Venture capital firm Lightbox, floated by Sandeep Murthy and Siddharth Talwar, had raised more than $100 million in its second fund in 2014 and has deployed almost a third already. The firm, which focuses on consumer technology and products, has invested in companies such as used-car marketplace Droom, jewellery e-tailer Melorra and furniture rental startup Furlenco. It is now thinking of exiting some investments. Murthy, who earlier headed Sherpalo Ventures' India operations, spoke to TechCircle about Lightbox's investment outlook and plans to back companies that are less prone to market conditions. Excerpts:
What is Lightbox Ventures' investment strategy this year?
When we founded Lightbox, we continued with the consumer tech investments that we had been doing, and added the dimension of product businesses. Our investments are in areas which leverage unique elements of India, as it's not US and China. The market here is different, so we look at the opportunities differently, which is why we have not necessarily invested in taxi aggregation or e-commerce businesses. We are looking at aspects of India that global businesses might not be able to immediately replicate. Embibe, an online test preparation platform, and Droom, a used car marketplace, are examples of that.
Also, because of fragmentation in India, there are not many well-established brands. So, we invested in Faasos (a food-on-demand firm) and Melorra (a jewellery e-tailer) to build brands. We are very involved with our companies and their operations. As a result, our focus is to select a few companies and then engage with them.
What do you look for while investing?
We look for a unique solution and a large market. We don't think we have the right answer upfront, and we have to work with the company to find the correct solution. We believe that there can be a product-led differentiation, which is not seen much.
How are your investments performing?
In the past six months, the market in India has taken a general reset, where we found a good set of companies to invest in. Even in the food space, a lot of changes are coming into what is otherwise a hyped sector. We are focussed on a business where we can control multiple variables of the consumer experience, and then deliver. So, we did not look at sectors that were hot, but sectors where we can control the product experience.
Are you thinking of exiting any of your older investments?
We are always considering exits. From the first fund, we have companies like Zoomin (a photo printing platform), Greendust (an e-commerce platform for refurbished products), Paymate (a payment solutions firm), which have been in our portfolio for a while now and are doing well. We have to spend time to evaluate when it's time for us to move on to the next stage (exit an investment).
So, we are considering this option, but there is nothing specific yet. As an investor, there are stages of investing, building, scaling and exiting. So in this timeline, we do need to look at our older investments, but there is nothing imminent yet.
How is your second fund faring?
We are still in the build mode here and looking for opportunities where we can add value and grow businesses. From the first fund, some companies are in the growth mode while in some other companies we are now thinking of exits.
Do you think this is not the right market to invest in because of the slowdown?
The kind of companies that we are going after are less sensitive to market conditions. In a downturn, it is good to build businesses as it costs us less, whether in terms of market costs or employee costs. At this stage, we think it's time to focus on investments that we have already made and make sure that they are successful. Since it's a down market, things are correcting, which, we believe, is a good time to build investments. We are actively looking at entrepreneurs who are solving problems.
According to VCCEdge, venture capital investments have slowed down this year. Your comments?
I don't think the venture capital market has fully developed in India. If you look at the seed and venture investments made till now, we rapidly grew a seed and angel economy. From the companies that get seed-funded, there are only a handful that will take the next step to raising a Series A funding round. So, when there is a downturn, people start to first fix what they have. When everyone decides this at the same time, investments at Series B or C rounds are harder to come by. So, people do follow-on investments in existing companies to reduce risks. And it's a natural cycle.
Which sectors are preferable for investments?
The consumer opportunity remains exciting in India. At times, people get swayed by the idea that the process of building a consumer business is more expensive and undifferentiated. And at this stage, we are seeing that many investors have placed bets on consumer businesses and realised that spending levels are much higher initially. Some consumer companies in our portfolio have shown good unit economics and long-term product differentiation. Since consumer business seem very high-cost, people might turn to B2B (business to business), but the cost of building a business there is equally high. I don't think the consumer opportunity has eroded. As a venture investor, you have to see what is coming next, and can't be deterred if things are moving at a slower pace.
What will Lightbox invest in next?
Our next investments would be in vertically integrated businesses, where we own the entire chain. We are also looking at technology-driven solutions addressing unique opportunities and uniquely Indian.
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