionised online grocery with fast, efficient deliveries and typical Q-commerce solutions. We knew it was the right time to enter, so we started selling on Flipkart. Zoff clocked a turnover of INR 2.5 Cr from that business,” said Akash.

In addition, the Agrawals started selling to police and army canteens, which saw an annual footfall of 2 Cr. Their efforts paid off and they closed FY22 with a turnover of INR 50 crore, breaking even with a team of four.

The following fiscal proved even better. Zoff registered on the CRED marketplace in August 2022 and conducted paid sampling, charging only shipping costs and giving away products for free. A similar campaign was done via the website for promotion and profit.

Meanwhile, Zoff founders appeared on Shark Tank in February 2023, where it raised INR 1 Cr from boAT founder Aman Gupta.

“By then, our monthly turnover reached INR 5-6 Cr. We also sold on quick commerce platforms like Blinkit, Swiggy and Zepto and gradually ventured into modern trade (MT) by the end of FY23,” said Akash.

ONDC (Open Network for Digital Commerce), too, is his favourite sales channel. “I am a believer in technology. Even when people wondered what ONDC was all about, we got registered and did business worth INR 1.5 Cr within three months,” he added.

How Zoff Founders View The Recent Spice Ban Row

When asked about the recent spice adulteration controversy, Akash emphasised that the ban on certain spice brands in Singapore, Hong Kong and other countries due to ethylene oxide contamination would have far-reaching implications for the spice industry in India. It may lead to a substantial decline in exports, potentially impacting farmers’ livelihoods and overall industry revenue. The current situation further highlights the critical need for robust quality control measures across the industry.

Essentially, government agencies, regulatory bodies and brands must collaborate to ensure stricter testing procedures throughout the supply chain, from farming practices to final processing and packaging. This effort may involve more stringent guidelines for pesticide use, investing in better storage and transportation to minimise contamination risks and conducting more rigorous testing at various production stages.

Akash also thinks this is an ideal opportunity to focus on organic spices that meet the required safety standards.

“These measures can help reassure consumers, rebuild trust among international buyers, and safeguard the reputation of Indian spices,” he added.

What’s Next For Zoff: More Focus On Whole Spices & HoReCa, A Relook At GT

For most people, flavours and aromas of different kinds regurgitate memories and associations. According to ‘spice masters’, these subtle psychological connections are revived through the taste and smell of spices. But for Akash Agrawal, the palate is more ‘macro’. Nothing inspires him better than the brands which have become synonymous with their categories – Saffola for oil, Kohinoor for rice, or Bisleri for water. However, to achieve that level of recognition, Zoff’s primary focus should be whole spices, he says.

“Whole spices are integral to great cooking and are recommended by dieticians for their health benefits. It is also the largest segment of the unorganised spice market. From black pepper to cumin, from fenugreek to cardamom, whole spices account for nearly 50% of a household’s total spice purchases. Hence, it makes sound business sense to expand there,” said Akash.

Currently, 45% of Zoff’s business comes from whole spices, and it aims to emerge as a leading player by 2030. This segment also provides significant opportunities for scaling up in GT and the HoReCa space. The only glitch is that chefs and purchase managers across HoReCa prefer to work with familiar brands. Until Zoff becomes a well-established name, its products may not be widely accepted or used.

“The scope for multi-level growth is all the more reason to go for general trade once again but on a smaller scale. GT is India’s largest market, accounting for 90% of the business. In fact, in the next four years, general trade and ecommerce will split evenly and grow at the same pace. Therefore, we should tap into GT aggressively,” the founder added.

Zoff is already working towards this goal. In the last financial year, about 15% of its business came from GT, and the startup aims to increase this share to 20-25% in the current fiscal.

But one thing is for sure. Zoff’s founders will not pursue any deal that results in a loss, even if it is the loss of a single rupee. Profitability is paramount and the focus on unit economics will not waver after the harsh lessons they have learnt. It is the mantra they have adopted for continuous success. And it is probably the most profound business strategy to adopt, whether one is running a bootstrapped and pre-revenue garage startup or sitting on a pile of cash and earning profits.

[Edited by Sanghamitra Mandal]

The post Inside Zoff’s Cookbook: How This Spice Brand Achieved 4X Revenue Growth appeared first on Inc42 Media.

Will the glory days of fintech be back with a bang post the valuation corrections and an excruciatingly long funding winter? Despite a reasonable thaw, the tailwinds have not been felt yet, and we tend to get mixed results. For instance, the fintech sector in India witnessed a 62.45% drop in funding in H1 2024, securing $809 Mn against $2.1 Bn raised in the first half of 2023 (according to Inc42 data).

But the silver lining was there, too. The country stayed among the top three funded fintech ecosystems, right after the US and the UK. More importantly, the Indian fintech opportunity has been pegged to reach $2.1 Tn by 2030, growing at an 18% CAGR.

The global fintech market also remained muted this year. According to a CB Insight report, Q2 2024 would have remained flat had it not been for two blockbuster deals. However, a decline in deal volume and average deal size indicates investors are still cautious. Although many venture capitalists think that 2024 will be the comeback year for fintech and may soon reach its pre-Covid status, the majority seems to be looking for startups that can deliver innovative and globally competitive solutions.

Sahil Anand is one of them and he claims to have struck gold by identifying the potential of a much-neglected sub-category – banktech, to be precise. Anand has launched Cedar-IBSi Capital, India’s first fintech-focussed VC fund, and aims to secure a corpus of $30 Mn. The fund reached its first close in March 2024, raising around 40% of the target amount.

While the entire corpus will be deployed in India, the fund may raise additional capital to expand its operations in the EU and the Middle East. Cedar-IBSi plans to invest INR 4-10 Cr in 15 early stage fintech startups and primarily targets pre-Series A businesses in B2B fintech and banktech space. Currently, it is building a deal pipeline and is about to make its debut investment.

Anand began his journey in 2013 with the Everstone Group, a leading private equity firm. As an investment analyst, he specialised in buyout transactions in consumer and IT services sectors and contributed significantly to Everstone’s venture capital arm.

“I was building a funnel for the work and meeting numerous founders every week as we focussed on early stage investments. This gave me significant exposure to early and late stage private equity during my time there,” he recalled.

After completing his MBA at London Business School in 2018, Anand joined his three-decade-old family business: IBS Intelligence, a financial technology research firm, and Cedar Management Consulting International, a financial technology consulting firm. But he wanted to achieve more.

In the wake of India’s demonetisation in November 2016, the fintech landscape was evolving rapidly. As the momentum continued after a temporary setback, Anand decided to make good of this trend and set up the Cedar-IBSi FinTech Lab in 2018.

The aim was to provide a ‘soft landing’ for local and global fintech companies entering the MENA and the Indian markets. More than 45 fintech companies, including Ebix, Intellect Design, Impactsure and Infosys Finacle, among others, have joined the lab and benefited.

By 2022, Anand realised that both family firms ran smoothly without his daily intervention. However, given his investment experience and his family firms’ combined expertise of 70 years, the decision to launch a VC firm was the natural next step.

“Our goal is to provide value beyond capital. Founders who raise funding from us will benefit from the extensive support bestowed by Cedar and IBSi, which will help drive sustainable growth. Although this is a maiden fund, many high-quality founders are eager to work with us, as they recognise its impact,” said Anand during a one-to-one interaction as part of Inc42’s ongoing Moneyball series.

During our conversation, we delved deep into the fund’s investment thesis, current trends within the fintech landscape and the critical importance of banktech as a fintech wave catching on rapidly. Here are the edited excerpts from the interview.

Inc42: Cedar-IBSi has positioned itself as a pure-play fintech VC fund with the focus on B2B fintech and banktech. What’s behind this niche investment thesis?

Sahil Anand: Before we discuss that, let us take a look at B2C fintech. This segment features platforms and applications that consumers can access via their devices for all sorts of transactions, be it trading, investment, loan or insurance. Therefore, companies in this space aim to acquire millions of users for their apps but primarily distribute financial services instead of developing core technologies.

Our focus is not B2C, as it is an overcrowded, intensely competitive market. The CAC [customer acquisition cost] is high, stringent regulations are in place and government agencies compete as well. For example, with the growing adoption of UPI, the government introduced BHIM to compete with private players like Paytm, PhonePe and Amazon Pay, among others. Similarly, while Visa and Mastercard dominate the market, the government-backed RuPay card has been promoted globally.

So, we prioritise B2B fintechs as they offer better economics and we have extensive experience in this space. These companies, often involved in banking technology [banktech] and related infrastructure [core systems and financial tools through which operations are managed], provide solutions, generate revenue and are profitable early on.

But things are more complex here. Even within the B2B space, you will find horizontal platforms like Razorpay and FlexiLoans. They call themselves fintech, but in reality, these are horizontal platforms helping embed financial services across industries. They are not necessarily focussing on the BFSI sector. The other category includes pure-play banktechs, startups that primarily offer software and services used by BFSI companies worldwide. This is our primary area of interest.

We are looking at banktech startups like Credgenics, Perfios and M2P so that we can leverage our deep expertise and networks to support businesses which develop innovative technologies for banks and FIs. This strategic focus allows us to identify and invest in startups with significant long-term growth potential and alignment with our vision.

Inc42: As a fintech subsect, what are the key opportunities banktech can offer Indian startups?

Sahil Anand: There will be plenty on the cards, as banktech has recently witnessed a significant shift in focus. Earlier, the spotlight was on B2C fintech, overshadowing the critical need for robust technology within the banks. But this has changed, and globally, banks are investing hundreds of millions of dollars in their systems and software every year. They also purchase 12-13 core systems annually and integrate them to support their operations.

I would say the B2C fintech disruption has run its course, with established players like Paytm, Upstox, Zerodha and others dominating all major segments. In contrast, banktech has remained relatively stagnant in the past 20 to 30 years. Traditional IT service companies are still selling their solutions across that domain. But the sector is ripe for a new wave of innovative banktech and B2B fintech offerings to drive further disruption.

Inc42: We have a limited number of banks and NBFCs in India and a growing number of startups catering to their technology needs. Will the surge in services surpass the demand anytime soon?

Sahil Anand: I don’t think so. Banktech is a versatile platform that offers software as a service to a wide range of financial institutions. These include consumer-centric and commercial banks, NBFCs and a growing number of co-operative and regional rural banks looking for technology upgrades. Insurance companies and other financial service institutions are also part of this fast-growing market.

Moreover, banktech startups need not be confined to the Indian market. The fundamental systems for core banking, treasury and payments are similar worldwide, which means these companies can easily target international markets.

Indian banktech companies typically start by partnering with the top five to seven banks in India and leverage these relationships to build credibility among Indian insurers. Once they have established a solid domestic base, they try to enter global markets such as the GCC, where banks invest heavily in technology. Additionally, markets in Malaysia, Vietnam, Singapore, Hong Kong, Sri Lanka and the EU [the region has more than 800 banks] offer significant growth potential. That’s how the whole game can be sold to 500 banks around the world.

This approach mirrors how Indian IT majors like Infosys grew by generating revenues from global banks and financial services customers. As a VC fund, we can help these banktech startups as our strength lies in our global footprint. We have offices and tech labs in many countries and a wealth of experience across international markets.

Inc42: India’s Financial Inclusion Index rose to 64.2 in March 2024, but we are well below the coveted 100%. Can B2B fintechs play a constructive role here?

Sahil Anand: To be honest, it is more like a hit-or-miss thing. Financial institutions must extend credit and services to a broader population segment to achieve better financial inclusion. Here, the core issue is not technology but the level of credit risk banks are willing to assume. If we say that a new banking technology/system, a new treasury system or a new payment solution will be more financially inclusive, it will be too much of a stretch.

The primary goal of the new banking technology, or banktech, is to enhance operational efficiency. It is not about financial inclusion but making banking more efficient. This new-age technology has the potential to improve efficiency, productivity and core operations, which may increase overall revenue. That’s an achievement from a technological standpoint.

Inc42: In that case, what horizontal and vertical SaaS solutions will be best for banktech success in the next five years?

Sahil Anand: Let us consider these one at a time for better understanding. Horizontal SaaS [industry-agnostic, general-purpose solutions] has limited scope in highly customised sectors like banktech.

Vertical SaaS is critical nowadays as banks are increasingly looking for vendors with expertise in specific use cases rather than generic, one-size-fits-all solutions. Every financial institution, whether a commercial bank, an NBFC, or an insurance platform, has a host of requirements that need to be addressed. So, they focus on service providers with deep domain knowledge and the capability of implementing solutions quickly and efficiently.

Banktech startups will do well to excel in specific use cases and master the most promising vertical SaaS solutions such as digital automation, customer lifecycle management, digital lending, wealth management, private banking and cash flow management.

Startups’ success will also hinge on nuanced execution and outstanding outcomes. For instance, five-year-old SaaS startup Credgenics now handles 11 Mn retail loan accounts and claims to have increased lenders’ resolution rates by 20% and improved debt collections by 25%.

Service providers should also ensure that they are not location-bound and may operate like implementation wizards, when needed. Earlier, sales cycles could stretch between 12 and 18 months and things were slow-paced by default. Now that new-age solutions can be implemented within 45-50 days, swift execution remains a critical mandate.

Contrary to the popular notion that banktech will saturate in the next decade, I would say the sector is still in its early stages. Addressing the pain points of decades-old technology will take at least another 20 years if the BFSI infrastructure/ecosystem has to evolve in tune with disruptive technologies.

Inc42: Talking about banktech startups, what will be the market size or revenue estimates by 2030? Can you give us an idea?

Sahil Anand: It is difficult to ascertain the market size of B2B fintech as there are no well-defined sub-sectors here. Different players offer different solutions and services tailored for FIs belonging to different categories and each solution addresses a specific issue. It is a bit chaotic. What we see here may boil down to 20 customer types with 11 different systems and businesses varying in scale from small to medium to large and located across many countries.

However, an average bank allocates 7-8% of its budget to banktech and this is steadily rising. Again, each bank typically requires around 20 different tech systems to enhance operational efficiency. The potential market becomes huge when you multiply the average banktech spending by the number of domestic and global FIs.

As we speak, a banktech startup could be selling its softwares to any bank in India and another bank located in the Maldives, thus ensuring better business growth. Unlike B2C, that is the beauty of B2B fintech or banktech.

Inc42: Overall, what will be the key trends and challenges for fintechs in India?

Sahil Anand: Even when a B2C startup identifies a niche – say, an insurer targeting women-specific schemes – large players can easily add this as a subset of their offerings or acquire the startup outright. Although B2C is primarily a no-entry zone for Cedar, we are still looking for B2C founders with a proven track record of building and scaling innovative solutions for the masses.

There are plenty of other challenges. Given the stringent government regulations, fintech companies must exercise great caution in all areas, including compliance, fundraising and navigating the competitive landscape. Banktechs should focus on developing robust software that can scale, achieve profitability and go global. Moreover, their tech products should be able to replace outdated technologies that have persisted for years.

Inc42: What will be the role of AI-GenAI in the B2B fintech space?

Sahil Anand: These are still the early days of AI adoption in the banking sector. Given their historically different data management practices, banks are gradually becoming comfortable with AI usage. They are just beginning to familiarise themselves with various external solutions for data processing and analytics [predictive, generative and what all may come up soon]. This gradual approach will ensure a smooth transition and allow necessary adjustments and adoptions.

Undoubtedly, AI will play a significant role here. However, the consensus is that the new tech cannot entirely replace the human workforce in the highly regulated financial services industry. Anything stated otherwise is an overstatement. AI remains a powerful tool that can boost productivity and enhance efficiency by 60-70%. It may even reduce headcounts by 30-50%. But human involvement will remain essential. That should provide a sense of security when people mull over the future of this industry.

Inc42: Will there be vibrant growth markets for Indian banktech startups? Please elaborate on the kind of dynamics and alignment they may find overseas. 

Sahil Anand: Well, the Middle East is a promising market right now, as it hosts around 100 banks across six or seven countries. These institutions are technologically advanced, well-capitalised and helmed by a new generation of young leaders. They have a favourable view of India and share a strong cultural affinity. Many of these banks had earlier worked with Indian vendors and Indian IT majors also serviced GCC banks. Overall, they are familiar with our operational style and actively seek disruptive solutions from us.

Apart from ME markets, Southeast Asia is another region brimming with opportunities, especially countries like Indonesia, Vietnam and Sri Lanka. Of course, Singapore and Hong Kong are fiercely competitive, but the broader region holds substantial growth potential.

Targeting these regions may yield as many as 200 B2B clients for a banktech venture, resulting in an annual recurring revenue [ARR] worth INR 150-250 Cr. Subsequent expansions across the EU, the US and other Western markets may follow, leading to further growth.

This strategic focus offers a promising avenue for banktech companies aiming to scale and achieve global success.

Inc42: What about new unicorns and public listings in the B2B fintech space? What developments will be there in the short term?

Sahil Anand: We have recently seen three unicorns – Pigment, QI Tech and Cyera – which are fintechs or servicing the fintech industry. Two of these are in the US, where the market is mature. At a jurisdictional level, the US attracted two-thirds of all fintech funding during 2023 ($73.5 Bn), according to a 2024 KPMG report.

The B2B fintech sector in India is on a similar growth trajectory. We have seen companies whose revenues are burgeoning to the tune of INR 600-700 Cr+. These are set to attract late stage investors in the long run. Additionally, there are fintech SaaS companies like Trust Fintech opting for the IPO route. However, this is just the beginning.

So far, everyone has been distracted by the B2C wave instead of deep-diving into B2B, but we are getting there now. That’s why the industry is also excited about our fund, as we are all set to capture the first 10 waves of B2B fintech/banktech in India.

[Edited by Sanghamitra Mandal]

The post Decoding Cedar-IBSi Capital’s $30 Mn Investment Playbook In Indian B2B Fintech, Banktech Startups appeared first on Inc42 Media.

Listing on public markets is a milestone all companies chase, as IPOs mark a crescendo in their journey. A handful of Indian tech unicorns such as Mamaearth, Zomato, Paytm, Delhivery, Nykaa, Digit and Policybazaar had been there and done that after years of hard work and patient strategising. But how would one position a financial business that started its journey from this pinnacle to service the perpetually cash-strapped Indian MSMEs?

Shachindra Nath’s non-banking financial company (NBFC) U GRO Capital has defied all typical growth norms. So has the founder, navigating an oft-contentious niche loan segment. However, NBFCs account for 30% of the total bank credit in India and play a critical role in credit intermediation and outreach.

Set up in 2018 through the acquisition, recapitalisation and rebranding of the listed entity Chokhani Securities, U GRO took an unconventional route.

“Traditional FIs have a long-term business model and those in alternative investments like private equity and venture capital [PE/VC] look for quick returns. For instance, VCs put their money in a company for three to five years. So, we decided to structure the NBFC as a listed company for investors [banks and PE/VCs] to come and go via the public market, while the entity is there in perpetuity,” explained Nath.

That he emerged as a successful finance entrepreneur was not a lucky coincidence. A thorough understanding of SME lending and capital markets was part of his professional expertise, spanning nearly a quarter of a century. He worked for Landmark Partners, a $27 Bn asset management business, and Northgate Capital, which manages approximately $4.3 Bn in PE/VC assets, before joining Religare for a 15-year span, where he climbed from COO in 2006 to group CEO in 2010.

But by 2011, Religare was bleeding INR 7K Cr, and Nath proposed a bold buyout at INR 8.4K Cr with PE backing. He aimed to rebuild it as a finance company for small businesses and bridge the huge MSME credit gap. For context, the credit deficit stood at $530 Bn, per a 2023 Avendus Capital report, with only 14% of the companies having access to formal credit compared to 30% in developed nations. This is despite the fact that MSME gross value added (GVA) was 29.1% of all-India GDP in FY22. And the sector’s manufacturing output stood at 36.2% of the country’s total in that year.

Nath was in for a shock. His out-of-the-box approach was considered too audacious and ruffled many feathers. “How could an employee, who started at a meagre salary of INR 16K, dare to take over the entire business? So, in December 2015, I was thrown out,” he still smarted. (Inc42 could not independently ascertain the details of the infighting that rocked Religare then.)

The years that followed were an acid test for Nath. Penniless and jobless, he pitched his vision to as many as 121 investors until four of them – TPG NewQuest, PAG, ADV Capital and Samena Capital – agreed to come on board. Chokhani Securities was acquired and re-emerged as U GRO Capital in April 2018, while Nath managed to raise INR 950 Cr within four months of its inception, drawing upon his outstanding work experience.

Today, U GRO is one of India’s most profitable, data-driven and impactful NBFCs. With a customer base of 80K+ and nearly INR 17K Cr deployed in loans, it boasts an average loan book of INR 8K Cr. Profitable from Day 1, it has designed and implemented a proprietary tech stack for loan underwriting (more on that later) and held its ground against formidable competitors like Lendingkart, Kinara Capital, Finova Capital, Kissht and Navi Finserv.

The NBFC’s profit after tax (PAT) soared to INR 119 Cr in FY24, a nearly 200% increase from INR 40 Cr in the previous financial year. Nath attributes the growth to U GRO’s proprietary data-centric underwriting model, expansion of distribution channels and a broadening lender base.

“I would say several factors triggered this success. For instance, the SBI lent INR 650 Cr as our partner bank. Also, we are driven purely by data and technology and spend INR 58 Cr+ annually on tech development. With INR 9K Cr+ AUM in FY24, we have emerged as an institutional company,” the founder added.

How U GRO Coped With Turbulence Soon After The Launch 

Although U GRO has a commendable mission – that of addressing the small business credit need – no business can achieve success overnight. The NBFC’s remarkable performance in FY24 can be traced back to the strategic vision of its founder, who focussed on building a robust foundation from the outset.

U GRO was off to a sound start after securing INR 950 Cr capital by August 2018. But the company had to battle tough challenges in the following years due to the IL&FS liquidity crisis in 2018 (the infrastructure-focussed shadow banker, sitting on a debt of INR 94K Cr, defaulted on many bank loans), the DHFL loan fraud that came to light in 2019 (the housing loan NBFC allegedly disbursed loans fake borrowers and shell companies) and, finally, the YES Bank crisis in 2020 (triggered by overwhelming NPAs due to the NBFC crises and excessive withdrawals, compelling the RBI to step in to resolve liquidity and governance issues).

The onset of the Covid-19 pandemic disrupted businesses further and deploying credit was in the doldrums during those years.

“Moreover, we are a listed entity, owning public money. We cannot burn cash like a VC-backed startup. So, we put about INR 861 Cr of our equity capital in the public market to earn money during those four to five years. Now, we are competing with the best [NBFCs] in the class,” said Nath.

The pandemic left a trail of business challenges in its wake, shuttering companies and killing jobs. But the NBFC seems to have bounced back with a vengeance. In the pre-Covid period, U GRO employed 120 people across nine locations. Post-Covid, it has 1,500 people at 105 locations. The NBFC’s data analytics team has been expanded from five to 275 and the number of lenders has surged from three to 60. It also works with several co-lending partners, including prominent names like the SBI, SIDBI and Bank of Baroda, among others.

U Gro raised around INR 2,013.66 Cr in the past two years from notable AIFs, HNIs, family offices and other domestic investors. It also acquired another NBFC called MyShubhLife to expand its embedded finance opportunity. The aim is to harness MSL’s potential to add 2 Lakh new customers in the next three years for an incremental AUM of INR 1.5K Cr.

As of June 18, 2024, the company had a market cap of INR 2.50K Cr and traded at a 52-week high of INR 319.85 on the Bombay Stock Exchange (BSE). Its AUM was worth INR 9,047 Cr in FY24, up by 49% from INR 6,081 Cr in the previous fiscal.

The Making Of U GRO Score, A Proprietary Tech Stack For Cornering Success 

If India has to emerge as a $10 Tn GDP economy, FIs must address the viable debt gaps of 6.3 Cr homegrown micro, small and medium enterprises, accounting for 44% of the country’s exports and 31% of the workforce. In fact, increased economic activity spurred the demand for commercial loans by 29% in the July-September quarter of FY24, compared to the same period of FY23. More importantly, MSME credit demand at NBFCs, earlier standing at 14%, grew fastest at 39% during that quarter. Delinquencies were down at 2.3%, clocking a -0.7% YoY change, and MSMEs are adopting digital technologies at a fast clip, thereby giving an edge to modern lending firms.

U GRO was aware of the upcoming opportunity from the beginning but also recognised the importance of a robust underwriting model. The reason? Even today, around 47% of the total debt demand of $1,544 Bn is not addressable, which means many of these enterprises are not financially viable or prefer informal sources to raise capital.

The scenario was not different before, and U GRO laid the groundwork to overcome these hurdles. The NBFC launched its patented underwriting model, GRO Score, right at inception, which employs advanced AI-ML algorithms to analyse more than 25K data points from an applicant’s credit bureau record and bank statements.

The model then consolidates banking and bureau scorecards to generate a unified score, further fine-tuned using GST data as an external input. These scores are then categorised under five heads, ranging from A to E, with E representing the lowest rating.

“GRO Score is India’s first small business credit scoring model using the data power of GST, banking and credit bureau. Several banks and NBFCs have already requested that we deploy this model. However, we have decided to use this proprietary model in-house only,” said Nath.

The NBFC’s data analytics team has helped it identify nine core sectors and 200+ ecosystems, featuring nearly 50% of the MSME lending market. These sectors include chemicals, education, auto components, healthcare, food processing, light engineering, hospitality, electrical equipment and micro-enterprises.

Additionally, its data analytics engine enables the NBFC to pinpoint states and locations for expansion, track portfolios and manage daily operations.

Its in-house business rule engine (BRE) also enables the swift rollout of new models, integrates various platforms and automates multiple processes. The system covers all operations of U GRO’s branch-led channel GRO-Plus, partnerships and alliances-driven GRO-Xstream, the supply chain financing-led Gro Chain and digital channel Gro-Direct, which allows MSMEs to apply for credit directly, with loans approved within 60 minutes.

Can U GRO Leverage The 7.5 Cr MSME Opportunity?

As per March 2024 data from the ministry of micro, small and medium enterprises, the number of MSMEs is projected to increase from 6.3 Cr to 7.5 Cr at a CAGR of 2.5%. However, only 2.5 Cr businesses have accessed credit from formal sources until now. A key reason for this gap is the need for a large financial institution exclusively servicing this segment.

Nath explained the persistent challenge fintechs and traditional lenders face in servicing MSMES. Primarily operating in unorganised markets, these businesses typically generate 90% of their revenue in cash, with only 10% coming from formal income streams. Their heavy reliance on cash-based incomes makes it difficult for formal lenders to assess their repayment capabilities accurately. Hence the credit squeeze.

He further added that as for fintechs, offering unsecured loans even at 30-40% interest rates leads to a substantial loss of 5-7%, whereas secured loans at an 11% interest rate (an advantage enjoyed by banks) result in a modest credit loss of 0.25%.

“Lending institutions must maintain a credit cost band of at least 2%. This balance can only be achieved through a diversified portfolio strategy, a method effectively employed by U GRO,” Nath added.

Despite many challenges, Nath believes that MSMEs require special hand-holding and there will be distinct improvements in the lending market. U GRO has set ambitious goals, aiming to double its return on equity (ROE) to 18% and increase return on assets (ROA) to 4% by FY26, up from 9.9% ROE and 2.3% ROA clocked at the close of FY24. The NBFC also targets an AUM worth INR 25K Cr by FY26.

As the country is rapidly transitioning from collateral-based to cash-flow lending, the likes of U GRO are pioneering this change. Nath is excited about the road ahead, as the strong credit demand, pushed by robust economic growth, will pave the path for NBFC growth and fuel the sector’s profitability. Like startup funding, the much-maligned ‘middle’ financing may soon play a pivotal role in shaping India’s fast-evolving growth story.

The post U GRO Capital’s Stellar FY24: Unboxing The NBFC’s Success Tools That Led To A 200% Net Profit Surge  appeared first on Inc42 Media.

India’s investment landscape was transformed for good when the SEBI (Foreign Venture Capital Investor) Regulations 2000 opened the floodgates for global VC giants. The optimism was palpable from Day I, and a host of US-based funds, such as Tiger Global, Sequoia Capital, Y Combinator, IDG Ventures and Norwest Venture Partners, made forays. They empowered India’s burgeoning startup ecosystem and catalysed innovation and growth across sectors.

SAIF Partners, then a JV with the iconic Japanese investor SoftBank, was an early entrant in 2001, and SoftBank established its India operations in 2013, demonstrating a long-term commitment to the Indian startup ecosystem.

Several VC firms from Japan, especially early stage investors, also started exploring India as a promising destination around that time. By 2014, Indian ecommerce giant Flipkart raised $1 Bn in a single funding round, while the total funding for Indian startups surpassed $5 Bn. In brief, the global funding scenario was looking up even in those early days.

One of the standout entities in those days was the Japan-based Incubate Fund. It was launched in 2010 by a team of four – Tohra Akaura, Yusuke Murata, Masahiko Homma and Keisuke Wada – and initially focussed solely on the Japanese market. Incubate quickly rose to become the top performer by 2015 and soon recognised the vast potential offered by international markets. Therefore, the general partners (GPs) made the strategic decision to expand globally.

The two major markets at the time were the fiercely competitive US and the highly localised China. However, India quickly emerged as the next significant frontier with its rapidly expanding startup ecosystem. Recognising an early opportunity, the Japanese VC firm started investing in Indian startups in 2015 through its $91 Mn Incubate Fund III.

Seeking a trusted partner to establish an India-focussed fund, the team from Incubate Fund got in touch with Nao Murakami, a former investment banker and entrepreneur running his startup in New Delhi.

“After my i-banking stint at New York-based Nomura Securities, I came to India in 2015 to start my venture, Gamma India. Unfortunately, it shut down within eight months. I met the Incubate team during that time, and together we set up Incubate Fund India,” Murakami shared in an exclusive interview with Inc42 as part of its ongoing Moneyball Series.

In February 2016, Murakami joined Incubate Fund India as founder and GP. Between 2015 and 2024, the VC firm invested in 29 startups through Funds I ($3 Mn) and II ($15 Mn). Among the portfolio companies are prominent startups like Captain Fresh, Yulu, ShopKirana, Plum and Includ, which have made significant strides in their respective industries.

The India entity was rebranded as Incubate Fund Asia in September 2023, with a renewed focus on Southeast Asian startups. At that time, it also announced the first close of Fund III, targeting a corpus of $50 Mn (around INR 416 Cr). However, it was closed at $30 Mn in June this year, as Murakami did not want to stretch the fundraising timeline beyond its schedule.

Nearly 80% of the new fund will be used for investments in India, and the remaining 20% will be deployed to Singapore, Indonesia and the Middle East.

“We may deploy the new investment budgets of this fund quickly, say within one year or one and a half years from now, and start raising the next fund (Fund IV) with a bigger corpus next year (2025),” shared Murakami.

A Leap From B2B To B2C: Incubate Fund Asia’s Shift In Investment Thesis 

Incubate Fund Asia has been active in India for nearly a decade and initially focussed on B2B commerce.

“In 2015-16, we saw the startup bubble build up in India for the first time, marked by a surge in investors fervently chasing B2C opportunities. But we concentrated solely on the B2B space due to our limited fund size,” said Murakami.

But unlike the cash-guzzling B2C space, which requires huge promotion to create brand awareness and acquire customers, B2B follows a more targeted model, without spending much on advertising or marketing. This enabled the fund to spot promising opportunities and back strong founders minus a significant financial outlay.

In 2023, Incubate Fund Asia launched Fund III with a $30 Mn corpus. Demonstrating strategic foresight, the VC firm recalibrated its investment strategy to target B2C and B2B2C ventures targeting Tier II and III regions or beyond. Although Fund III is sector-agnostic, it focusses on four key areas: Consumer brands, greentech, cross-border B2B e-commerce and fintech. The change in investment thesis also emphasises Incubate’s commitment to identifying and nurturing high-potential ventures across sectors and emerging markets.

“However, 70% of the decision-making depends on a company’s founders. The other two investment criteria are market size and potential profitability,” added Murakami.

Asked to clarify the sudden shift from B2B to B2C at a time when most VCs are focussing on enterprisetech to future-proof their earnings, Murakami said that the change was driven by the increased availability of capital for Fund III. It enables the fund to support portfolio companies through their Series A journeys and provide them with a competitive edge.

For instance, with Fund I, Incubate Fund Asia led a round with an average cheque size of $200-250K. But the fund can now invest $600-700K, which can go beyond $1 Mn in certain cases. Essentially, the change in investment thesis reflects the fund’s increased investment capacity and willingness to take bigger risks.

The team also recognised the potential of a fast-expanding B2C market, with middle-income groups emerging in Tier II and beyond. Given his experience in venture capital, Murakami was confident that the new fund could effectively support B2C and B2B2C companies in this changing scenario. Incubate Fund Asia has already invested in BuyEazzy, a beauty and cosmetics brand focussing on Tier III and IV markets. It recently raised a Series A round from Info Edge Ventures, a testament to its growth potential.

“The playbook for B2C and B2B2C companies succeeding in Tier II, III or IV markets differs significantly from those targeting Tier 1 clientele. Here, logistics and supply chain management are crucial to winning the game, rather than marketing and advertising,” said Murakami.

VCs Must Excel To Stay In The Race

Homegrown investors have significantly ramped up their deal-making activities in the past decade. Angels, PE/VC firms, family offices, pension funds and HNIs are now actively looking at the burgeoning Indian startup ecosystem, especially early stage businesses. According to Murakami, this surge in interest among Indian investors has created more co-investment opportunities for their overseas counterparts.

“However, a limited partner must always choose wisely, distinguishing between good and average VCs,” he said.

But given the challenges and changes faced by Silicon Valley VCs over the past few years – some deciding to call it quits and others refraining from investing or raising new funds – what are the parameters to identify excellent performers?

Murakami sticks to a simple parameter. Now that the business headwinds have considerably subsided, many VCs are raising their first or second funds. For instance, India-based VentureSoul Partners and Singapore’s ThinKuvate recently announced their maiden funds.

At this level, winning LPs’ trust based on credibility is relatively easy. But when it comes to a third fund, VCs must demonstrate strong performance, especially regarding actual cash returns to LPs who invested in Fund I. VCs cannot secure a third fund if they cannot return the capital invested earlier. Fund III serves as a critical test.

According to Inc42 data, 20+ India-focussed funds worth $1.2 Bn were announced in H1 2024 (January-June). While the rise in new funds and micro-funds is encouraging, Murakami believes a natural selection process will emerge in the coming years.

Some GPs will successfully raise their second and third funds, proving their competence, while others may struggle, leading to a performance assessment of sorts. This trend is observed in every market, including Japan and the US, among others, and it is expected to happen in India.

Startups Should Leverage The ‘India Advantage’

Post-pandemic, the world witnessed a significant supply chain shift away from China, triggered by the escalating US-China tensions. The Russia-Ukraine conflict also won India its diplomatic spurs, convincing global majors that the country would stick to the principles of peace and stability to emerge as a major economy. In essence, India has positioned itself as an attractive destination for global investors and MNCs.

Although this is an opportune moment for growth, Murakami also sees a challenge. The supply chains of the US and China are 10 years ahead of India, which lacks the robustness and sophistication needed to service global markets.

“However, the demand exists, opening a new playing field for Indian startups. Whether they specialise in B2B or B2C, companies can capitalise on this shift, as India is well-positioned to create highly valued supply chain companies,” he added.

As the world is now geopolitically split into blocks under the US, China, or Russia, businesses are looking for neutral powers and strong economies as business allies. With India’s real GDP estimated to grow by 8.2% in FY24 to reach INR 173.82 Lakh Cr ($xxxx Tn), the country fulfils both conditions and is well prepared to explore the rising global opportunities. xxxx

“India maintains friendly relations with most foreign nations [blocks] without strongly aligning with one side. This strategic positioning is crucial for economic growth, allowing India to explore these alliances effectively. Consequently, startups can leverage these business corridors across all fronts,” added Murakami.

IPO Should Be The First Choice Of Exit For VCs

After working across the Indian startup ecosystem for nearly eight years, Murakami has identified a critical gap: A simplified IPO framework.

“In Japan, 50 to 100 startups go public every year because a specific IPO market has been designed for them. Japanese VCs consider IPOs the primary exit option, even in the early stages. But we didn’t see much IPO activity among homegrown startups until 2021,” he noted.

India, too, was willing to embrace a similar investment culture. In August 2015, capital market regulator SEBI notified a new set of listing norms (along with significant relaxations in disclosures) so that Indian startups could easily enter the public market via the Institutional Trading Platform (ITP) of national stock exchanges. But the ITP framework could garner little interest.

SEBI tried to revive the platform in 2019 by introducing certain amendments and rebranding it as the Innovators Growth Platform (IGP). However, market interest in the platform continues to be tepid.

Murakami thinks this is gradually changing. So far, 23 Indian tech startups got listed on the BSE/NSE. The latest was Le Travenues Technology, the parent company of the online travel agency ixigo, which made a strong debut on June 18, 2024.

In fact, the Indian capital market will likely see many new-age tech IPOs this year, with ventures like Swiggy, Ola Electric, FirstCry, Unicommerce, Ola Cabs, PayU and MobiKwik gearing up to go public.

“Nevertheless, there is room for improvement. Indian stock exchanges can be more startup-friendly when it comes to IPOs. Also, the country’s startup ecosystem is ahead of other Southeast Asian countries. Therefore, making IPOs the primary exit option may attract more global VCs,” said Murakami.

According to a Nikkei Asia report, Tokyo VCs like Genesia Ventures and Beyond Next Ventures have also shown interest in the third-largest unicorn generator. When the funding winter finally thaws, a new bunch of VCs may bring new investment themes and more capital to empower India’s emerging businesses.

[Edited by Sanghamitra Mandal]

The post Why Japan-Based Incubate Fund Is Bullish On India’s Consumer Economy appeared first on Inc42 Media.

Mohit Gulati, managing partner of ITI Growth Opportunities Fund believes in the power of purpose, the raison d’être, to be precise. He may not have been the brightest student as a kid, but he was a dreamer with an in-depth understanding of people’s aspirations. Growing up with doctor parents, he also understood the importance of performance and delivery.

Given this mindset, Gulati wanted founders to succeed and knew he must become a jack of all trades to help people with different aspirations. This philosophy is also reflected in his work at ITI GO.

An MBA from IIT-Bombay, he launched Fund I worth INR 62 Cr in 2018 in partnership with the Investment Trust of India (ITI). The financial services conglomerate is led by Sudhir V. Valia, cofounder and director of Sun Pharma, and owns more than 15 businesses in key sectors such as lending, broking, wealth management and more. As a result, the group provides significant cross-synergies for ITI GO across various verticals, including equity funding, venture, debt, investment banking and IPOs.

The fund has performed well in the past five years, investing in 22 startups and returning half the capital to investors. Gulati is working on his next endeavour, ITI Growth Opportunities Fund II, which has a corpus of INR 200 Cr and a greenshoe option of INR 100 Cr.

“We did it in record time. We got the SEBI approval in October 2023 and have already closed INR 80 Cr of our target. We are now ready to deploy the capital,” said Gulati in an interaction with Inc42 as part of our ongoing Moneyball series.

According to him, the entry of new limited partners (LPs), including a major family office and other veteran investors, is critical to this success. Having a seasoned partner like the ITI Group is another key criterion. The VC firm also leverages the presence of a competent board of advisors, including large asset managers and market players, providing strategic insights into business development.

“Most of our LPs are mature investors seeking diversification. With ITI’s support, we can help them invest across assets to maximise returns,” he added.

Historically, most LPs partnered with big VC funds for secure and profitable investments. But with the private investment scenario undergoing a tectonic change in a post-pandemic world, where agility and adaptability matter most instead of set pieces, smaller but efficient VC firms are gaining traction rather than the VC leviathans.

Let us take you through ITI GO’s investment playbook, its intriguing potential and the measures taken to deliver attractive returns amid economic volatility.

Fund I Investment Thesis And How It Performed In Tough Times  

Gulati is sticking to a consistent investment thesis for both funds, believing that successful venture capital investment often requires swimming against the tide and backing resilient founders who can survive against all odds. This has led to early investments in startups such as the all-in-one mobility app Bolt, logistics drone specialist Redwing Aerospace Labs and D2C skincare brand Cureskin, among others.

The VC emphasises that their investments have always been in areas they like and understand. During the funding frenzy of 2021 and 2022, ITI GO made only two investments from Fund I due to skyrocketing valuations and subsequent market corrections.

“However, we made six investments in 2023 when the markets stabilised and we are launching the second fund now,” he said.

The first fund was well-aligned with Gulati’s vision, weathering the test of time and delivering significant returns. ITI GO made 22 investments and exited agritech startup Fasal within a year apart from partially exiting another startup. The fund has an IRR (internal rate of return) of 33% and a DPI (distributed-to-paid-in capital) ratio of 0.45, while four portfolio companies have seen more than 3x valuation markups.

Overall, the fund has achieved a 4.9x valuation markup on deployed capital within 60 months of inception.

While the fund’s core focus areas were consumer internet, healthtech, edtech and the new-age economy, it also invested in aerospace, agritech, fintech, electric vehicles and enterprise tech.

Fund II From ITI GO To Remain Sector-Agnostic

As with Fund I, Gulati prefers not to commit to any specific sector to ensure broader access. While freezing investment and deployment principles for Fund II, the VC has adopted two more strategies.

“About 35% of our fund will be allocated for pre-seed and seed stage investments, while 65% will be reserved for Series A, selective Series B funding and pre-IPO opportunities. In fact, we will have a preferential allotment for some of our portfolio companies heading for IPO. These will ensure a broad deployment spectrum and necessary liquidity to recycle capital,” he said.

Redeploying capital mid-fund will allow ITI GO to opt for fund distribution, returning the money to investors early on. “We are one of the few VCs in India that has managed to return at least half the capital in less than five years while running the first fund. We want to set up a practice where we can return principal investment capital within 5-5.5 years,” added Gulati.

ITI GO Is Not Bullish About Three Popular Sectors

The deal pipeline for Fund II currently features four startups in agritech, wealthtech, consumer internet and edu-fintech. But this time, Gulati is wary of the direct-to-consumer (D2C) space.

“We will approach this sector cautiously while allocating capital from Fund II. D2C is still trying to find its path to scale, and it has been difficult for most brands to progress beyond the initial stage,” he said.

With the emergence of GenAI and the rapid integration of ChatGPT-like technologies across the knowledge industry, Gulati feels that the edtech sector may witness a dip in investor interest. He also has reservations regarding deeptech, believing execution will be difficult in India.

Deeptech startups built on top of intellectual property (in the form of patents, data, know-how, or expertise) may still have potential. However, non-IP products/services (tech commoditised for scale and simplicity) are price takers, not protectable and often lack business control. Spacetech is an exciting area, but Gulati believes the valuations need to adjust for more venture capital investments.

“Nevertheless, we foresee India as a $10-12 Tn economy by 2030, which makes wealthtech a key focus area. India’s wealth is expected to compound at 14-16% annually in the next five to six years, creating numerous opportunities for capital allocation. So, alternative investments are particularly attractive for us,” Gulati pointed out.

AI & Other Tech Tools Assessing Deals, Managing VC Operations

As Gulati and his team soon discovered, running a SEBI-registered fund would offer many learning opportunities. They went through all the nitty-gritty when raising Fund I and strengthened the firm’s internal processes through tech enhancements. These processes help identify focus areas, evaluate strategic investments and time exists effectively as market cycles change.

“We have a comprehensive tracking system for our deal flow and integrated several advanced AI solutions into our evaluation process. It enables us to reach out to entrepreneurs much faster than most VCs in the industry,” he added.

The ITI GO team has also developed an internal ERP for day-to-day VC operations, including deal sourcing, portfolio monitoring, value addition and network expansion. This team will continue to explore and implement advanced technology tools based on AI, data analytics and SaaS to maintain a competitive edge.

Small And Targeted Funds Work Better In India

Globally, the venture capital market is not exactly booming due to an exit drought even after billions of dollars were put into startups in recent years. But for Indian VCs, it can be fairly comfortable going ahead.

Gulati says that venture capital firms in India are uniquely positioned at this point. These are well-capitalised (the country’s PE/VC firms are reportedly holding dry powder worth $20 Bn) and looking for the right investment opportunity.

This capital advantage, coupled with the absence of overseas giants like Tiger Global, SoftBank, Accel and others from the Indian market, presents a promising opportunity for Indian VCs. After a FOMO-driven funding frenzy during the pandemic, major global funds became cautious and rarely took part in mega deals here, given the volatility across the Indian startup ecosystem.

“The next two to three years will be pivotal for Indian venture capital practices. The surge in domestic SIP inflow to INR 18-19K Cr per month makes the capital markets less dependent on foreign investments, although the latter was significantly higher in the past. I see a similar transition in the Indian venture capital market,” said Gulati.

Incidentally, the total amount collected through SIP during May 2024 stood at INR 20,904 Cr per an AMFI report, compared to INR 14,749 Cr in the year-ago period, a 41.73% jump. If this indicates improved risk appetite at the retail level, it is hardly surprising that 270+ Indian investors, with a cumulative corpus of $33.72 Bn announced during 2021-2023, will only be too eager to track bright business plans and hit landmark moments.

The ITI GO founder also anticipates further development of patient capital, as investors are willing to adopt a long-term approach and build businesses from the ground up. LPs are also more proactive, driving the investment momentum. Raising INR 80 Cr for Fund II with zero distribution speaks amply of active commitments from LPs, says Gulati.

Moreover, a non-distributed fund (where fund managers need not split their fees with external entities), even if it is a small one, ensures a higher margin and enables quicker capital returns due to better performance. In contrast, it is challenging for an INR 2K Cr fund to be fully invested and returned, given the limited depth of the Indian market. Only one or two funds in India can do this.

“Therefore, our strategy is to focus on raising smaller, targeted funds. We plan to raise INR 300 Cr for Fund II and will continue to raise similar amounts for the next funds. This will ensure healthy cash flows across all funds, which is difficult to achieve when pursuing an ultra-large fund,” concluded Gulati.

[Edited by Sanghamitra Mandal]

The post ITI GO Fund’s Mohit Gulati On INR 300 Cr Fund II, Indian VCs’ ‘Dry Powder’ Advantage & More appeared first on Inc42 Media.

VentureSoul Partners has launched its maiden debt fund, VentureSoul Capital Fund I, with a target corpus of INR 600 Cr. The fund is a SEBI-registered Category II AIF and has so far received commitments from family offices, corporates, high-net-worth individuals and other eminent investors.

While Micro Labs Ltd. is the anchor investor for the fund, KreditBee founder Madhusudan Ekambaram, Glen Appliances Ltd, PSN Group, Baazar Kolkata promoter Abhishek Khemka, Pure Chemicals Group’s Ponnuswami M are the other notable investors.

The sector-agnostic fund will primarily focus on tech startups in diversified sectors, including fintech, B2C, B2B and SaaS companies. 

VentureSoul is eyeing the first close of the fund by the end of June. The fund will invest in startups that are at Series A or beyond stage, with a demonstrated revenue model and having raised at least $10 Mn of equity funding.

The fund will focus on delivering differentiated debt solutions to the new economy space. VentureSoul cofounder and managing partner Ashish Gala said that beyond the traditional debt model, there are not enough structured financing models available in the Indian tech startup ecosystem. 

“The fund looks to bring together the private credit world which focusses on the old economy and venture debt which focusses on the new economy. It aims to invest in around 20-25 companies in the first batch with an average ticket size of INR 25-30 Cr. The maximum amount will be capped INR 60 Cr,” he added.

VentureSoul Bets On The India Growth Story 

VentureSoul was founded by three ex-HSBC bankers – Gala, Anurag Tripathi, and Kunal Wadhwa, who bring together over 65 years of experience. Having had the experience of successfully building businesses ground up for various domestic and international organisations, the partners launched VentureSoul to create a value-based enterprise.

 According to VentureSoul founders, given the transition in the new economy from growth-at-all-costs to sustainable and disciplined growth, this is an opportune time for a debt-focused fund that brings prudent debt offering on the table.

 The founders see mergers and acquisitions and consolidation as a prominent theme playing out in the sector. Further, as the companies in the sector mature, there would be a need for debt solutions targeting a variety of additional end uses. 

Wadhwa said that the share of debt funding is currently as low as 3-5% in the Indian startup ecosystem. Besides, debt funding is also not properly leveraged in the overall economy. 

According to Inc42 data, pure debt funding accounted for approximately 4.3% (or $6.5 Bn) of the total $148.8 Bn funding raised by the Indian startups between 2014 and April 2024. Also, between 2021 and 2023, only 13 debt funds were announced with a total corpus of $1.5 Bn, which was just 4.4% of the around 270+ funds announced with a cumulative corpus of $33.72 Bn.

“We believe debt funding is going to take off in the hockey stick growth curve now and will play out well in the next decade of India, as the country aims to become a $25-35 Tn economy by 2047,” Wadhwa added.

 VentureSoul aims to differentiate itself by blending prudent banking principles with new-age credit evaluation technology, adopting a partnership approach towards its portfolio companies, and specialising in providing tailor-made solutions.

“The group intends to create a sustainable, scalable organisation that partners for growth capital and beyond. India is at an inflexion point, where it would need its experienced and skilled talent to come forward to push the juggernaut forward,” added Tripathi.

The post VentureSoul Partners Launches INR 600 Cr Maiden Debt Fund To Back New-Age Tech Startups appeared first on Inc42 Media.

Marc Andreessen had it right when he declared, “Software is eating the world” in a 2011 Wall Street Journal article. More than a decade later, SaaS (software as a service) is still thriving. But enterprises and end users are keen to leverage the AI edge to usher in new, more efficient and cost-effective software solutions than traditional SaaS.

That does not mean enterprise/B2B SaaS, as we know it, is in any immediate danger. The Indian SaaS market size is estimated to reach an annual recurring revenue (ARR) of $50 Bn by 2030 as the ecosystem caters to local and global clientele. Additionally, SaaS centaurs (startups with $100 Mn ARR) and unicorns are expected to generate between $20 Bn and $25 Bn in revenues by that time.

The growth has been further fuelled by venture capitalists putting in $32 Bn+ (according to Inc42 data) across India’s enterprisetech ecosystem between 2014 and 2023, per Inc42 data. Besides, more than 13 pure-play B2B SaaS-focussed VC funds were launched between 2022 and 2024, while every sector-agnostic or B2B-focussed technology fund has SaaS or enterprisetech as one of its key focus areas.

But there’s more to it. Industry experts are now debating a fundamental rethinking of the software industry and how an innovative blending of SaaS and artificial intelligence may soon emerge as the next big technology transformation.

When Pune-based Pentathlon Ventures announced its second B2B tech fund with a corpus of INR 450 Cr ($54 Mn), it caught our interest for several reasons. For starters, its primary focus is deep-diving into B2B SaaS, but it is not too vertically focussed and its approach is industry-agnostic. More importantly, it explores Digital Transformation 2.0 (read an enterprise AI makeover), along with new-age SaaS. Ensuring that Indian tech startups can use this basket of technologies for innovative products, global scale and sustainable growth is Pentathlon’s mission.

Set up in 2020 by a team of seven, Pentathlon is positioned as a founder’s fund and brings more than 150 years of cumulative entrepreneurial and investment experience. It launched Fund I with a corpus of nearly INR 80 Cr ($9.5 Mn) and invested in 23 startups. Out of these, 11 portfolio companies claim an ARR (annual recurring revenue) of more than $1 Mn and 8x revenue growth since the VC’s investment.

The second fund came in September 2023, aiming to invest in 25 B2B SaaS startups across sectors, including enterprise digital transformation, ecommerce enablement, fintech, vertical SaaS, applied AI, sustainable tech and healthtech.

Pentathlon’s core team includes Gireendra Kasmalkar (founder of IdeasToImpacts), Sandeep Chawda (founder of Clarice Technologies), Saurabh Lahoti (former investment officer at Grassroots Business Fund), Madhukar Bhatia (founder of Sapience Analytics), Ashok Mayya (founder, Mayya Consulting LLC), Hemant Joshi (cofounder of Sprih) and Shahshank Deshpande (cofounder of Cubyts).

Asked about the backstory, Chawda said his startup Clarice Technologies was acquired in 2015 by Globant, a New York Stock Exchange-listed MNC. For the next five years, he worked with the U.S. company to scale Clarice from a 300-person team to a 2K-strong organisation.

“I started contemplating my next move by 2019-20 and saw a couple of options. I could launch another startup or build one to help scale 20-25 ventures. That was how the idea of getting into the venture capital ecosystem came to my mind,” he added.

The VC firm has been named after the five-event Olympic sport for a reason. “The qualities required by pentathletes are typically strength, focus, perseverance, stamina and resilience. A startup founder also needs these to become successful and be a part of our VC fund. Hence, the name,” said Chawda.

In an exclusive interaction with Inc42 as part of the Moneyball series, he shared the VC firm’s journey and vision and the opportunities ahead of India’s burgeoning SaaS startup ecosystem. Here are the edited excerpts.

Inc42: Pentathlon primarily focusses on B2B tech. Why did you zero in on this space in spite of more attractive B2C narratives?

Sandeep Chawda: For us, Pentathlon is nothing but a startup in the VC world. For any startup to succeed, there are two crucial things – clear differentiation and clear focus. Our biggest differentiation is that we are defined as a VC firm ‘by the entrepreneurs, for the entrepreneurs’. As for focus, it was clear from Day 1 that we would not invest in anything and everything that could make money. Instead, we would look at going deeper into specific sectors.

As all the partners had exposure to enterprise software, we realised this had to be a core part of our thesis. That way, we could bring more insights to our portfolio companies and help create a more profound impact across many fields. Had we invested in B2C startups, we could not have helped much beyond the capital.

At the time, the choice seemed counterintuitive because India had already witnessed the success stories of B2C startups. Nevertheless, there were early indications that many B2B startups were doing well, which eventually proved true. Of the total 115 Indian startups that have attained unicorn status so far, 44 are in B2B tech, according to Inc42 data.

We felt confident about B2B tech when 15 portfolio companies raised follow-on rounds. We invested in 23 startups from Fund I, and two to three companies are already profitable. Our exit from Tripeur gave us 2.5x returns. This is enough, as 100x usually doesn’t happen in B2B.

Inc42: What is Pentathlon’s USP? What are your key capabilities as a VC fund?

Sandeep Chawda: Many funds are now investing in B2B tech or B2B SaaS. But very few say they are pure-play B2B SaaS funds and solely invest in that domain. Of course, that is our focus area, and as I said earlier, focus is extremely important. In fact, that is one of our differentiators. Our unwavering focus on enterprise SaaS has helped us go deeper into the ecosystem, think up new value additions for our portfolio companies and fine-tune our strategy to find the right companies.

Take, for instance, Tripeur, the company we exited. It specialised in travel spend management and we funded it in early 2020. As you know, the travel industry crashed during Covid-19 and Tripeur had negative revenues at the time. Its founders were under tremendous stress and wanted to give up. We stitched together a bridge round for them, a small round of INR 30-35 Lakh, but no other existing investor came forward then. We also helped the startup trim its workforce, extend its runway and survive a difficult phase.

As the pandemic subsided, its revenue grew at 100% MoM for the next few months and quickly returned to its pre-Covid level. Now, Tripeur is part of the US-based Navan, a $10 Bn company.

It was a terrific journey for all of us. A company that was almost a write-off gave Pentathlon a handsome exit with some help from the VC firm. It was such a leap that the startup’s founder is now an LP for our Fund II.

Inc42: That’s a remarkable turnaround. So, what areas do you target within B2B SaaS and how do you perceive their growth? 

Sandeep Chawda: In the last 20 years, software services companies dominated the entire industry in India. The next 20 years will belong to software products companies from India, which will do exceptionally well.

If we look at our fund and its focus on horizontal SaaS, enterprise AI transformation will be a very prominent theme there. People would have called it digital transformation earlier, but the new flavour of digital transformation is AI transformation and every company has to embrace it. We have made two investments in this space. One is Vodex, which uses generative AI [GenAI] for sales lead validation, and another is ElevateHQ, which uses AI for sales compensation management.

Next in line is the entire ESG [environmental, social and governance] wave, including sustainable and climate tech, now emerging as a strong theme. So, for us, the opportunities are not in ecommerce companies but in products that provide building blocks to take other firms’ products online. We call these ecommerce enablement products, another prominent theme that will play out in the future. Cybersecurity is another area where we see huge potential for Indian software companies.

Given these areas of interest, it’s clear that we are not too vertically focussed and we are also industry-agnostic.

Inc42: Has your investment thesis changed in between? Will you do things differently when allocating from Fund II? 

Sandeep Chawda: Well, our second fund will see a few changes, but the core thesis remains the same. We invest in early stage B2B SaaS companies with revenue between INR 1 Cr and INR 5 Cr. However, we have raised more capital this time. Fund I had a corpus of INR 80 Cr or so, while Fund II is worth INR 450 Cr. This is a big jump – earlier, we were writing cheques of INR 2-2.5 Cr, but now we can write cheques in the INR 4-8 Cr range.

It means we can lead more rounds and negotiate for better equity. Also, our portfolio startups won’t have to approach five other investors to raise the amount they need. Maybe Pentathlon alone or just one more VC fund can co-invest in a round. It will also allow us to do more follow-on rounds.

Additionally, Fund I had a 70:30 ratio for first cheques and follow-ons, but with Fund II, it will be 50:50.

Inc42: Will there be more global opportunities for Indian SaaS startups?

Sandeep Chawda: Let’s go through the opportunities one by one. To start with, talent has never been an issue here. When it comes to talent in the product ecosystem, even if these are not Indian products [MNCs are increasingly setting up their global capability centres or GCCs in India], many engineers got exposure to building and deploying world-class software offerings.

We are also seeing the flywheel effect in the Indian startup ecosystem, creating continued growth and improvement. The scenario was not so vibrant when we launched our venture in 2008. But today, as a VC fund, we evaluate more than 200 B2B SaaS startups every month.

Furthermore, SaaS is not a product. It’s a channel, an avenue to deliver value to end users. It is a powerful growth mechanism because you can provide software as a subscription or software as a service. And it will be easier to scale globally if the product has been thought through from a global perspective from Day 1.

Finally, it comes to markets. Earlier, you would only target the US market as a growth engine when you wanted to grow globally. But that scenario has changed. Companies are now exploring other markets, especially Southeast Asian economies and Gulf countries. These are geographically closer and easier to enter, and the US may emerge as the final base camp.

Inc42: What about unicorns? Do you think many more Indian SaaS startups will reach a billion-dollar valuation soon? 

Sandeep Chawda: After the Covid-19 pandemic, Indian businesses have also understood that SaaS can take their business growth in an entirely different direction. Overall, it is a very welcome change to see the Indian ecosystem consume a lot of software product offerings.

We also see more unicorns emerging from the sector, but we are not swayed much by that tag. Valuation is just a byproduct for companies with decent revenue growth. I value a startup more for making $50-60 Mn instead of one with a unicorn tag just because somebody has decided to give it that valuation.

If a startup sees good growth and its revenues are growing, those are very positive indicators for us. And it is going to happen. The revenues of B2B tech companies will continue to grow at a fast clip.

Inc42: We see a huge price disparity in India compared to global SaaS markets. Can Indian players charge as much as their overseas counterparts? 

Sandeep Chawda: I think it is a function of how much value a company gives to the product and what impact it is going to have on the overall top line or the bottom line of the business. And then they will be more than willing to pay. It is all about how a company values a product and how the product impacts its top or bottom line. If products bring value, companies will be more than willing to pay, and the price disparity will decrease. On the other hand, rising competition in overseas markets may lead to lower pricing and ensure an overall parity.

Other factors may also contribute. For instance, new or evolving technologies can drastically reduce overall costs for product companies, helping them retain their profit margins despite the competition. As Indian businesses invest more in technology, they can leverage it to their advantage and increase their profits without inflating the price index.

Inc42: What are the critical challenges for early stage SaaS startups? How does Pentathlon create a difference there?

Sandeep Chawda: Most tech [startup] founders in India come from a technology background and their tech acumen is usually very sharp. However, we have seen them somewhat lacking in go-to-market or sales and marketing.

At Pentathlon, we have launched an initiative called GTM Dialogues [Go-To-Market Dialogues] to address this. Every month, we pick a different city, such as Pune, Bengaluru, Chennai, Delhi, Noida, or Mumbai, and hold a meetup where 100+ B2B SaaS founders or sales and marketing heads come under one roof. We also have some experts coming in who have succeeded in the go-to-market space.

We have fireside chats and panel discussions, during which they provide insights and tips to these founders based on their firsthand experience about what works and what does not work for various aspects of go-to-market.

Inc42: What are the key areas B2B SaaS startups must tap into for scaling up? 

Sandeep Chawda: Well, there is no specific formula for this. Founders must draw upon their professional experiences and the domains they have worked in. In that way, they can readily identify the gaps, and their firsthand experience will help them come up with innovative solutions. The use of technology is a given in any solution, but the crucial aspect is finding the right solutions backed by their domain expertise. Founders must offer something highly differentiated, a quality we prioritise when evaluating potential investments.

Inc42: Do you have a specific target or plan for this year or the next? How do you see the Indian startup ecosystem growing?

Sandeep Chawda: We are witnessing early signs of progress, indicating light at the end of the tunnel. After the funding winter in 2022-2023, investments are beginning to pick up, transitioning from an artificially inflated market two years ago to a more cautious period when investors are hesitant, although the capital is available.

This hesitancy is gradually easing, and investors are starting to re-engage. This is an opportune moment for investors because founders’ expectations have become more realistic than two years ago. Earlier, they sought extraordinary valuations that were not always justified by their revenues or business plans. But now, founders are more grounded, creating a favourable environment.

We plan to make two investments per quarter in the next two years, steadily building our portfolio. Based on our current pipeline, the outlook appears highly positive.

[Edited by Sanghamitra Mandal]

The post Pentathlon’s Vision For B2B SaaS: A Deep Dive Into The ‘Selective’ Investment Thesis, AI Insights & Fundamentals appeared first on Inc42 Media.

In 1999, the Tata group considered selling its car business to Ford. The latter dismissed the idea, saying it would be doing the Indian conglomerate “a favour” by purchasing the business. The Tatas called off the deal but in 2008, acquired Jaguar Land Rover from the iconic automaker for $2.3 Bn, elevating India’s position in the global market.

More than a decade later, India once again witnessed the corporate house making a firm stride to lift the country’s semiconductor industry.

On March 22, 2024, the Tata group announced setting up a semiconductor ATMP (a combination of assembly, testing, marking and packaging) worth INR 27K Cr in March 2024 Assam. In February, Tata Electronics (TEPL) also received approval to build India’s first AI-enabled semiconductor fabrication facility in Gujarat’s Dholera.

TEPL is developing the project in collaboration with Powerchip Semiconductor Manufacturing Corporation of Taiwan (officially, the Republic of China), investing about INR 91K Cr in the fab and creating more than 20K jobs.

However, the Tata group is one of many players in the semiconductor space. The Vedanta Group is also building a chip foundry in Dholera and India-based SaaS MNC Zoho recently announced its plans to launch a commercial semiconductor manufacturing unit in Tamil Nadu. In early 2023, the US-headquartered Micron Technology said it would build an INR 22K Cr semiconductor testing and packaging plant in Sanand, Gujarat.

The list gets longer. However, global automotive giant Tesla’s strategic pact with TEPL for sourcing semiconductor chips has positioned the country as an emerging force to reckon with. But the question is: Why are domestic and international players bullish on India’s semiconductor story, a sector largely monopolised by Taiwan, Japan, the US and South Korea? This is all the more pertinent as India was a laggard here long after its independence.

Simply put, it is about finding capable industry players who can meet the growing demand in a global market.

According to a March 2024 report by Visual Capitalist, Taiwan had a 68% share in 2023, followed by South Korea (12%), the US (12%), and China (8%) in advanced foundry capacity (manufacturing of semiconductor chips). Whereas India’s share was miniscule in comparison.

However, Taiwan’s dominance is expected to shrink by 2027, with countries like the US and Japan investing more in domestic fabrication. Besides, global companies are also planning to fund semiconductor fabs, making it a $1 Tn opportunity by 2030. The shift in global sentiment and investment patterns may bring new opportunities to India as it tries to establish itself as a significant player.

Inc42’s report, “The Rise Of India’s Semiconductor Startups Report 2024” estimates that India’s semiconductor market will reach $150 Bn by 2030, up from $33 Bn in 2023, witnessing an impressive CAGR of 24%.

“There has always been a talent advantage for India on the global stage, whether in design or engineering. This advantage, honed in the software industry, can now be leveraged in the semiconductor sector. Therefore, there is substantial potential for Indian startups to capitalise on,” Haresh Abhichandani, managing director at Millennium Semiconductors told Inc42.

The Making Of An Indian Chip: A Saga Of Five Decades

India formally entered the semiconductor space in the mid-70s when the Union Cabinet, chaired by then Prime Minister Indira Gandhi, approved a proposal to set up the Semi-Conductor Laboratory (SCL), an autonomous body currently operating under the ministry of electronics and information technology (MeitY). However, Continental Device India (CDIL) is the country’s first private-sector semiconductor manufacturer.

It was launched in 1964, collaborating with Continental Device Corp. of Hawthorne, California. Around the same time, Bharat Electronics (BEL), a public sector undertaking under the ministry of defence, started developing semiconductor devices.

Speaking to Inc42, Prithvideep Singh, general manager at CDIL, said that India was home to many semiconductor companies until the mid-90s. Additionally, the country boasted a robust ecosystem of electronic equipment manufacturers, with companies like Onida, Videocon and BPL emerging as front-runners.

The global landscape changed when the World Trade Organization’s (WTO) Information Technology Agreement (ITA-1) came into force. The agreement eliminated all import duties and other charges on IT and semiconductor products, compelling India and other nations to compete globally rather than regionally.

Again, other nations typically provided massive subsidies and grants to bolster their semicon ventures. But that kind of state capitalism was not practised in India until the government introduced the India Semiconductor Mission (ISM) in 2021 as a nodal agency, with an outlay of INR 76K Cr to revitalise the semiconductor ecosystem.

In addition, the government has set aside INR 1K Cr to fund semiconductor design startups, and states are likely to contribute substantially. The government has also committed $30 Bn in electronics and semiconductors, of which $10 Bn would be allocated for semiconductor manufacturing research and design.

MeitY also introduced a design-Linked incentive (DLI) scheme in December 2021 to support domestic companies, startups and MSMEs at various stages of semiconductor design, including integrated circuits (ICs), chipsets, systems on chips (SoCs), systems and IP cores, and semiconductor-linked designs.

To encourage local production of semiconductors, the government has further waived the basic customs duty (BCD) on certain types of capital goods, machinery, electrical equipment and other instruments and their parts. However, this exemption does not cover populated printed circuit boards used in semiconductor wafers and liquid crystal displays (LCDs).

However, India’s recent proposal to the WTO about not extending customs duty moratorium on electronic transmissions will hinder local design companies working for global partners. Designing chips often require frequent data exchange across locations, within the country and outside. But taxing that data is bound to throw a spanner in fast and seamless operations.

A close look at the last five decades underscores the challenges the industry has long faced, including inadequate infrastructure, sluggish technology adoption, subdued demand, a shortage of top-tier talent and financial constraints.

Shashwath T R, cofounder and CEO of Chennai-based Mindgrove Technologies, noted that the semiconductor business is capital-intensive, so much so that setting up a single outsourced semiconductor assembly and test (OSAT) plant can cost more than $500 Mn. Even in the design space, a successful fabless enterprise may require tens of millions of dollars before becoming profitable.

“Such capital was scarce earlier. But now, with the government’s support, it is available both as equity and debt,” he added.

What Pushed Indian Policymakers & Startups To ‘Chip Up’

Traditionally, the semiconductor landscape at home has been dominated by global giants like Intel, Nvidia, Micron, NXP and Qualcomm. Government entities like DRDO (Defence Research and Development Organisation) also play a significant role in this domain.

Although the foundation was there, and R&D into advanced semiconductor material and device technologies was ongoing, India did not make significant strides towards design and fabrication goals for decades due to huge expenses and the intricacies of the processes involved. But when the Covid-19 pandemic broke out in 2020, it brought a host of challenges, including a complete breakdown in the global supply chain and a subsequent shortage of microchips.

The massive shortage deeply impacted several industries, especially electronics and automotive, as these chips are essential components of many digital consumer products (more on their functions later). Additionally, their demand skyrocketed as consumer and industrial requirements increased during months-long lockdowns for containing the pandemic.

India, too, faced the impact. A 2019-20 report by the ministry of statistics, planning and implementation (MoSPI) estimated supply deficiency in major sectors such as education, health, transportation, communication, entertainment and certain household gadgets using chips-based devices.

A dearth of merchandise depleted nearly 50% of average consumer spending across these categories, thus affecting the companies and the overall economy. On the other hand, a long-term supply crunch pushed the prices up and saw an inevitable demand dip. Not exactly a healthy scenario in post-Covid times when every industry and every country tried to regain pre-pandemic growth rates.

Given these ground realities, India saw an opportunity to establish itself as an up-and-coming semiconductor hub to meet the increasing global and local demand. It also coincided with the surge in the startup ecosystem and the rise of aspiring entrepreneurs making forays into trending technology segments.

“In the past decade, the demand for semiconductor chips has grown significantly, while India is boosting its manufacturing in key sectors for exports. Therefore, investments in the semiconductor space and related electronics businesses seem feasible now,” said Shashwath.

Chips, Chips Everywhere, But What Do They Do?

According to the Inc42 report, more than 100 startups are functioning across the value chain, specialising in R&D, design, assembly, verification and validation. In fact, the widespread demand for semiconductor chips will continue to rise for powering everything electronic and digital and building an IoT/IIoT ecosystem of smart devices and systems, which require sensors and integrated electronic circuits/chips for receiving inputs and executing actions based on logic.

In essence, chips are the brains and building blocks of all things tech – from video games, cars and supercomputers to precision farming and weaponry. These electronic circuits are embedded in tiny wafers made from semiconductor materials (like silicon) and contain multi-layered lattice works interconnected electronic components called transistors for transmitting signals.

Also, the smaller the size of an individual transistor (there can be a million or a billion in a chip), the more can be packed tightly, making a chip more powerful. Chips are measured in nanometres (nm), referring to the size of an individual transistor and equalling a millionth of a millimetre.

Nowadays, the ‘nano scale’ generally indicates a chip’s overall performance rather than the exact size of the transistor. But true to the original quality parameter, most advanced chips remain the tiniest on the nm scale, ensuring fast processing, less power consumption and less heat generation.

However, these require a high level of technical sophistication, component purity and stringent quality control implemented by very few global companies. Even a state-of-the-art chip manufacturer like the Taiwan Semiconductor Manufacturing took three decades to reduce the chip size from 3 micrometres to 3 nanometres (1 micrometre is equal to 1K nm).

Semicon chips can be analogue, digital or mixed, with different functionalities – namely, logic chip, memory chip, ASIC (application-specific integrated chip) and SoC (system on a chip).

Although experts are already debating the ‘Beyond CMOS’ concept that surpasses traditional digital logic, the current technology has ushered in ingenious products such as power-over-ethernet (PoE) standards for connected lighting, MOSFET (metal-oxide-semiconductor field-effect transistor) signal switchers and signal amplifiers for the telecom sector and the insulated gate bipolar transistor (IGBT) devices, which guarantee low power losses and are widely used in automotive, consumer electronics, IT and communications, healthcare, aerospace and defence.

How Indian Startups Are Seizing The Newfound Opportunity

Although India might not be looking at fabricating 2-3 nm chips right now, larger design features below 200 nm work well for automotives, audio chips and display drivers and account for a substantial market. Additionally, the country’s growing focus on developing networking devices and telecom equipment, coupled with the rapid adoption of artificial intelligence (AI)  and 5G, will help drive the domestic market.

As Shashwath of Mindgrove points out, the multiple usage and fast evolution of the semiconductor technology are creating new opportunities for Indian startups, which are rapidly building the expertise and the resources to design (and fabricate) widely used microchips, as well as more complex ones required for AI applications. In fact, it is one of the most promising sub-sectors within the semiconductor space.

At present, the tech clusters of Bengaluru remain the most active semiconductor startup hub, housing 63.7% of the ventures. It is followed by Delhi NCR (9.9%), Hyderabad (5.5%) and Chennai (4.4%).

A few startups in the semiconductor space have also attracted investor interest and raised early stage funding, although the ticket sizes are pretty small. Among these are InCore Semiconductors ($3 Mn), a processor design startup; Mindgrove Technologies ($2.32 Mn), specialising in RISC-V-based SoC designing, and AGNIT Semiconductors ($1.37 Mn), a designer and manufacturer of GaN (gallium nitride) components used for defence and telecommunications.

The funding landscape may soon change, given the global trends. According to a recent report by Moody’s Analytics, Asia will continue to lead in chips and electronics production in the foreseeable future as innovation leaders across the globe work with top manufacturers from Taiwan and South Korea to keep the formidable cost of chip production as competitive as possible.

With India focussing on both fab and non-fab expertise, tech companies are bound to explore yet another emerging hub. Of late, a few investments in the semiconductor industry seem to be moving away from China, yet another reason why investors may turn towards India. The growing ecosystem of startup enablers within the country’s semiconductor industry will further fuel growth and funding potential.

The infographic below features some key startups in India’s semiconductor services landscape. Also, there is a rising wave of semiconductor startups catering to specific verticals such as AI, industrial automation, consumer electronics, automotives (including EVs and autonomous vehicles), and telecom and wireless communication.

Among the leaders are Ola Krutrim, Semiconsoul, Signalchip, Cientra, Wafer Space (now ACL Digital), Saankhya Labs, AGNIT, InCore and Sensesemi Technologies, among others. Located in Bengaluru, the fabless chip design venture Sensesemi develops SoCs for the Internet of Medical Things (IoMT) and other IoT devices. On the other hand, Krutrim is pioneering a unique chiplet architecture for system-in-package solutions, targeting Indian companies specialising in Edge computing and automotive products.

Can India Emerge As The Next Big Chip-Maker? 

India aims to become a chip-making superpower, propelled by robust government support and a burgeoning startup ecosystem. But the path ahead is fraught with challenges. The lack of fabrication facilities and manufacturing experience, along with heavy dependence on procuring raw materials from global suppliers, can limit a country’s capabilities.

Next comes the most pertinent question: Has India got talent for chip design and fabrication? A Q4 CY23 report by Zinnov-NASSCOM estimates 50K+ specialised workforce catering to more than 55 semiconductor GCCs (global capability centres) across the country, underlining there is no dearth of engineering talent in India. However, there is a shortage of service and maintenance experts and a lack of individuals well-versed in the fundamentals of semiconductor equipment.

“These things accumulate over time, leading to inventory pile-up, longer lead times and higher freight costs,” observed Singh of CDIL.

Shashwath of Mindgrove also pointed out the competitive landscape, emphasising that Indian chips are frequently compared to those from industry giants like Texas Instruments and NXP, which have established relationships with OEMs. This makes it exceedingly difficult to penetrate the global market.

On the flip side, there is growing optimism among stakeholders due to robust government support and the upcoming launch of quite a few top-grade semiconductor plants. In many cases local and global leaders are working in collaboration (think of the tie-up between Tata Electronics and Taiwan’s PSMC) for the best possible output, which will put all doubts about quality at rest.

The government’s plan to establish a graphics processing unit (GPU) cluster to support startups specialising in AI model training also aligns with the INR 1,100-1,200 Cr design-linked incentive scheme. For certain fabrications, ATMP and OSAT units, the government will provide 50% of the project cost/capital expenditure to eligible applicants on a pari-passu basis, an incentive driving many companies to set up semiconductor units across the value chain.

In line with an earlier analysis by McKinsey & Company, Inc42’s latest semiconductor report projects that the global AI semiconductor market will reach $190 Bn by 2030, with India poised to account for $21 Bn. This growth is attributed to the country’s ambitious smart city projects, infrastructural development and the increasing popularity of AI-powered consumer devices like smart home appliances and gadgets.

Given these developments, there will be opportunities galore for startups in the semiconductor space, whether they ensure a steady supply of bespoke ingredients to fab and fabless units, double down on intricate designs or do the final magic and make the chips. Also, the co-location of suppliers, designers and manufacturers will help fulfil every activity of the value chain, eventually unlocking new product potential.

Meanwhile, India must overcome a few practical difficulties (meet the expenses, for starters, and access the latest know-how) and gear up for global competition to ensure that these Make-In-India deeptech projects will finally take off.

[Edited by Sanghamitra Mandal]

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