What to Watch in India

As startup funding has slowed from bull market highs, capital has ebbed from emerging markets. India is no exception. Funding in the first half of 2023 fell to $5.46 billion, a 68% decline from the same period year prior, and a 59% drop from that timeframe in 2021. Not all of this downturn can be attributed to smaller deal sizes, with the number of investments also tumbling year-on-year.

But as megalodons like Softbank and Tiger Global have beat a hasty retreat from hotel conference rooms in Bengaluru, Hyderabad, Chennai, Mumbai, and Delhi, adventurous investors may see it as the right time to lean in. Those needing persuading may turn their attention toward three realities of the modern Indian tech ecosystem.

Firstly, this is an increasingly self-reliant venture market. In 2022, funds like Lightspeed India, Blume Ventures, Fireside Ventures, and Artha Select raised funds in the hundreds of millions to continue backing startups in the ecosystem. Peak XV (formerly Sequoia India) amassed a war chest of $2 billion alone. While foreign capital will likely be needed as the country’s most successful companies scale, there’s a growing robustness from a capital availability perspective.

Secondly, India is in the early stages of a top-down digital revolution. Starting in 2010, its government began an initiative termed “India Stack.” The goal was to construct digital building blocks for identity, data, and payment interactions across the country’s population (and perhaps) beyond. That initiative has borne fruit to a remarkable extent. Today, India Stack has created digital identities for 1.31 billion people (95% of the population), built a payments network processing trillions in rupees per month, and created a data governance structure. It’s one of the most impressive examples of a government-led technological initiative – it also provides the foundational infrastructure to empower a new generation of technological innovation.

Finally, India’s demographic advantages are difficult to ignore. The country is now the most populous on earth, with a growing labor pool. More than 600 million Indians are between the ages of 18-35; by 2041, fully 59% of the country’s population will fall between the working ages of 20-59.

Such statistics are no guarantee of innovation, of course. The US has lagged behind by these measures for some time but remains the world’s dominant technological force. Taken together, though, India is an increasingly compelling market worthy of greater attention.

The problem then becomes: where exactly should that attention be directed? For the curious outsider, the well-intentioned interloper, where is the best place to start? To answer that question, we’ve asked eight of India’s best-respected venture capitalists to highlight a company they consider exceptional.

Below, you’ll find their choices. Not only are they interesting depictions of individual companies, but an intriguing look into the unique challenges, opportunities, and traits of the Indian ecosystem.  

Note: Long-time readers will know we intentionally don’t preclude investors from mentioning companies they’ve backed. The benefits of increased knowledge and “skin in the game” outweigh the risk of facile book-talking. Across contributors, we do our utmost to select for expertise, originality, and thoughtfulness.

Classplus: The “SaaSTra” pioneer

India’s SaaS sector has long been one of the high points of the country’s startup ecosystem. The segment attracts 20% of venture funding and has contributed a similar proportion of unicorns, including players like Zoho and Freshworks. More winners are coming, contributing to Indian SaaS’s growing presence on the global stage. In time, it may become as significant a success for India as the IT sector. That industry powered the rise of giants like Infosys, TCS, Cognizant, and others.    

The SaaS sector is traditionally split across (i) horizontal SaaS, (ii) infrastructure and dev tools, and (iii) vertical SaaS. Historically, India has been strong on horizontal SaaS, which lends itself easily to international revenues (specifically from the US). Industry estimates point to 75% of SaaS revenue arriving from overseas. The remaining 25% primarily comes from the vertical SaaS segment – ranging from on-prem “mom-and-pop” SaaS to fast-growing cloud-first SaaS.

A key challenge in India’s vertical SaaS sector has been monetization. While India has over 60 million establishments, only 19,500 have a paid-up capital of $1.25 million and above. This means that India’s undersized and underformalised enterprise sector typically doesn’t like to (or can’t afford to) pay for software. One of India’s OG software plays, the accounting platform Tally, estimated that only a third of their six million users were paying for the product. The rest used pirated versions of the software. Keep in mind this is for an annual subscription under $50!

Unsurprisingly, none of India’s SaaS unicorns have come from serving the domestic market. Zoho, Freshdesk, Druva, Postman, and Zenoti – all of them are global players, with more than 90% of their revenue coming from global customers. Who could be India’s first domestic SaaS unicorn? Is a Bharat SaaS play possible – one in which all your customers are based in India?

We at Blume think so. Our belief comes from the growth we have seen at Classplus (a portfolio company of ours), a vertical SaaS player in the education space.

Classplus helps tutors (of which India has many) manage their business. It provides an intuitive Learning Management Software (LMS) product that includes communication features (like letting parents know when their child misses class) and links to payment APIs. The software is not cheap: yearly subscriptions are over $100. Yet more than 50,000 tutors have paid an annual fee. And it is not just tutors now – about a fifth of Classplus’s new customers are creators or influencers outside education. About 10% of the company’s user base leverages its distinctive marketplace, which allows it to sell content (practice examples, advanced tests, video lectures) to consumers. Classplus takes a share of the $150 million-plus in annualized marketplace spending it facilitates.

The playbook that Classplus has pioneered, which is emerging as the distinctive playbook for domestic SaaS play, is a SaaS-plus-Marketplace model. Essentially, these companies use SaaS as a hook to fashion a marketplace, then take a cut of the transactions that occur. Some even sell fintech or loan products via this avenue. I like to call this model “SaasTra” — a portmanteau of “SaaS” and “Transactions.” The thesis that a large segment of India's SaaS would use a SaaSTra model (rather than pure-SaaS like the West) inspired our bet on Classplus.

In general, Classplus is one of the most innovative, yet under-the-radar SaaS startups in India. Given its sector, it is perceived as an ed-tech play. While that’s true, it is as much a vertical SaaS play – and a business model pioneer. The distinctive SaaSTra approach has worked – growth has been on a tear, with 10x growth in revenues over the past few years, and about 4x growth over the past year and a half.

In Classplus’s rise and tearaway growth, we see a model that will inspire and underpin the next wave of India’s vertical SaaS plays.  

- Sajith Pai, Partner at Blume Venture Advisors

Bhanzu: Cultivating a love of math

Mathematics is core to the learning universe. Its principles have far-reaching applications that extend into virtually every sphere of human activity, teaching children to think logically, apply theories, and use objective reasoning to solve problems. The universal relevance of mathematical thinking makes it an important life skill, with implications far beyond academic and professional success.

Despite the numerous benefits that learning math offers and the growing need for these skills in the workforce, many students still find it intimidating and thus struggle with truly understanding its concepts. This fear of math is what Bhanzu aims to change.

Bhanzu is an ed-tech startup with a vision to eradicate math phobia globally by making the subject fun and relatable and promoting it as a sport, art form, and human experience. The organization is bridging the gap between dreams and competence by enabling students to realize their full potential and introducing them to science, coding, and AI through the lens of math.

To accomplish this, Bhanzu utilizes the world’s “most thought-through” math curriculum. It’s been formulated and designed by the company’s founder, Neelakantha Bhanu Prakash, known as the “World’s Fastest Human Calculator.” With his skill and passion for mathematics, he inspires not only his students, but his team of committed educators as well.

Bhanzu's journey started through various non-profit numeracy projects, impacting over 30,000 students in India. In the process, over 25 variants of curriculum trajectories were trialed and honed. After extensive research spanning over three years, Bhanzu launched its first online live-class courseware in 2021 and has been educating thousands of students across more than ten countries. Bhanzu has built a curriculum that runs the gamut of math: from foundational to curricular, through to real-world applied problems. This holistic approach builds students' math confidence, ignites curiosity, and enhances their learning and cognitive abilities.

Bhanzu’s overall goal is not just to create skilled mathematicians but to cultivate a love for math and create the thought leaders of tomorrow. The company frames it as a sport or game, something to be enjoyed, rather than just another subject. This gamified approach to teaching mathematics has already changed the lives of tens of thousands of students and parents, with more to come.

With a mission to impact the learning trajectories of 100 million students within the next five years, Bhanzu is already changing students’ lives worldwide by cultivating a love for mathematics and learning itself.

- Shuvi Shrivastava, Partner at Lightspeed India

Allo Health: Transforming sexual wellness in India

In the vast healthcare landscape, some critical areas remain overlooked, overshadowed by stigma and misinformation. Sexual health is one such example.

Allo Health, a pioneering digital-first health clinic, has undertaken a noble mission: to destigmatize sexual wellness and extend the reach of quality healthcare to all individuals. Founder Pranay Jivrajka brings deep operating experience, having served as one of Ola’s founding partners. During nearly a decade at Ola, Pranay served as COO and CEO of the company’s food division. Critically, Pranay comes from a family with healthcare experience and has a deep passion for impacting the lives of millions with Allo.

So, what does Allo do? The company operates as a comprehensive platform that provides holistic solutions for sexual wellness, from erectile dysfunction to relationship concerns. Its offerings encompass expert consultations, personalized treatment plans, medication supply, diagnostic tests, and discreet healthcare delivery. It does so through a mixture of online and offline interventions. We’ll discuss this in more detail, but first, it’s worth reflecting on why Allo Health’s offering is so needed in India.

Bluntly, sexual health concerns are widespread in the country, with over 200 million individuals grappling with disorders like erectile dysfunction and premature ejaculation. This issue becomes even more pronounced as individuals age, impacting a substantial portion of the population between 20 and 55. Unfortunately, the sexual wellness landscape in India faces significant hurdles.

One of the primary challenges is the severe shortage of credible clinicians specializing in sexual medicine. India has fewer than 600 (!) trained modern medicine practitioners in this field, meaning there’s limited access to quality care. While effective science-backed treatments exist for sexual disorders, they are often underutilized due to the scarcity of qualified clinicians. Instead, alternative medicines and self-medication have become widespread, fostering misinformation and misconceptions.

Allo Health has identified the need and unique opportunity this landscape presents. Pranay’s team has built a powerful and comprehensive system to address the void. The company integrates clinicians into its platform rather than offering placebos or generic solutions. It relies on robust triaging systems, scalable Decision Support Systems (DSS), and training mechanisms, ensuring higher plan conversions and adherence and a robust defense against potential competition.

Furthermore, Allo Health's ability to scale across various channels is notable. It seamlessly transitions from online to offline channels, enhancing credibility and setting it apart from potential competitors, utilizing alternative approaches to address similar patient needs. In the Indian landscape, having a hybrid approach is essential: consumers frequently discover healthcare services online, but average order values (AOV) and repeat engagements often involve offline interventions. Allo Health is built for this reality.

Pranay's business is riding broader market trends as well as offering a much-needed set of products. Its mission to destigmatize sexual wellness aligns with broader movements in the Indian healthcare ecosystem. As India advances and healthcare access becomes a central concern, innovative companies like Allo Health have the potential to make a profound and lasting impact. Allo is also benefitting from wider trends in India:

1. The size (and untapped potential) of the Indian healthcare opportunity. The first wave of tech companies focused on connecting patients with care providers, and the outcomes were not very large because of low-value capture. True value capture comes with a full-stack approach to delivery or drug distribution.
2. A shift in healthcare startups’ focus. Access to healthcare for the wealthy in India is a largely-solved problem. Hence, the categories in which digital companies should be created are where a combination of online and offline leads to better service than an offline-only offering. Categories that are stigmatized, have limited urgency, and need for adherence are an especially good fit here.
3. Embracing the physical world. In low-trust economies, especially low-frequency use cases, offline service often works better. As such, Allo Health's creation of a scalable chain of clinics is the right answer. This same model works well across geographies and other categories with similar dynamics.

Ultimately, we’re excited by Allo Health’s product, potential, and deep focus on patient outcomes. Long-term trust can only happen with a maniacal focus on outcomes.

- Pratik Poddar, Partner at Nexus Venture Partners

Kiwi: A virtual credit card built on UPI

In India, like elsewhere, credit cards are a much-loved financial product. Monthly card spending has grown 3x in five years to $16 billion today. Issuers love them, too – they are among the most profitable products for Indian banks, offering up to 5.5% net return on assets.

That’s why it is puzzling that an economy the size of India has only 30 million credit card holders. Even in a “consuming population” of 400 million, this is tiny. There are three broad reasons why:

1. Expensive to offer. Credit cards are expensive for banks to distribute and service, and it is only feasible to provide them to the highest spenders.
2. Open-ended access is risky. Unlike a one-time loan, a card provides an evergreen credit line to the consumer with no defined end-use. In a country where incomes are uncertain and even the middle-class are one stroke of bad luck away from financial distress, it is too risky to provide a large credit line.
3. Difficult underwriting. The merchant is equally hard to underwrite and service. The hardware cost of a POS terminal alone makes it prohibitive for most Indian retailers to accept cards. Fewer merchants mean fewer customers, and the flywheel never starts turning.

Consequently, credit cards are a bit of a plaything for the rich in India. You can use them at the Apple Store but not to buy Granny Smiths from a street vendor. If only there were a low-cost, low-risk way to take this product to hundreds of millions of Indians!

But there is an Indian network that already connects 400 million Indians with 50 million merchants. India’s universal payment network – the Unified Payments Interface (UPI) – processes more than $2 trillion worth of transactions yearly at a fraction of the cost of card networks. Virtually the entire transaction volume on UPI today is for debit transactions, but late last year, India’s central bank opened the network up for credit.

Three senior fintech executives – Anup Agrawal, Mohit Bedi, and Siddharth Mehta – took notice. Like most credit card holders in India, they were frustrated that their cards had only an eighth of the acceptance of UPI and were unusable anywhere else. They decided to do something about this with their new company, Kiwi.

Kiwi provides its customers with a virtual credit card that works on UPI rails. Their virtual card offers all the benefits of a regular credit card: up to 50 days of interest-free credit, monthly payments, reward points, and merchandise discounts. Unlike a regular credit card, it allows you to scan-and-pay at any of the 50 million UPI merchants. This allows the user to buy a 10-rupee (12¢) cup of chai with their new Kiwi card.

Kiwi’s offering unlocks a massive new market for banks. Because the offering works on inexpensive UPI rails and is outside the Visa/Mastercard networks, the transaction costs are much lower and can support smaller-value transactions and users. Low distribution and servicing costs also open up an entire category of low-limit cards for banks, which was previously unviable. Credit is far more monetizable than debit (the regulator allows a charge of up to 1.7% from the merchant depending on transaction size), so it can finally make UPI profitable for banks.

The app launched in June and is already seeing a massive transaction velocity – the average user makes 17 monthly transactions on Kiwi and spends $300. Kiwi is expanding its banking partnerships to be able to underwrite new customer segments that never had access to cards previously.

Of course, there are risks. It remains to be seen if this UPI credit card is as profitable for issuers as a regular card, because of lower limits and smaller spends on UPI. There will inevitably be competition from more established UPI apps, some of whom will spend vast amounts to market their cards. However, with such a vast network of consumers and merchants to be tapped, credit-on-UPI is a once-in-a-generation opportunity to bring consumer credit to hundreds of millions of Indians. As their seed investors, we are rooting for Kiwi to get there first.

- Ritesh Banglani, Managing Partner at Stellaris Venture Partners

Varaha: “Nature-based” decarbonization

In the race to net zero, energy transition dominates much of the mainstream conversation. However, ~25% of greenhouse gas (GHG) emissions result from agriculture, forestry, and land use (AFOLU) patterns, which energy mix diversification won’t eliminate. Cleaner fuels will only reduce emissions, not remove the excess carbon human activities have already added to our atmosphere. Furthermore, the energy transition ignores South Asian and Sub-Saharan African communities that depend on agriculture and allied activities for their livelihoods. Globally, over 500 million smallholder farmers are affected by climate change. Yet, there are no financial incentives to adopt agricultural practices that reduce GHG emissions and improve carbon sequestration. With over 150 companies pledging to become carbon neutral by 2050, the pressure to offset emissions is increasing.

Varaha has stepped in by placing the most affected communities front and center in the fight against climate change. The startup is building the world’s leading tech platform to enable decarbonization for smallholder farmers and rural communities. Varaha generates verifiable and additional “nature-based” credits via best-in-class science and digital measurement, reporting and verification (MRV). It achieves this by working closely with smallholder farmers and land stewards to develop carbon avoidance and removal projects. Varaha’s growing portfolio of projects includes regenerative agriculture, agroforestry, mangrove restoration, and biochar production. The carbon credit ecosystem currently relies on low-tech methods for credit generation and verification. As a result, there is opacity around the processes, leading to poor quality credits, ultimately defeating the fundamental idea behind this mechanism.

Varaha is solving these challenges by pioneering a blockchain-enabled SaaS tool. Varaha’s collaborations with strategic partners expedite farm/forest enrollments for carbon credit generation projects, providing access to millions of acres of land. A user-friendly mobile app streamlines farmer enrollments, agroforestry practitioners, and foresters – capturing essential data on land ownership, management practices, and boundaries. Varaha employs advanced remote-sensing-based machine learning models to collect and analyze data, enabling the detection of sustainable practices on the ground. Scientific methods for carbon quantification, including soil sample data, gaseous emissions data, and biogeochemical models, ensure that every carbon credit generated is recorded on a blockchain, ensuring transparency and immutability. Furthermore, smart contracts enable swift payments to stakeholders, promoting continued participation. Varaha’s end-to-end carbon project enablement model utilizes farmers’ and communities’ natural assets to avoid and remove carbon emissions while utilizing carbon market finance to incentivize sustainable practices. Varaha’s community-centric and science-first approach has helped it become among the world’s leading developers of nature-based climate solutions.

Varaha shares the majority of its revenue from carbon credit sales directly with its smallholder and land steward partners. Its ongoing projects are spread over 1 million hectares across five countries (India, Nepal, Bangladesh, Kenya, Tanzania). Apart from directly increasing incomes and reducing CO2 emissions, Varaha’s projects create a range of other co-benefits. For instance, its flagship regenerative agriculture project across seven states in the Indo-Gangetic plains is helping improve soil organic matter, reduce erosion, and improve water quality. The majority of credits from this project are removal credits, signifying a positive contribution to reversing climate change.

- Mark Kahn, Managing Partner at Omnivore

Ethereal Machines: Manufacturing made in India

Here comes the hot stepper! – India’s manufacturing innovation.

The key operating word in that phrase is “innovation,” not just “manufacturing.” India is a manufacturing power, whose full potential will be unveiled over the next quarter century to 2047. That year will mark 100 years of Indian independence.

The IT Services category is the best proxy for what we will see unfold. For 30 years, the broader market attributed India’s success in IT services to labor arbitrage, not innovation. Then, about a decade ago, India began to generate software product companies capable of attracting global customers and winning in markets around the world. It may have been a humble beginning, but that innovation trickle will soon become a flood.

When one of our partners, Arpit, showcased a young, raw, talented team in Ethereal Machines, they were still pruning the rough edges of what would become a 5-axis CNC machine. They were tinkering with two model sizes in their labs. As I recall, they wanted to build 5-axis 3D printers, which was all the rage in the 2015-2018 era. As with most deep tech companies, discovering a more novel technique doesn’t translate into a product-market fit overnight.

Ethereal Machines’ leaders Kaushik Mudda and Navin Jain made two discoveries in the painfully long four to five years since that first meeting with Blume. The first was that while materials and finished parts were intriguing for applications in printing (additive manufacturing), the bigger market opportunity existed in milling (subtractive manufacturing). Millions of sophisticated parts need to be cut down to micron-scale accuracy for aerospace, defense, automotive, and healthcare applications. The improvement in speed and cost a 5-axis machine can deliver over a 3 or 4-axis machine is profound – all without sacrificing quality. This was not well understood at scale due to the prohibitive cost of German and Japanese machines of the same order.

The second was the business model, that niggle required to catapult true innovation into rapid scale, the dream of all venture capitalists. We thought Ethereal should sell these machines.

The main hurdle we faced was customer trust in a young team claiming prowess in multi-axis manufacturing. The founders were repeatedly asked to keep the machines at customer sites for testing. Payment would only follow after twelve months. Those constraints were difficult for a startup to endure, especially in manufacturing, where VC funding has been sparse.

The VC take, meanwhile, was that “this is a boring machine tools business with hardware margins.” Venture investors suggested the team shift to running a marketplace for manufacturing, accepting orders and sending them out to various servicers. Advice can make sense objectively, but figuring out what makes sense for a given team and market is key. This suggestion did not leverage the founders’ core competencies.

Nevertheless, it encouraged us to consider alternative models. We landed on an approach in which Ethereal managed the machines, labor, and production process entirely. What started as manufacturing of precision components for one customer on just one in-house machine has transformed into a farm of Ethereal machines fulfilling a range of orders with a months-long backlog.

A widening funnel of repeat orders, new customers knocking on the door, a robust Series A (Hallelujah! The much-needed capital to expand capacity from ten machines to hundreds!), and a team invigorated to deliver Indian innovation in manufacturing – these are the ingredients powering Ethereal’s rise. This small upstart, located in Peenya Industrial Area in Bangalore, will now manufacture for anyone on the planet at the click of a button. As a line on their website suggests: “Upload your CAD files. Receive an Instant Quote. Get your part Manufactured.”

- Karthik Reddy, Managing Partner at Blume Venture Advisors

Zluri: Managing the “SaaS sprawl”

Software plays a pivotal role across enterprises, from streamlining internal operations to enhancing customer experiences. SaaS has emerged as a driving force in this dynamic environment, with over $300 billion in spend on SaaS globally last year.

Businesses and employees have started using and paying for a multitude of software applications for various tasks, sometimes up to 500 to 1000 cloud software applications per enterprise. This “SaaS sprawl” has led to many security issues, excessive spending on software, and usage and adoption issues. The question arises: what can be done about this SaaS sprawl and the problems it causes?

Enter Zluri, a pioneering solution that enhances software efficiency and security and optimizes SaaS usage and subscriptions. Staggeringly, Zluri’s founding team, led by CEO Ritish Reddy, found that most businesses only use 10% of their stack.

Zluri provides software that allows enterprises to discover, track, manage, and secure access to their third-party software. The benefit is that CIOs and IT departments can have visibility and control over software spending, manage the onboarding or offboarding of employees to these different applications, and secure access by employee or role.

Before Zluri, managing software was a bothersome task. Organizations had to track numerous individual applications without dedicated software, and this problem would grow as the organization expanded, necessitating even more SaaS applications. Team members would even have to occasionally purchase software subscriptions using their accounts, creating a mess of subscription renewal deadlines and reimbursements.

Zluri’s platform allows organizations to track who has access to the various software products in use, enforcing separation of duties. With Zluri, teams can also automate functions with AI-assisted access reviews, saving time and increasing productivity.

Since its founding in 2020, Zluri has grown globally with a customer base that includes leading technology, gaming, and financial services companies likeTipalti, Razorpay, Traveloka, and more. Earlier this year, Zluri successfully closed its Series B funding round, with Lightspeed taking the lead in this investment. We’re excited to see how the business develops in the future.

- Dev Khare, Partner at Lightspeed India

ChistaDATA: Open-source data warehousing

The infrastructure SaaS market has exploded in the past decade with the rise of big internet giants. While these platforms have enabled massive scale, they also tend to be expensive. We’ve all heard stories of Instacart’s Snowflake bills, for example.

As a company’s spend in this category increases, it makes sense to have much finer-grained control on infrastructure and analytics storage. Otherwise, an enterprise can pay out massive amounts of cash to vendors and find themselves constrained by vendor lock-in. A lot of what made sense in the ZIRP era is more egregious in a 5% interest rate world; as some vendors try to extract as much value as they can with data and usage-driven pricing models, there is an emerging need for a more rational cost structure.

ChistaDATA offers an alternative to the status quo. Founded in 2021 by Shiv Iyer, the startup is building a fast, scalable, managed ClickHouse service. ClickHouse is a powerful database engine that was developed by Russian company Yandex in the 2010s. It’s an open-source competitor to Amazon’s Redshift and Google’s BigQuery. By using this as a starting point, ChistaDATA can offer a flexible, cost-effective solution. Its pricing is not indexed to a customer’s infrastructure growth and doesn’t attempt to exploit any dark patterns for data lock-in. We’re seeing strong demand already: significant enterprises in the US are moving to ChistaDATA because its price performance is so hard to beat.

Though ChistaDATA was conceived in Bangalore, it operates in the footsteps of other “open-core” companies like GitLab. It is a fully remote organization with engineers worldwide – and, as mentioned, a global clientele.

Ultimately, ChistaDATA is the evolution of a quintessentially Indian story. India has been renowned for its ability to deliver services for some time. ChistaDATA is a modern variation on that theme. We believe the future will belong to companies like this one that deliver managed services for the enterprise to consume and benefit from. We’re very excited about this company and hope it can become an exemplar of many future startups.

- Anandamoy Roychowdhary, Partner at Peak XV