Iron Pillar

India Investment Themes Framework

As I highlighted in one of my previous articles – Decoding the incredible growth story of India – India is likely to take a massive leap forward in terms of digitization & disruption of both consumption and distribution models in the coming decade. With sharp increase in depth in internet penetration, entrepreneurial talent and private capital, India has now become a hotbed of innovation and almost every sector & industry is now being disrupted by new age entrepreneurs. While that presents a plethora of opportunities for VCs, it also begs the question of how to bring structure to your thought process when looking at investment opportunities, particularly at early stage where top-end of the investment funnel is really big (500+ investment opportunities a year).

Since no one can predict the next big thing in terms of sectors or product categories (think early days of Uber/Airbnb), one way to bring some structure to investing is by creating first principle frameworks for evaluating deals and building a thematic view on India rather than a sectoral view. This article is an attempt to articulate a very basic yet time tested framework for making investments and highlight a few themes (largely consumer tech) which I think will impact many sectors & create significant value in India in next 5-10 years.

First principle approach to investing

Venture Capital, as an asset class, has evolved significantly since its inception in late 60s / early 70s in US; however, the basic principles of investing have largely remained the same as they have consistently created value over many decades. If someone can be referred to as the father of modern VC, in my opinion, it must be Arthur Rock, who helped the famous group of Traitorous Eight to launch Fairchild Semiconductor which gave birth to modern Silicon Valley – its entrepreneurs & its investors. If you go deeper & look at who were the other forefathers of modern VC who have had massive influence on the industry, it would be Don Valentine (Founder of Sequoia) and Tom Perkins (Founder of KPCB). All these three guys, along with their partners, created unique investment styles & frameworks, a combination of which, even today, works extremely well.

Interestingly enough, each of them was very different in terms of the one key aspect on which they anchored their thesis & investments. While Arthur focused on people (Founders), Don placed a much more importance on market opportunity (Market), and Tom invested largely behind technology (Product). And while each of them was wildly successful, when put together, their Founder, Market, Product (F.M.P) framework is still a very powerful modern-day tool to drive various aspects of any investment decision.

Essentially, I have come to believe that these three aspects in any start-up – Founder, Market, Product (F.M.P) – are not only the key drivers on which the eventual value creation hinges but also the key risks that an investor takes. In today’s world where the lines between the conventional paradigm of Seed/Series A/B/C/…N investments have blurred, it is probably much more effective for an investor to determine the right stage of investment (for them) by evaluating which of these three key aspects have played out and which ones are still key risks.

Given the different risk-return goals at different stages, one can follow a simple thumb rule when deciding the right stage for investment. At seed stage, I believe, an investor needs to build a strong conviction on at least one of these three key aspects (while other two may remain largely unknowns) to make the right investment. Often, that key aspect is likely to be the F (Founder) of F.M.P as India doesn’t have a culture of bringing external management to build start-ups. At early stage, an investor needs to build strong (and often data-led) conviction on two of the three F.M.P variables. At growth stage, an investor needs to build strong conviction & de-risk itself across all three variables of F.M.P. And finally, at late stage, an investor should invest behind F.M.P + Scale => meaning that you not only have enough data to build conviction on F.M.P but there is also a lot of scale in the business to behave like a mature company.

investment framework

While there has been a lot written on how to evaluate Founders, Markets & Products and in many cases, it will differ from business to business, I believe there are some generic principles that one can follow:

1. Founders: In 1966, Thomas Davis (who co-founded Arthur Rock’s first fund, and later started Mayfield Ventures) listed six criteria to identify the “right founders”, most of which still apply today. Borrowing from that & from my own experience, I have come to believe that great founders often bring deep industry insights, a clearly articulated vision and prior experience of scaling businesses. They also usually have very strong founder-market-fit (i.e. relevance of founders’ skills & experience to the start-up they are building). Many of them have an acute understanding of company’s financials & an appreciation for unit economics in their business. But most importantly, they have the right intrinsic values which I believe is a combination of integrity, purposefulness and progressive attitude towards all stakeholders (employees, vendors, channel partners, investors, etc)

2. Markets: In my mind, it is tough to create a new market, but it is relatively easy to transform one. Please note that creating new habits is not the same as creating new markets – for example, ordering food is a new habit, but food is not a new market (people have always consumed 3-4 meals a day). A new market would be space exploration or personal computers or social media – these are generational shifts and are tough to create (and hence also create the highest value when done successfully). In India, it is more reasonable to look for transformative businesses which are addressing large end markets (TAM > $5B) and are habit forming in nature. I also think that in India, businesses which are building pain killers have a much stronger adoption than those building vitamins. Also, markets/segments that offer strong unit economics, defensible moats, and a strong tech & data play generally drive much higher value creation

3. Product: If last decade in India belonged to distribution led companies, I strongly believe that the next decade will belong to product led start-ups. Consumers now have access, but they are still eager to do better. Hence, a business with strong product market fit (PMF) usually sees a lot of consumer love which is usually visible in its engagement metrics, Net promoter score (NPS), retention cohorts and total repeats. A super product will consistently have very strong metrics and they will either remain similar or enhance as the business scales. In many cases scale & product metrics behave inversely which is usually a sign of deteriorating PMF; hence, consistency in product metrics is key when evaluating PMF

High impact themes in India

As I said earlier, India is witnessing innovation across a very broad spectrum of sectors and industries, and hence at times it helps to look at investments in terms of themes rather than sectors. These themes are by no means exhaustive and/or restrictive, but they help in creating a structure to investment process. I am highlighting four such themes below which I believe are likely to play out extremely well in India in next 10 years.

Theme 1: Category leaders & platforms for India 2

Consumer tech businesses in the first decade of the startup ecosystem largely focused on top 20M households and top 40-50M consumers, residing largely in Tier 1 cities of India (most people call this India 1). These businesses, in many cases, were inspired by successful US companies and were adapted for Indian consumers. This also led to significant competition from US companies (such as Amazon & Uber) fighting for same consumer bucket in India. However, in last 4 years, more than 600M users have come online and entrepreneurs are now creating India specific playbooks to engage & target these new to internet consumers who have relatively lower capacity to pay, require assistance in buying, exhibit strong social behavior and are eager to do better (most people call this India 2). I believe that companies & platforms which are building new-age products & services to capture the “wallet” share & “mind” share of India 2 will likely create large & high impact businesses in the coming decade, and will cut across many sectors such as content, commerce, fintech, edtech, and agriculture.

India Technology Investment theme - Creation of category leaders & platforms for India 2 - Rahul Garg

Theme 2: Creation of two-sided platforms

If the emergence of Tiktok taught us anything, it was that India is not only home to a very large base of users, it is also home to a very large base of creators. And this doesn’t apply just to entertainment & content, but many other sectors which require expertise & talent. On one hand, India has immense talent & supply when it comes to Teachers, Artisans, Technicians, Artists, Anchors, Doctors, etc, and on the other hand India has huge demand for all these services which is not effectively met due to significant opaqueness in demand & supply. However, we are now seeing increasing emergence of two-sided platforms which match these service providers (both skilled & semi-skilled) with consumers, in turn adding value to both sides. Such platforms have emerged in education, home & living, agriculture, content & media, commerce, etc. I believe that such platforms can garner strong network effects at scale, can demonstrate a lot of capital efficiency and will likely turn India into one of the largest passion economies globally, thereby creating significant value of everyone involved.

India investment theme - creation of two sided platforms - Rahul Garg

Theme 3: The reversal of innovation-inflation curve in H.E.F

Even in US, let alone India, the innovation has largely centered on lifestyle categories, which has made access to lifestyle products & services (electronics, clothing, software, toys, furnishings, etc) 10x better and 10x cheaper (as they say!). That has led to significant deflation in the prices of products & services in these categories. The trend has been similar in India. For example, the penetration of a smartphone or a colored TV in India is much deeper today than what it was 10 years ago, and consumers in Tier 2 cities get the same quality & pricing for these products as consumers in Tier 1 cities. However, when it comes to basic utility products & services such as Healthcare, Education and Financial Services (H.E.F), the innovation globally (including India) has lagged behind and has resulted in significant inflation across these three sectors, which are actually important economic unlocks for any country. However, with internet as new medium of distribution I believe entrepreneurs in India are now set to drive massive innovation across all these three sectors and I would expect H.E.F products & services to become 10x more accessible & 10x cheaper in the next 10 years, thereby creating massive value & a huge economic dividend for the entire nation. In particular, I believe we will productization of financial services (customizable products for everyone), democratization of education (ability to learn whatever, wherever, from whomever) and consumerization of healthcare (rise of preventive care & wellness).

India investment theme - productization of financial services, democratization of education and consumerization of health care - Rahul Garg

Theme 4: Digitization of SMEs and supply chains

With rapid digitization of the consumer base and the creation of digital highway alongside strong payment infrastructure, India is now set to move its small business owners from being analogous to digital. This transition is not necessarily just consumer facing (meaning going online to sell their products & services) but also enterprise facing in terms of infrastructure to collect payments, maintain ledgers & accounting books, file taxes, deliver orders, avail working capital etc. There are many startups which are working tirelessly to transform an old economy mom & pop business to a new age digitally empowered business. I call them enablers, and I believe many large enablers will emerge in India as the country & its businesses rapidly digitize themselves.

India investment theme - digitization of SMEs and small business owners, ride of passion economy and rise of enablers - Rahul Garg

I am sure there are many other themes which are at play in India and there are many which will emerge but thinking in frameworks & themes has helped me structure my thought process when trying to imagine the future. There are many authors & investors who have inspired my thought process in last 5 years and while it’s difficult to list all of them, I would like to mention two sources here who have inspired a lot of my thoughts in this article.

1. Book: VC – An American History, by Tom Nicholas. It’s a must read for anyone who wants to learn about the genesis of venture capital

2. Investor: Union Square Ventures (USV) – They are one of the best thematic early stage investors globally. For anyone who wants a steady source of food for thought, their blog ( by Fred Wilson) & podcasts (by Rebecca Kaden) are a must watch

About Rahul Garg

Rahul Garg

Rahul brings over 15 years of global experience as a venture capitalist, an entrepreneur and a sell side equity research analyst.

Before joining Iron Pillar, Rahul was a principal at Kalaari Capital for three years, where he led investments into high-quality entrepreneurs & worked extensively on the boards of several technology companies. Prior to that, Rahul spent 5 years as an entrepreneur & built two vertical e-commerce companies ( and in India where he managed a team of over 150 people & was directly responsible for product development, marketing & business strategy. Before becoming an entrepreneur, Rahul was a sell side Research Analyst for 8 years, during which time he worked in both European Capital Markets (Lehman Brothers) & Indian Capital Markets (HSBC Securities), advising large institutional investors across the globe. In 2007, Rahul received an annual award at Lehman for outstanding performance given only to two recipients globally. In 2012, Rahul was ranked 16th best analyst in India by Asia Money across all brokerage firms & all analysts, strategists & economists.