Indus Valley Annual Report 2024

Indus Valley Annual Report 2024
Sajith Pai | sp@blume.vc

Anurag Pagaria | anurag@blume.vc
Nachammai Savithiri | ns@blume.vc
Welcome to the Indus Valley Annual Report 2024
India’s vibrant startup ecosystem, concentrated in the eastern suburbs of Bangalore, the satellite cities of
Gurgaon and Noida in the Delhi National Capital Region (NCR), the districts of Lower Parel & the Andheri East –
Powai belt in Mumbai, the Southern suburbs of Chennai, and in the various scattered pockets across many other
cities such as Pune, Hyderabad, Chandigarh etc., has lacked a singular name.
At Blume, we like to use Indus Valley as a catch all moniker for the Indian startup ecosystem. It is a twist on the
typical Silicon Wadi / Glen / Fen naming convention, as well as a reference to the Indus Valley Civilisation, one of
the vibrant centres of the ancient world, and the ancestral civilisation of the Indian people.
Unlike Silicon Valley which has a geographical connotation, the term Indus Valley has no such overtone. It is
instead a reference to the entire Indian startup ecosystem, spread throughout the nation. It is also an attitude, a
mindset, one of invention, and ‘jugaad’ and chutzpah.
The Indus Valley Annual Report published by Blume Ventures, celebrates the rise of Indus Valley, and its
emergence as one of the centres of innovation and enterprise in the startup world. It gives us a chance to look
back, and take stock of its evolution, and look ahead to what is coming. We welcome you to the third edition of the
Indus Valley Annual Report! Our previous editions can be accessed here - 2023, 2022.
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How to read this report
This is not a data book. We didn’t create it to serve as an exhaustive repository of data or reportage on India.
Rather, it is more a narrative, and less a dataguide. Or even better, you should see it as a source of perspective on
the Indian startup ecosystem. And as with all perspectives, a lot depends on the vantage point of the observer. As
the leading seed fund in India, we do think we have a unique perspective and insight into the Indian startup
ecosystem, or Indus Valley, as we term it. And with The Indus Valley Report, we hope to get you, dear reader, to
view the Indian economy through our lens. Do tell us how you see it. Compliments, criticism, feedback all welcome
at sp@blume.vc / anurag@blume.vc / ns@blume.vc
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Structure of The Indus Valley Report 2024
Unpacking India’s GDP, and introducing the twin pillars of Investment: Gross Fixed Capital Formation (GFCF) and Consumption.
India
understood through the numbers GFCF: Why the private sector under invests in GFCF and why the government picked up the slack. How the government finances its GFCF investments and how
and narratives that define it, and that has implications for India’s bond market.
shape it.
Consumption: Despite our low per capita income and underconsumption on several indicators, we have a largish rising ascendant affluent class we call India1.
We elaborate the India 123 income pyramid and framework.
India1’s investments into the Equity Market (SIPs + direct) insulated the market from FII exits, but also made India an expensive market.
A key theme of the past few years has been the boom in retail credit or specifically unsecured Personal Loans, as India’s fintechs expand the credit market to
bring in India2 and new to credit borrowers. This of course means poorer quality of loans and naturally, RBI is worried.
India’s most powerful export is people, and the ideas that these people embody. Increasingly, India is expanding its soft power.
A key achievements of the past 15 years has been the rise of Digital Public Infrastructure or modular protocols around identity, payments and data exchange.
Governments and startups are leveraging this to drive productivity and growth. But while the government giveth, it also taketh.
What happened in the venture market in 2023, especially in regards to funding, and some macro trends.
Indus Valley
understood through trends and What does the booming IPO market, and specifically the SMB IPO market foretell for Indus Valley startups?
themes that explain it, and propel
it forward. A deep dive into three sectors that have been in the news including
- digital native brands with a brief foray into their enablers, specifically QCommerce.
- deeptech, with a closer look at SpaceTech (including ISRO), and AI / local LLMs.
- fintech, why everyone is a fintech today, and why the payment apps are getting into ecommerce.
The Indus Valley playbook compiles a few of the distinct approaches and tactics that Indian startups are using to drive growth.
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Section I: India
Source: Twitter (also see clarificatory tweet)
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Section I: India
GDP
Understanding India’s GDP
➔ Peer comparison Up next…

How India stack against others
Gross Fixed
➔ Understanding GDP Capital Formation
Two pillars of India’s GDP -
Investment and consumption
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India - GDP
India is a key driver of the globe’s economic engine today
NBFC Crisis
India’s GDP is ~$3.7 Tn
9.1%
India’s 6% GDP growth

forecast for FY24 is the
GFC Crisis highest forecast for major
economies
China -> 4.7%

Indonesia -> 5.1%
Taper-tantrum
Dot-com Burst USA -> 1.4%
Global Avg -> 2.7%
Covid-19
Source: Jefferies, UBS / OECD, Ministry of Finance

8
India - GDP
Is 6% the new ‘Hindu Growth Rate’?

India has done well to break out of the old Hindu Growth Rate1 of 4% and grow consistently at ~6% the last four decades.
That said, India is still far away from the ~9% that China averaged in the equivalent period.
Historical GDP growth rates: India vs China Average GDP growth: India vs China, 1980-2022
1
"Hindu rate of growth" was a phrase coined by the Indian economist Raj Krishna. It refers to the annual growth rate of India's
economy before the economic reforms of 1991, which averaged 4% from the 1950s to the 1980s.” (via Wikipedia)
Source: IMF, Phillip Capital India Research
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India - GDP
Seeing it in perspective
For all of the chatter about India’s growth rates and its entry into the World’s top 5 economies, it is useful to contrast the GDP
and GDP per capita figures. India’s low per capita GDP shows us that we still have a long way to go.
Largest economies by GDP ($tn) India vs others on per capita GDP ($)
China has roughly

the same population
as ours, but ~5x the India was 140th on the per capita income list, at
economy. $2,600. Bangladesh ranked just above us.
Source: IMF, Wikipedia

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India - GDP
India’s GDP is led by consumption spends, unlike China’s
India’s economy has long been characterized by high Private Consumption, i.e., spends by households, private sector and government, as a high share of
the GDP. The key reason for this is Gross Fixed Capital Formation (GFCF, essentially creation of productive assets such as machinery, infrastructure) has
a far lower share than it should; primarily because of underinvestment. Let us unpack why India under-invests in GFCF.
Source: RBI, IMF

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Section I: India
GFCF
Understanding India’s Gross fixed capital
formation (GFCF)
➔ Why corporate India under

invests
Corporate deleveraging, and the
GDP presence of surplus capacity led to
Consumption
corporates underinvesting
➔ Why government over

invests
What that implies for India’s bond
market
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India - GFCF
India has consistently underinvested in capital formation

Barring 2007-13, we have seen Gross Fixed Capital Formation (GFCF) languish in late 20s (%)
China’s GFCF has stayed

above 40% of GDP
consistently since 2003
Gross Fixed Capital Formation is the creation of productive assets such as infrastructure (roads, bridges etc.) or manufacturing facilities.
It is a long-term investment, and it can be undertaken by the government (state and central), but also by private sector.
Source: Jefferies (for India), The Global Economy (for China)

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India - GFCF
Why India under invests in capital formation

A key reason is that private corporates punch well below their weight in India. Their shares are reducing, and one factor
seems to be that they are borrowing less, unlike before. This means they can’t invest as much into GFCF.
China’s
equivalent
to India’s
22.6% is
37%.
Source: UBS, World Bank

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India - GFCF
Why does the private sector not borrow enough?

For one, spurred by the NPA crisis of 2015-18, as well as the uncertainties around COVID, the private sector has been
cautious to borrow and has been deleveraging by retiring debt. Secondly, a relatively low capacity utilisation of assets
implies they haven't felt the need to ramp up investments in fixed assets.
Source: Jefferies, Allianz Research

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India - GFCF
The government treads where the private sector doesn’t

The private sector’s underinvestment in GFCF and its low leverage is not a recent trend, though it has accentuated of late. In
recent times, the Central Government has stepped in to drive investments in capital formation.
177.3%
124.4%
105.8%
85.6%
50.4%
45.6%
Source: World Bank, Jefferies

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India - GFCF
However, India’s tax collection growth has not been buoyant

enough to support its ambitious capex investments
India’s tax to GDP ratio hasn’t moved in the past 7 years; it collects far less tax than its peers
India’s tax to GDP ratio (%) India vs Peer Economies, tax to GDP ratio (%)
Source: Tax India Online, Business Today

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India - GFCF
It is illuminating to look at India’s direct tax efforts

Corporate tax’s share of GDP hasn’t moved much
From corporates, the share of burden has

Drop spurred by tax cuts announced in 2019 and 2020 moved to individuals, and as you can see in
the next slide, a tiny number of individuals
Source: India Budget, Jefferies

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India - GFCF
1.5% of Indians (22m) pay India’s income tax in entirety

And a fifth of those taxpayers pay four-fifths of income tax
Only 5% Indians are tax filers
Only 1.5% Indians are taxpayers, vs

China ~10%
USA ~43%
And 0.3% Indians contribute

to 80% of tax collected
Source: Income Tax Data, Bloomberg, CBDT via Jefferies

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India - GFCF
Due to low tax collections, the government relies on borrowings

Over the last decade, government debt has grown ~3x (4x in ₹ terms); we are now well above our peers
This is reflected by a higher ratio India’s government debt as a % of GDP

Public debt is on the rise
of government debt to GDP is at the higher end of its peers
Source: Asia Economics, UBS, Fortune India

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India - GFCF
Do rising government borrowings risk crowding out private

borrowers?
India’s (relatively) undersized bond market is dominated by government borrowings
India has an undersized bond market Corporate bond market is even smaller Government borrowings dominate bond markets
With government borrowings dominating the bond

market, we run the risk of the private sector
crowded-out gently from the credit market, further
reinforcing their low share of borrowings. That said,
studies haven’t demonstrated ‘crowding out’
conclusively. In fact the opposite argument, of
‘crowding in’ has been made too.
Source: EY, BIS, Twitter

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Section I: India
Consumption
Despite our low per capita income and
underconsumption, we have a largish rising
ascendant affluent class
➔ The India123 Framework

India underconsumes on several
categories, thanks to a smaller than
GFCF presumed spending class. Blume Equity Market
calls this class India1.
➔ Premiumisation
India1 is small by Indian standards,
but still large enough to power the
Indian economy, and is driving
premiumisation of the economy.
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India - Consumption
From GFCF, now to consumption, which dominates India’s GDP
Additionally, consumption’s high share of GDP has a

Revisiting this chart, we know that consumption
long history of persistence. A key reason is the low
has a high share of India’s GDP.
investment into GFCF bringing down its share.
Source: RBI, IMF

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India - Consumption
Necessities, including food, dominate India’s consumption spends

The share of Discretionaries in Consumption has grown, although slowly.
India’s Discretionaries spend India’s retail spends are tilted in

as a % of Consumption favour of groceries
Per MPCE data,

Blume’s estimates,
discretionary spend was
21% of consumption in
1999-00, and 29% in,
2022-23
Source: Macquarie, Bain & Company, Blume Research

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India - Consumption
With such a high spend on Necessities, India under-consumes on

several categories
Domestic air passenger traffic (mn) Elevator density (per 1,000 people)
0.5 elevators per 1000 inhabitants
Source: Civil Aviation Ministry, Aviation Week Source: Barclays
India’s per capita protein consumption per day (grams) Household goods ownership penetration
Source: OurWorldinData Source: IVAR23, NFHS, Credit Suisse 25

India - Consumption
A key reason for that is a tiny consuming class

There are several estimates (here are 3) of India’s consuming class, but all point to a small set of spenders.
PRICE ICE360 (2020-21) Goldman Sachs (2022) Redseer (2021)

definition of India’s definition of India’s definition of India’s
Consumption Class Consumption Class Consumption Class
60 mn (Income >$10k) 156 Mn

120 mn (Income >$20k)
112 mn (Income $5k-$10k) (Income >$14k)
355 mn
(Income $6.7k-$20k)
708 Mn
(Income $3.5k-$14k)
1276 Mn (Income <$5k)
928 mn
(Income <$6.7k)
538 Mn
(Income <$3.5k)
Source: PRICE ICE360, Goldman Sachs, Redseer 26

India - Consumption
How Blume looks at the Indian consumer stack

India 1 ~30m households India1 is the consuming class, and effectively constitutes the
The Consuming
‘Mexico’ ~120m people market for most startups. Also most startups start here and
Class
~$15K per capita then expand to India2.
India2 is the emerging aspirant class. They are heavy

India 2 ~70m households consumers and reluctant payers. OTT / media, gaming,
The Aspirant
‘Indonesia’* ~300m people edtech and lending are relevant markets for them. UPI and
Class
~$3k per capita AutoPay has unlocked small ticket spends and transactions
from this group.
India 3
‘Sub-Saharan Africa’ Unmonetisable ~205Mn households India3 doesn’t have the kind of incomes to be able to spend
Users ~1Bn people anything on discretionary goods. They are beyond the pale,
(& Non-Users) ~$1k per capita as of now, for startups. Some apps straddle different
Indias e.g., Whatsapp, Youtube,
Flipkart etc. A good way to
understand the above is that all
apps in India3 can be used by
India2 and India1. Similarly
India2 apps can be used by
India1. The reverse isn’t true.
India1 apps are not used by
India2 or India3.
* Indonesia’s per capita income is $5k; strictly this is not the right country analogy for India2, but I couldn’t get a
Source: Blume Research country that has a population of ~300m with a per capita income of $5k. So please bear with us for this. 27
India - Consumption
India123 is a powerful organising framework to understand India

Kishore Biyani pioneered the concept of India1,2,3 in his book ‘It Happened in India’ (2007). Sajith Pai elaborated on the concept and
sized the segments in a 2018 essay, Recently, this has been further popularised by Biyani via his appearance on the WTF podcast.
Kishore Biyani on ‘WTF is eCommerce’? Kishore Biyani’s further segmentation of India1
“My theory is that India is divided into three parts,

according to levels of consumption – India1, India2 and
India3. India1 is the consuming class, anybody who
has domestic help is for me the consuming class. By
consumption, I mean not simple consumption but
some value-added consumption. India2 is the serving
class that makes our lives better, for example, the
helpers, the peons, the watchmen. And for every one
India1 there is 3-3.5 India2. And unfortunately India1
does not give enough money to India2 to help them
consume discretionary products. Then there is India3
that includes farm labourers, on government aid.” Annual household earnings of India1 Consumption Trends
India1 divisions (₹mn)
Per Biyani, India1 is 30m households (100-120m
people), $800b consumption (60% of total), growing
slowly in numbers but incomes growing at 10%+. He
further divides India1 into Singapore (6m people),
Poland (25-30m people) and Mexico (70-80m people),
and describes how they dominate much of Chart from Indus Valley 2023 Report
discretionary consumption.
Source: WTF Podcast 28

India - Consumption
We can also think of India2 as two distinct groups

Mithun Madhusudhan, who writes extensively on monetisation models for Bharat / India2, dissected India2 into India2.1 and India2.2
Back to Consumption
Source: Mithun Madhusudhan’s deck. Link to deck or click for post 29

India - Consumption
The outer limit of the consuming class seems to be ~30m households

Across several premium consumption categories, we see a range of 25-40m unique users or 20-30m households
~40m unique credit card users

Only 1% of India (13m) traveled
~33m (likely) households using
abroad for tourism in ’22
credit cards
~22mn taxpayers
30mn wired broadband homes*
~70mn total tax filers
Less than 30mn demat accounts

with holdings > ₹10k, out of ~40mn mutual fund investors
60mn unique demat users overall
35-40mn mature internet users

25-30mn car-owning households
25-30mn households
* relevant because these are homes that have regular electricity

and more than 1 user accessing internet regularly
Source: Captable, The Ken, TRAI, Jefferies, Mint, TOI, Twitter, ET, NFHS Survey, The Print, Blume Research, McKinsey 30
India - Consumption
That said, the Indian consumption class is growing steadily…

A look at different estimates of the growth of the consuming class
Goldman Sachs ‘Affluent India’ estimate ICE360 chronicles the growth of the ‘Consuming Class’ in India
8% of Indian
Households
formed the
consuming class
0.5% of Indian
Households
formed the
consuming class
Source: Goldman Sachs, ICE360 31

India - Consumption
…ramping up consumption...
Over the last 4-5 years there has been a doubling or so of consumption units across different segments.
Rise in postpaid mobile connections (mn) Growing credit cards (mn, non-unique holders)
Source: Goldman Sachs Source: Goldman Sachs
Demat accounts on the rise (mn, non-unique accounts) Broadband access has widened sharply (mn)
Per Nitin Kamath,

there are ~60 mn
unique accounts
and about half of
those have holdings
> ₹10k
Source: ICICI Securities Source: Phillip Capital 32

India - Consumption
… and this growing consuming class has an appetite for premium products
Sales growth of premium brands have been outperforming mass brands across categories
Revenue CAGR FY19-22 Revenue CAGR FY19-23 Revenue CAGR FY19-22 Revenue CAGR FY19-22
Source: Goldman Sachs, Marcellus 33

…and this is leading to a K-Shaped recovery
Sale of Entry Level Vehicles Declining (mn)... …while SUV sales are on the rise
Source: ET Source: ET
Avg selling price of property is rising (₹ mn) Apple India sales set to overtake HUL sales (₹ bn)
Source: Propequity, Jefferies Source: Jefferies 34

India - Consumption
Public market investors are waking up to rise of this trend, and the
power of India1 in driving consumption and growth!
From ‘Octopus Class’ to ‘Affluent India’ to ‘Urban Wealthy’, a host of monikers emerge to describe this class.
India1 has had a secondary impact on the stock market too. Their rising savings directed towards the stock market via SIPs helped stabilize the stock market
when FIIs were selling. Let us understand this and other narratives underpinning the Indian growth story, in the next section.
35
India - Consumption
Source: Twitter 36
Section I: India
Equity Market
How Indian markets remain resilient
despite turbulence in FII flows
➔ Mutual funds hold up the

India market
All of those SIPs add up Personal
Consumption
Loans
➔ Indian markets are
becoming expensive
Markets have now entered
nosebleed territory
37
India - Equity Market
Indian markets remain resilient despite turbulence in FII flows

FIIs (Foreign Institutional investors) are not the dominant actors in the Indian stock market, presently. Domestic monies via
Domestic Institutional Investors (DIIs) now match, and even surpass FII flows in recent years.
Source: Bloomberg, CLSA

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Mutual Funds account for majority of DII flow, thanks to SIPs

The SIP has become a stable source of domestic capital flowing into the Indian equity markets
Broadly there is $35-40b of domestic flows into the

Indian stock markets. Typically just under 1% of the
market cap value flows into the stock market.
Source: Jefferies, NSE, Antique

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Mutual Funds (MFs) are hitting record highs

Thanks to steady SIP flows, MFs are hitting record AUMs (asset under management) and % ownership of the market
$660bn = ₹50Tn
₹30Tn
₹8Tn
Source: AMFI, Goldman Sachs

40
In parallel to MF and SIP growth, there is rising retail investor

activity in the stock exchanges too
India1’s rising disposable incomes need to go somewhere and the stock market is a favourite parking spot!
Source: NSE, CLSA, CNBC

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All of these monies going into the stock market means India is an
outperformer market but also an expensive one
Comparing peer economies market

cap as a % of GDP (2023)
USA 190% (highest)

UK 100%
China (including HK) 80%
Source:Jefferies, Motilal Oswal

42
An ‘unfair but relevant’ comparison

The Indian stock market has had an impressive journey, but it is still smaller than two US tech stocks.
India stock market capitalisation trend ($bn)
India’s biggest company by market cap is Reliance (~$250 bn)

In the coming years, we hope to see Indus Valley generate a company on the scale of the US tech giants!
Source: CLSA, Yahoo Finance (Microsoft and Apple MCap as on 31st Jan 24) , CEIC
& h/t to Benedict Evans for the phrase ‘unfair but relevant’ 43
Section I: India
Personal Loans
A key theme of the past few years has
been the boom in retail credit especially
unsecured Personal Loans
➔ Rise of small ticket loans

India’s fintechs expand the credit
Equity Market market, bringing in India2 and New to India’s Export
Credit Borrowers
➔ Why RBI is worried!

These New to Credit borrowers push
down asset quality, driving NPAs
high, and getting RBI worried
44
India - Personal Loans
It is all personal!
The rise of unsecured credit has been one of the key themes of the Indian economy in recent years
Personal loan disbursements Personal loans have grown 12x …which means most loans are small
have steadily risen in volume ticket personal loans (< ₹1L)
12x 31x
…but have only grown 3.5x

by value…
Source: UBS, CRIF How India Lends

45
Much of small ticket personal loans are via NBFCs, not banks
82% of all personal loans are dispersed by NBFCs (a fair bit of these are fintechs, or originated via them) but they only make
up about 30% in value.
1
Small ticket loans account for nearly 9/10ths 2
NBFCs account for four out of five personal 3
...but less than ⅓ by value and hence are
of loans by volume loans disbursed in FY23… mostly driving small ticket personal loans.
Source: CRIF, DLAI

46
Spurred by the growth in personal loans, retail credit has grown to

be the largest segment of credit in India
466
160
Source: UBS
47
However, much of personal loans growth is on the back of poor

quality borrowers
Two-fifths of personal loans are to lenders with 5+ loans >3x increase in loans to defaulters with a 90+ day due loan
23.1% of new loans in FY23 were to borrowers who had at

About 10% of the borrower base have 5+ loans and they
least 1 delinquency. This has doubled from FY19. Even as
account for two-fifths of the loans. Clearly they are using it to
delinquency worsens due to poor quality borrowers coming on
rotate monies across these loans, and are in a debt spiral.
board, these borrowers are targeted further for newer loans.
Source: UBS
48
Just over a quarter of loans < ₹50k are NPAs (90+ days due)
Rise of personal credit on the backs of dispersal to high credit risk customers is leading to higher NPAs. The lower the loan
ticket size, the higher the default rate.
A quarter of the loans in the <50K

2x INR category are 90+ days due in
July ‘23. This has doubled since
March ‘19.
Source: UBS / CRIF

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At 258m borrowers, we are nearing the limit of the addressable

market for credit (India1 + India2)
McKinsey estimates ~400m,
but given our estimates of
~100m India1+2 Households
and 2.5 adults per Household
we feel we are hitting the limits
of the credit-viable segment
Eligible customer base
Rural population (Low income)
Urban population (Low income)

Population >65 y/o
Population <20 y/o
New to credit customers (barring young India1 entrants, i.e., career starters) are typically from the bottom half of India2. They are
economically less well off, and not used to how credit works, and the discipline of paying it back.
Source: UBS, McKinsey

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And hence, RBI is worried
Personal loans are 30% of bank advances today, up

from 18% in 2010
In December ‘23, RBI intervened by increasing the risk weight of personal

loans to 125%, implying that lenders needed to raise more capital to grow. This
slows down lending though won’t stop it altogether.
Source: Mint, Twitter 51

Section I: India
India’s Exports
India’s most powerful export is people
and the ideas Indian people embody
➔ India’s Diaspora
Deconstructing the Indian
Personal
Loans
diaspora Government
➔ India’s different exports
Beyond services exports, there
are other people exports too
52
India - India’s Exports
Source: Twitter
53
India is the largest exporter of human capital in the world…
India is the largest migrant country in Indians abroad send back a lot of This remittance has been growing
the world money, the highest in fact steadily
Migrant transfers to India are deemed to be a more stable form of foreign inflows vis-a-vis those like
foreign direct investment (FDI) due to their relative stability even during macroeconomic downturns.
Remittances account for over 20% of the total foreign exchange reserves in the country and has
helped prop up the INR
Source: World Migration Report 2022, Barclays, Wikipedia 54

…and has the 2nd largest diaspora in USA, but the highest earning
About a third of engineers & a quarter of scientists in US In the US, the Indian community is the model minority,
IT companies are of Indian origin, per Barclays with the highest incomes of any ethnic groups
In Australia, they are the second highest earning migrant

group, but in other countries like UK, Canada, there is a
lot more blue collar migration pulling down income of
Indian-origin migrants in those counties.
Source: Barclays, American Community Survey 2021 via Wikipedia 55

But not all migrants are model migrants

India has two sets of migrants - the ‘English’ class and the Exit class; the first an elite white collar class, and then the second
seeking an exit from economic or social distress
The Indian diaspora in

Canada punches well
below its weight when it
comes to Remittances
Source: FT Partners 56
India’s rising services exports is a testament to the power of its

human capital
India punches above its weight class on services exports
Half of this was software

services exports, and a
quarter was business
services. As more and more
services can be served
digitally, India’s share will
increase.
Source: WTO, World Bank via UBS 57

After people, India’s most influential export is software services

The software (or IT) sector has created 4.5m direct jobs & 12m indirect jobs, which is ~30% of India’s white collar sector
Indian IT sector’s global market share An ‘unfair but relevant’ comparison
194
Software Products
Engg R&D
BPM
IT Services
Source: Indus Valley Report ’22, Barclays, EIA Gov, Meity 58

And now India Stack / Digital Public Infra is getting exported too
Indiastack, the Digital Public Infrastructure stack (which includes, UPI, Aadhaar and other digital rails) pioneered by India,
has caught the world's attention and is being exported to the rest of the world.
Digital public infrastructure developed in India is

being adapted globally. For example, UPI developed
by the National Payments Corporation of India
(NPCI) has become the world’s fifth-largest payment
network behind only Visa, Alipay, WeChat Pay and
Mastercard. UPI is currently live in countries like
Nepal, Bhutan, Singapore and UAE and is expected
to double the next 12 to 18 months.
59
Increasingly India is also exporting culture, and flexing its soft

power
Thanks to a combination of a large english speaking population, huge diaspora, a large market, India’s culture is quickly
seeping into the world
1 Indian culture is going global 2 Slowly, steadily, an Indian Internet 3 Pay via UPI overseas
In all likelihood, India1 (~120m)

constitutes the second-largest English
reading country after the U.S.
Source: Wikipedia, Twitter, NYT 60

Section I: India
Government & Indus

Valley
A key theme of the past 15 years has
seen the rise of Digital Public
Infrastructure and how governments and
startups have leverage those for
productivity and growth
India’s
Exports ➔ DPI and it impact
How government and startups
have leveraged DPI
➔ Government taketh too

Crypto, Fintech and Gaming have
scar tissue
61
India - Government & Indus Valley
India has incorporated technology as a key element of governance

A key development of the last ~15 years is India’s emergence as a Digital Welfare State, leveraging Digital Public
Infrastructure (DPI) for welfare goals
Population
97% Indians covered

by Aadhar
Financial inclusion of 500Mn Indians

with Jan-Dhan accounts
UPI crosses 10Bn monthly
transactions in Aug’23 with
350-400Mn transacting users
DPI
Digital Public Infrastructure consists of digital lego blocks
across three different layers - identity (Aadhaar), payments
(Unified Payments Interface or UPI, Aadhar Enabled
Payment Service) and data exchange (DigiLocker and
Account Aggregator). Combined, “they enable online,
paperless, cashless, and privacy-respecting digital access
to a variety of public and private services”.
Source: PIB, NPCI, UIDAI, RedSeer Ground Zero, McKinsey, IMF

62
How India uses Digital Public Infrastructure (DPI) to become a

digital welfare state
Direct benefit transfer (DBT) allows the government to reach almost every citizen efficiently and cheaply.
$87.3 bn
In the last decade, India has built one of the world’s largest welfare
programs leveraging DPI. This approach has supported transfers
amounting to about $350 billion directly to beneficiaries. Per the
In kind is when government gives provision of goods, services, government, as of March 2022, this had resulted in a total savings of $33
or benefits, rather than providing cash or monetary assistance billion, equivalent to nearly 1.14% of GDP.
Source: DBTBharat, World Bank 63

Startups have leveraged DPI to grow faster, as well as create new

revenue opportunities
Fintech, and now Mobility and Ecommerce sectors have benefited from incorporating DPI into their workflows, or building
business models atop these protocols
DPIs How startups leveraged these Examples of startups who leverage these DPIs
Used for onboarding (faster KYC)
Build consumer apps aboard the

protocol
Access to documents held for

verification
Building consumer apps aboard the

ONDC protocol
Playing the Account Aggregator role or

lending using AA framework
Source: Redseer
64
Case study: How Zerodha leveraged DPI

Zerodha’s Nithin Kamath tweeted about how they leverage Aadhar eKYC, eSign & DigiLocker to ramp up account creation
Source: First tweet, Second tweet

65
Case study: How STAGE leveraged DPI

UPI Autopay (Direct Debit / AutoRenew) has been a gamechanger for STAGE, and is now nearly 100% of subs signup flows
UPI Autopay Impact of UPI Autopay on Stage

Cumulative UPI autopay mandates
(in mn) STAGE, an OTT for Bharat, launched UPI AutoPay
only in Apr-23 but now is how nearly 100% of all
signups originate.
140,000 subs via

UPI AutoPay in
Dec ‘23
100+ merchants live on UPI Autopay

“UPI is ease of payment, hence solves for acquisition. UPI autopay is ease of renewal,
hence solves for retention. The real power of UPI autopay is that it brings down the cost
of re-acquiring a customer by 70-80%. For any business that serves the customer on a
recurring basis, it is very effective.”
Mobile Application - Vinay Singhal, STAGE
OTT NBFCs
Stores
Source: RedSeer, STAGE 66

Case study: How Snapmint leveraged DPI for lending

Using the Account Aggregator (AA) Framework helped SnapMint reduce costs of processing and grow revenues
Account Aggregator Framework
Cumulative count of accounts Disbursement value ($bn) of loans Number of loans (mn) enabled
linked by account holders (in mn) enabled via AA Framework via AA Framework
Account Aggregators
Impact of AA Framework on Snapmint
➔ Drop in fraud rates to zero ➔ Credit Limit Improvement up 55%

➔ Cost of loan processing drops ➔ Revenue lift 27%
from ₹440 to ₹100 ➔ Bottomline lift 4%
Source: RedSeer, Sahamati, ONDC 67

Case study: How Namma Yatri leveraged DPI

Namma Yatri is built on ONDC’s Beckn protocol, and helps drivers serve consumers without paying commission to rideshare platforms
Completed trips on Namma Yatri

Driver Earnings ($mn)
(in mn)
Unlike Ola, Uber which dock the driver a

commission of ~20%, Namma Yatri charges drivers
21st Feb, 2024 Stats
₹25 ($0.3) per day.
➔ Bangalore ~120k trips & ₹~1.6crs ($200k) earnings
Drivers are matched with riders, and they settle
payments amongst themselves. ➔ All India ~ 135k trips & ₹~2crs ($250k) earnings
Source: Namma Yatri 68

Sidebar: ONDC Protocol

ONDC
Food delivery 1/3rd of ecom
(Dec’23) and just behind is
fashion; grocery is 10%
Mobility Ecommerce Credit
Has hit ‘PMF’. Clear

Still early days, ‘PMF’
business model Launching soon
not as strong as mobility
emerging,e.g., (Namma
Yatri charges drivers a
daily flat fee
Anyone can plug into the ONDC protocol as buyer, seller or enabler (seller aggregator, logistics provider, Online Dispute Resolver). On the Mobility front, JusPay (via
Namma Yatri has been an early mover. On the commerce front, PhonePe (via Pincode) and Paytm (via Paytm Mall) have take the most aggressive steps in ecommerce.
Magicpin in Food delivery has been aggressive too. No strong use case yet, take off point has been seen yet.
ONDC’s goal is to enable every seller to have access to the same tools that Amazon or Flipkart has. A big focus is Kirana stores and helping them be able to sell,
instead of large sellers dominating like Cloudtail. That said it isn’t entirely clear how the ecommerce and credit space will evolve. Mobility is a lot more clearer.
The team seems keen for economic models to be discovered, and understands that UPI created value for users, but not entirely for providers. They are keen that the
same mistakes don’t repeat. That said, from their statements, it is clear that there wont be double digit margins to be made. The ONDC team is working on rolling out
experiments in energy, skilling etc.
Source: Plotch, Blume Research 69

DPI is not the only largesse from the government for startups
There are several schemes and funds for startups too
Govt schemes & startup programs Space sector reforms FAME subsidy
Most of these have funding as an Non-Government Entities (NGE) such as Promoting the adoption of electric
element of the program / scheme startups to carry out independent space vehicles by offering financial incentives to
activities, coordinated through IN-SPACe consumers to reduce the cost of acquiring
a single window clearance agency under electric vehicles, thus encouraging their
ISRO. use and manufacturing.
Opening up ISRO infrastructure and

facilities and enable transfer of
technology to industries.
Biotechnology grants
Indian biotech startups have secured over

$50M of pre-seed grant funding via
BIRAC grant.
BIRAC offers Incubation Support

Scheme. The scheme offers up to 50% of
the project cost as a grant.
Source: TOI, ISRO, Govt Report 70

While the government mostly giveth, occasionally they also taketh

Real-money gaming Crypto Fintech
3
RBI’s above regulation impacted the
fast-growing BNPL or Buy Now Pay Later
business model. Effectively, RBI said
1 2 non-Banks can no longer load credit on
The Indian government imposed a 28% All income from crypto and virtual digital prepaid instruments such as digital wallets, or
Goods and Services Tax (GST) on online assets in India is taxed at 30%, with an stored-value cards.
real money gaming, equating it with additional 1% charged as tax deducted at
RBI’s mandate on recurring payments or
gambling. In addition it also imposed a source (TDS) for every transaction over
auto-renew payments is making it necessary to
30% tax on the net winnings.This is likely 10,000 rupees ($125).This has decimated provide an OTP for any transaction over ₹5k
to have impacted revenues of all the the industry, with volumes dropping (now 15k or ~$200). This impacted
players. 70-90% per estimates. subscriptions of several startups in India and
made paying for global SaaS tougher.
71
Section II: Indus Valley
Funding + Macro
What happened in the venture market in
2023, especially in regards to funding, and
some macro trends
➔ Slowdown in late stage

capital
The decline in venture funding was
IPO
led by a sharp drop in growth
funding. We try and ask why.
➔ PE vs VC in India and China

What the comparison of VC and PE
funding across India and China
points to.
73
Source: Twitter 74
Indus Valley - Funding + Macro
Venture deceleration continues, albeit more sharply in India

India continues to remain the 4th largest venture market globally in 2023, but about a fourth of what it was 2021
Venture Capital investments in startups over last 5 years ($ bn)
Source: Dealroom
75
Venture funding in India has dropped to pre-2017 levels

Both the total value of deals, as well as the number of deals have dropped by over 60%!
India Venture Capital investments in startups ($ bn)
Average number of rounds : 2,000 3,250 2,800 1,050
Source: Tracxn
Each database may present data differently depending on how they categorised certain transactions.
You may see numbers differ from chart to chart depending on the database; that said the broad trendline should hold! 76
Unpacking the drop in venture funding in India

Seed funding has halved, but Early and Late Stage Funding has dropped two-thirds!
How Seed, Early, and Late Stage financing stacks up ($ bn)
Source: Tracxn
77
Notes on the Seed market

Seed round funding and deal count
The seed market is active but slow
1
A slow growth market as well as not seeing
their high growth 2021 & 2022 seeds not get
uprounds, led to seed firms slowing down
2 First-time founders didn’t get as much

love as in previous years from seed funds
Seed firms became picky given slow growth
market. They are paying up up for higher
quality deals, and became highly selective in
the first-time founder market. This is seen in
lower number of seed deals.
Leading to the rise of Micro-VCs to better

3
cover the first-time founder space
We also saw a decline in the Junior Operator
founder persona [2-3 years experience in
product and tech from high growth startups],
The average seed cheque has grown from $360k (2.3crs) typically more opportunistic than missionary,
in 2016 to $900k (7.3crs) in 2023 spurred by the then ZIRP bull market for VC.
Source: Tracxn
78
Notes on the Growth market

Series A + B near two-thirds drop in funding Late stage funding drops by 82% in last 2 years
No FOMO in the Early Growth market Unicorns play a wait and watch game
Given challenges with own portfolio (whose old valuations don’t hold Most unicorns, fattened up on the funds raised in ‘21 are working on
now), multiple compression, and limited downstream appetite (from improving their margins and waiting for a more buoyant growth market
larger growth / crossover funds), early growth funds have become very to raise funds (or building to IPO). Only those in tough situations like
risk aware. FOMO has disappeared from the growth market, with deals Udaan, Byju’s raised funds. A few exceptional plays like PhonePe,
not happening or taking a lot of time, at much lower multiples than Lenskart with stellar numbers operate like it was 2021.
2021.
Source: Tracxn
79
2021’s leading late stage investors are staying on the sidelines

Late stage investors are highly selective, reflecting in the sharp drop in late stage round participation in 2023
Tiger Global (# of late stage deals) Softbank (# of late stage deals)
Sequoia (# of late stage deals)
In Jun’23, Sequoia’s India arm split to

become Peak XV. We have used the
term Sequoia, purely given the chart
covers a large period when they
operated as Sequoia.
Source: Tracxn
80
Unicorn minting slows down, and IPOs become attractive

With little late stage funding coming in, startups are looking to go IPO early. The unicorn vs IPO count inverts!
Unicorn minting comes to a halt Startup IPOs in India
Source: Tracxn
81
Post IPO: 2021 IPOs Zomato & PolicyBazaar scripted a turnaround

Zomato and PolicyBazaar (PB Fintech) struggled in ‘22 following their IPOs, but have scripted sharp turnarounds after
working on their profitability, while maintaining growth.Unlike the ‘20 and ‘21 market which put a premium on growth, the ‘23
market demands both
Source: Screener.in, Blume Research 82

ESOPs’ not entirely fabulous!

While the ESOP buyback amount nearly quadrupled over last year, almost 90% of it was thanks to Flipkart!
ESOP Buyback ($ mn)
A lot of this will find its way

into angel cheques and
micro-VC funds, stoking
entrepreneurship, apart from
the usual spends on real
estate and luxury automobiles.
$700m
(out of the $812m total)
was via the Flipkart
buyback.
42 16
buybacks buybacks
Source: Entrackr, Moneycontrol

83
How VC and PE funding in India contrast with China

India’s PE-market is not too far apart from China’s, though the venture market is much smaller.
India’s PE market is about as large as China’s ($ bn) …but the venture market is far smaller than China’s ($ bn)
The Asia Head of a global PE franchise shared his perspective on the above charts:
“Lack of many venture-backed success stories, like on the scale of a Alibaba in India limit the size of the venture market. Flipkart still not on that scale. Lack
of biz or product model innovation on a global scale like in China (Alibaba, TikTok, Shein, PDD, Temu) is another factor. Conversely, the market for PE-type
stories has been limited in China because of any real M&A liquidity, lack of appetite for PE-type IPOs. Exits eventually force input behaviour.”
Source: Pitchbook, via Barclays

Each database may present data differently depending on how they categorised certain transactions. You may see numbers
differ from chart to chart depending on the database; that said the broad trendline should hold! 84
Exits: A tale of two contrasts

Indian PEs have delivered exits consistently; Indian VC funds in contrast haven’t hit that level of consistency yet
India’s PE investments vs exits ($ bn) India VC investments vs exits ($ bn)
Flipkart still drove more than half of the total exit; Tiger Global and
Accel India sold their entire stake to Walmart for $1.8B taking a
complete exit.
Source: IVCA / Venture intelligence, Pitchbook via Barclays 85

IPO Boom
What does the booming IPO market, and
specifically the SMB IPO market foretell
for Indus Valley startups?
➔ A buoyant IPO market

Funding + Stats; and how the valuation bar
Digital Native
Macro for Indian IPOs is lower than you Brands
think.
➔ Rise of SME IPOs

Is the SME IPO the new growth
round for startups that VCs don’t
find attractive enough?
86
Indus Valley - IPO Boom
The Indian IPO market had a good year

Unlike the venture market, the IPO market stayed buoyant
Like in previous years, we saw sales from existing

Main board IPO trends
investors dominate, though to a lesser degree
$6
bn
Source: Nuvama Alternative & Quant Research 87

A flourishing IPO market is creating liquidity for investors
Source: ET, IIFL, Indian Express, Mint 88

The valuation bar for IPOs in India is much lower than you think!
Only a quarter of Indian listed companies trade above $250m in valuation!
# of companies in specific market cap ranges
Market
cap range
0 - $250m
Source: Nuvama Alternative,Blume Research, Twitter 89

SME IPOs are at an all time high

We saw SME issuances hit record highs on both issue size as well as number
Venture-funded startups such as Infollion took

SME board IPO Trends
advantage of the red hot SME IPO market
$560
mn
Source: Nuvama, Blume Research 90

SME IPOs have consistently outperformed their main board brethren

With little late stage funding coming in, startups are looking to go IPO early. The unicorn vs IPO count inverts!
The outperformance of SME IPOs has

begun to attract investor attention
Source: Nuvama, Blume Research, Businessline 91

Is the SME IPO the new growth round?

SME IPOs are not for everyone.
A look at some of the latest SME IPOs
That said, for certain types of startups
a) those not seeing a lot of interest from growth investors All FY23 ₹crs Rev PAT
b) those hitting a growth ceiling, and feel it is better to build profitably than burn for growth
(without hope of future love from late stage VCs), we believe SME IPOs are worth a look!
Baweja Studios 74 8
Megatherm 266 14
Most segments hit a ceiling in
India, sooner than later (here is Delapex 54 8
Zomato’s user base)
Docmode 33 2
LawSikho 34 2
Two of Blume’s portfolio have had an SME IPO listing.

Their revenues and PAT for the year, preceeding their
➔ Growth investors are chasing power law outcomes, and also wish to deploy large IPOs were:
sums, as smaller tickets don’t move their IRR needle. ➔ E2E Networks (66crs rev, 10crs PAT in
➔ The revenue bar for SME IPO listing is not very high (Series B, C revenue) it makes FY18)
sense for founders who wish to pursue a steadier route to company building to ➔ Infollion (36crs rev, 5crs PAT in FY23)
consider listing on the SME bourse.
E2E has migrated to the main bourse!
92
Digital Native Brands

All about Digital Native Brands (DNBs)
with a brief foray into their enablers,
specifically QCommerce
➔ Rise of DNBs in India

IPO Boom How DNBs have disrupted the Deeptech
landscape, and how they are
evolving.
➔ Quick Commerce
QCommerce finds PMF in India.
93
Indus Valley - Digital Native Brands
Source: Linkedin
94
Slowly, but steadily, Digital Native Brands (DNBs) gather share

As the retail market in India grows, so does online retail, and within that DNBs are becoming prominent
Source: Redseer Research, Redseer Analysis 95

The evolution of the Digital Native Brands (DNBs) landscape

Changes in the macroeconomic fabric of the Indian economy supported and bolstered the growth of Digital Native Brands
Jio accelerates
Internet & social
media adoption
UPI makes online

payments easier and
Online retail First wave of more secure An ecosystem of Covid-19 spurs rapid IPO season for
sees early internet-first commerce online retail & Quick DNBs and
traction brands emerge enablers emerge Commerce growth enablers
2007 2011 2016 2019 2020 & Beyond
The above is underpinned by the steady emergence of ~30m affluent India1 households, exposed to
global products, with evolved tastes, who are not finding their needs met by analog FMCG (CPG) brands.
96
A vibrant funding market for Digital Native Brands in India

Conviction in Digital Native Brands (DNBs) remain high, and this sub-sector was the second most funded sector.
2023 DNB Highlights
Source: Tracxn 97
Notes on the Digital Native Brand funding environment
Crossing the Chasm Dhandha-fluency

A large segment of brands are caught Many DNB founders are well-versed with the
crossing the chasm; too PE-like for VCs, nuances of running a business, and are more
but too small for PEs (₹50 - 200 crores* dhandha-fluent than say VC-fluent, and this
revenue range). Family offices, debt trait is well received by seasoned investors of
investors, and RBF players fill this financing the category.
gap for DNBs.
Enabler Ecosystem Shark Tank = Traffic Booster

An ecosystem of DNB enablers like working The India franchise of Shark Tank, despite
capital financiers, warehousing services, several controversies (such as Sharks going
packaging providers, marketing analytics, back on commitments) has become a
roll-ups have emerged to create a new promotional steroid shot for brands coming on it.
opportunity set for DNB investors. Funding from sharks is a signal boost for
younger brands as well.
* $6m to $25m 98
Incumbents take a page from the Digital Native Brand playbook

FMCG / CPG & Retail Giants have started copying from the Digital Native Brand playbook by experimenting with digital
channels, launching hyperniche brands themselves, as well as acquiring premium DNB brands to add to their portfolios.
Own DNB Brand DNB Acquisition / Strategic

Investment
HUL Simple, Love Oziva,
Beauty & Planet, Wellbeing Nutrition
The great
DNB explosion FYHP
Incumbents dip
Acquisition Marico Cocosoul, Beardo, Plix, Just Herbs, True
their toes in DNB
waters frenzy Puresense, Fittify Elements
ITC Dermafique Mother Sparsh, Mylo,
ITC launches Yogabar
Reliance Avaasa, Netplay, Zivame, Amante, Clovia,
DNMX, Teamspirit Ed-a-mamma
The stirring of Marico launch
ABFRL - TMRW House of Brands,
incumbents Cocosoul & Fittify
Bewakoof, Juneberry, Urbano
Tata Sonnet, Tata Tea SoulFull, Caratlane
Emami - The Man Company, Brillare,
Trunative, Fur Ball Story
Colgate - - Bombay Shaving Company
Palmolive
2016 2018-19 2020
Source: Blume Research 99

Insurgent brands1 are picking best practices from the Incumbent

playbook
With an increase in the cost of digital ads & marketplace commissions, insurgents are feeling the pressure of being digital heavy.
Increasingly they are doing corporate branding campaigns, as well as moving offline to make use of better economic structures -> price
lower (and pricing is the name of the game in offline) -> and scale to the next 100Mn.
Digital Only -> Digital First -> Social Media Influencers -> Celebrity
Digital Ads -> Print & TV Ad Campaigns
Omnichannel Ambassadors
Source: JM Financial
1
Insurgent brands is a term coined by DSG Consumer Partner. We think this captures the DNB mindset well. 100
An offline infra stack for Digital Native Brands emerges

As Digital Native Brands make their foray offline, a new set of commerce enablers arise to help them succeed offline
Storefront as a Service Offline Distribution Enablers

Companies offering storefront-as-a-service enable Retail in India is a function of strong distribution
DNBs to test the waters in high footfall areas like networks, and efficient inventory management. As
malls, shopping districts, without taking on a long DNBs enter the offline arena where incumbents
term commitment or real estate risk. Brands can rent already own strong distribution channels, enablers
out spaces for short periods of time to gauge offline and new age distributors can make all the difference
interest for their products before committing. in building relationships and efficiencies.
Offline Enablers

Quick Commerce (qCommerce) has emerged as a key channel for

DNB brands
Quick commerce rapidly burgeons in India, revolutionizing shopping habits with lightning-fast deliveries, and a push for unplanned or
top up purchases.
Higher qCommerce penetration in India qCommerce is a 3-horse race at present
India’s eComm and retail giants initiate

experiments with qCommerce and scheduled
egrocery models
Source: Redseer, JM Financial, Ken 102

qCommerce offers an equal ground for Incumbents & Insurgents alike
CPG companies seeing significant revenue from

Insurgents also taste qCommerce success
qCommerce channels
Sept-23
30-32% of Dabur Beverages
revenue is from qCommerce
platforms
FY23 Annual Report

10% ice cream sales for HUL
is from qCommerce
channels
Q3 CY23
Nearly 50% of Nestle’s
eCommerce Revenue comes
from qCommerce Channels
Source: JM Financial, Linkedin 103

Quick Commerce has played the curation game well

qCommerce players have opened up categories such as electronics, apparel and gifting, too.
Zepto Seasonal, occasion-based curation
Blinkit
Instamart

But FMCG / CPG products aren’t all that India is consuming

A strong base in electronics production underpins the emergence of a new wave of insurgents in wearables and electronics.
Domestic production of electronic goods on the rise Consumer electronic startups challenging global giants
Global Market
Brand Q3CY23 Data
Ranking Share
Per a report by IDC, boAt
has climbed the ranks to
#1 29.9%
becomes the world’s
second largest wearables
$13 bn comes from CEAs (Consumer Electronic Appliances) brand, by shipment volume
#2 9.6%
overtaking the likes of
Samsung, Xiaomi, Huawei
#3 7.8%
India is now the largest

smartwatch market by
measure of volumes.
Majority volume is driven
by 2 new age brands:
Source: MeitY, EY Analysis, Counterpoint Research via ToI, IDC via The Indian Express 105
A new wave of ‘smart’ appliances are penetrating the Indian home

The modern Indian home is getting smarter. From the living room to the kitchen, Indians are upgrading their devices, thanks
to higher incomes, and all that time spent home during COVID. Indian women and men (and now that more men are
cooking) are rethinking their mom’s kitchen.
The rise of automated and assisted cooking

“I believe that the next big consumer appliance will come out
of India. India is to the world what Japan, Korea was in the
‘40s and ’50s, with rising consumer incomes and and local
manufacturing taking off.”
Tim Draper, investor in Upliance - DelishUP
New age home automation devices

The rise of health trackers
Atomberg Qubo Karban

DNBs Going Global

Many DNBs are going crossborder from Day 1 or after hitting the ceiling of India’s 30m affluent households, in order to tap
into larger consumer bases and wallets. Brands have harnessed three main strategies to expand their global sales footprint.
Global Amazon selling Direct online & offline retail Multibrand retail presence
Indian enterprises trading on Amazon Lenskart has expanded to UAE and Vahdam Tea, Wow Skin Science,
Global Selling exceeded $5 billion in Singapore with online and offline own Skin Elements, Skillmatics are some
total exports during the period spanning retail outlets. brands selling in retail channels like
from 2015 to 2022. Walmart and CVS in the US.
The Ayurveda Experience sells
In 2022, 1200 Indian exporters products and ayurveda education in 20+ Minimalist sells their line of clinical
achieved sales surpassing ₹1 crore. countries through their D2C online skin care products with Sephora UK
stores and even has even set up offline and are now on the path to expansion
In the past, top categories sold were stores in Los Angeles. in Vietnam, Singapore, Australia.
toys, kitchen and office supplies, but
now the mix has changed to teas,
coffee, ayurveda products, handicrafts
signaling Indianisation of the global
consumption.
Source: Forbes India, Business Insider, Amazon Global Selling, Blume Research 107
Deeptech
with a closer look at SpaceTech
(including ISRO), and AI / local LLMs
➔ How India stacks against

its peers
Digital Native India lags its peer when it comes
Brands to innovation and research Fintech
➔ ISRO and India’s spacetech

ambition
ISRO’s secret sauce, and how it
supports and underpins the
flourishing spacetech ecosystem
108
Indus Valley - Deeptech
India lags its peers in research and innovation
HOW? WHY?
If we look at R&D spend as a % of GDP, Low R&D spend in turn has led to a low Unlike our peers where private sector shoulders
India ranks lowest amongst its peers, and # of researchers per million inhabitants in the burden of R&D, in India they step back, which
has even declined over the years the country means the Govt has to step in to keep R&D going
R&D spend as a % of GDP (latest numbers) Researchers per million people; India & peers) Sources of R&D Spend, India vs Peers
Source: DSTI, MSTI, OECD, World Bank, FT, ET, UNESCO, CTIER 109
Indus Valley steps up to bat

While private funding for the innovation sector has been low in India, the venture ecosystem has stepped up in recent years,
helping correct this to some extent.
2023’s Top Deeptech Sub-Sectors
Spacetech
Drones, Aviation
Batterytech
AI
Alt Energy
Source: Tracxn, Inc42 110

Spacetech has seen highest funding activity within Deeptech

ISRO’s (Indian Space Research Organisation = India’s NASA) initiatives and government policies supporting privatisation of
space has led to ambitious founders signing up, making SpaceTech attractive to VCs as well as strategic investors.
India Spacetech funding ($ mn) India’s SpaceTech companies by sub-sector
Indian Space Policy 2023

Sub-sector Startups
Satellite
Space sector reforms 2020
Applications
IN-SPACe established
Launch Vehicles
Satellite, Spacecraft
Subsystems
Others
On Feb’24 the government announced that

100% FDI is allowed in space sector
Source: Tracxn, EY, ESPI, PIB 111

Big dreams, small pockets: India’s low-cost space endeavour

With a focus on indigenisation and frugality, India punches above its weight in the global space race and has built a distinctly
frugal space research and exploration program.
Space spend as % of GDP (2022) India’s hallmark

space missions
have been
conducted on
budgets <$100mn.
In comparison, the
cost of a Boeing
737 Max is
$138m.
These amounts are not inflation-adjusted given they may be in different years. This is meant to
highlight how India’s space programs have been frugal and low budget.
Source: The Times of India, The Space Report by Space Foundation 112
India’s space story in popular culture

India’s space achievements have broken into into everyday conversation & popular culture.
India’s Space story in global conversation India’s Space story in movies & series
Source: Blume Research, Twitter 113

The ISRO Model of Success

ISRO has been front and centre to India’s space story and has supported and nurtured the growth of an ecosystem of public
listed companies, vendors, private sector entrants, and science & research talent across the country. There are two distinct
reasons why ISRO has been able to do more with less.
ISRO’s low cost mission model ISRO’s support of space privatization
ISRO has been a catalyst for space privatization in India,

Frugal Engineering and actively encouraging the involvement of private entities in
launch design (fewer space-related activities. ISRO's single-window clearance
prototypes, lighter payloads, model (via in-SPACe) and its tech transfer initiatives help
longer trajectories) spark innovation and growth in India’s space sector.
Indigenisation via an
outsourced SME base of
suppliers spread across
India.
Suppliers of major components

and sub-systems for ISRO
launch vehicles and satellites
Source: ISRO, The Hindu 114

Fintech
A review of the Fintech funding
landscape, and a look at the different
models playing
➔ Fintech funding review

Deeptech Fintech funding overview and Playbooks
Fintech’s impact on lending and
broking
➔ Everyone is a fintech
Embedded fintech for non-fintechs
but ecommerce for the payment
apps
115
Indus Valley - Fintech
Fintech was the most funded sector in 2023

Despite a decline in funding (as with the overall venture market), it was still the most funded sector for 2023.
2
IPOs
1
Decacorns (>$10B)
23
Unicorns ($1-$10B)
20
Soonicorns ($0.5-$1B)
Source: Tracxn Annual Fintech Report, BCG-Matrix Fintech Report 116

Lending beats Payments as the preferred funding sub-sector
While Payments was the erstwhile

leading funding sub-sector, Lending
has arisen as the top-funded Fintech
sub-sector in the last couple of years
Source: Tracxn 117

Fintech’s impact on the financial landscape
Fintechs have increased access to credit Fintech digital brokers Zerodha, Groww,
through better underwriting models, ease Upstox and Angel have helped grow the
of use, and brute force marketing. retail investor landscape
Fintech’s market share of NTC (New to Credit)

36% customers
(H1, FY23-24)
Fintech’s market share of customers aged <25,

43% and 30% for customers aged 26-35
(H1, FY23-24)
Fintech’s market share of personal loans,

62% by sanction volumes
(H1, FY23-24)
However, Fintech’s marketshare of loans, by

10% sanction value, is only 10%
(H1, FY23-24)
Source: FACE, NSE, CLSA 118

Everybody wants to be a Fintech (1/3)
Source: Twitter 119

Non-Fintech Payment Aggregators Non-Fintech Lenders
Non-fintech companies, especially those operating in Regulatory changes and advancements in technology
industries such as e-commerce, retail, see payment have made it easier for non-fintech companies to enter
aggregator (PA) licenses as an opportunity to save on the lending market. Non-fintech companies, can
commissions paid to other PAs, loss of sale on generate additional income beyond their core
account of malfunctioning payment gateways. business activities, deepen their engagement with
customers and improve their customers’ access to
their offerings by providing credit.
Non-Fintechs - PA License Granted “In 2021, we provided loans worth about INR 30Cr. In 2022, the loans
reached ₹270 crs, facilitated through banks, lending partners, and
NBFCs. With an RBI license to remit, our credibility increased, and this
year we expect loans to reach almost ₹700-800 crs.”
- Akshay Chaturvedi, Leverage Edu
Source: ET, The Painted Stork Substack, The Hindu Businessline 120

An increasing number of consumer services companies, are partnering with insurtechs to offer embedded insurance. As
more non-insurers realize the potential of insurance as a lucrative revenue source and a means of distinguishing themselves
among customers, embedded insurance will grow into an even bigger market.
Non-Fintech Insurers
Embedded mobile
Embedded screen protection in
insurance in travel mobile recharge
booking journey and bill payment
journeys
Source: 121
However, the Payments biggies want to get into eCommerce

The lack of a viable monetisation model in Payments has forced the biggies in Payments to explore lending (Paytm, CRED)
and now ecommerce. PhonePe (via Pincode) and Paytm (via Paytm Mall) are building atop ONDC. Payment players can
leverage valuable data insights derived from consumer payments, as well as harness the high traffic they get, in building out
their ecommerce plays.
122
Indus Valley Playbooks

The distinct approaches and tactics that
Indian startups are using to drive growth
➔ Pocket FM
➔ FRND
Fintech ➔ Consumer tech model
➔ Rise of Merchant Media
➔ Zetwerk
123
Indus Valley - Playbooks
Indian startups are evolving distinct playbooks for growth
International Revenues Domestic Revenues
Thanks to UPI, Jio-led cheap bandwidth,

SaaS has been of course a big success
COVID & DeMon, India has a large number
story, but now the consumer apps are
of online audiences with cheap bandwidth, a
coming. Here are key consumer
smartphone in every pocket and a
categories and startups (not an exhaustive
frictionless ability (and willingness) to pay.
list) that have done a stellar job.
Startups below not an exhaustive list..
Digital Native Brands (DNB) Distinct India only models

The Ayurveda Experience FRND
Vahdam Covered in the Sri Mandir
Lenskart DNB section
Khyaal
Kutumb
Consumer Apps Zetwerk
Quizziz
Pocket FM New Growth Drivers
Ecommerce Ads (Merchant Media)
Consumer Services Referrals
Urban Co Subscriptions / Microtransactions
124
Pocket FM: Pioneered a playbook for U.S. launch & growth

Audio streaming app
Playbook
➔ Tasted success in India through its fictional audio series (each episode 10-15 mins long) with the
offering audio stories /
right mix of dramatic, titillating content, with unique cliffhanger endings to create an ideal content
series, audiobooks, format
podcasts, and other audio ➔ Initial episodes have video (some animated visuals, some shot) which phase out after a while, but
programs. Freemium the initial visuals help “spark imagination of listener, and engage better with the story”, says UX
content across multiple researcher and writer Dharmesh Ba.
languages. ➔ Married the content format with a microtransactions format (vs subscriptions), starting Feb’22, when
they saw a sharp spike in monthly revenues, which was languishing at $200k / month; it doubled in
Mar’22 and steadily rose
➔ Perfected the above combo of product + payment format across different series, across different
languages, till they hit it big time with ‘Instamillionaire’ (initially in Hindi, now in English and Tamil too)
◆ The content is universally appealing escapist content (Dharmesh Ba: “dreams of regular
people as they go to sleep at night, imagining a world where all their problems disappear
and they become rich by pure luck.”)
➔ There is 1 hour daily of freemium content, and beyond that you have to buy Pocket FM coins, which
start as low as ₹9 (which pay for 1 episode or an audiobook or so). 90% of the revenue comes
through purchases of these coins, and the rest via ads.
➔ Used the Indian / South Asian community in USA as a beachhead, and then as it saw the series
gaining traction, aggressively advertised on YouTube to break into the African American and Hispanic
communities (a sort of a US2 product).
Source: The India Notes by Dharmesh Ba, Blume
Research, and various news reports 125
FRND: The Tinder for India2 will not look anything like Tinder
Helps the opposite sex
Playbook
interact with each other via ➔ Understood that most of the western dating app models (Tinder, Bumble, Hinge)
live-streamed audio games will not work outside India1. Bhanu Tanwar, the founder, says in a podcast: “If you
such as Raja Rani Chor are from a Tier 2 city, then within a week of you making a Bumble account, your
Police, Voice Match, mother will come to know”.
moderated by a chaperone. ➔ They had a key insight around getting people to chat (and not ‘date’) as the key
Offering safe, non-obvious, job to be done by the platform. This spurred them to create formats of live online
low pressure surface areas interactions (surface areas) to enable chatting. The second key insight was to use
for chatting (precursor to
audio prominently, as opposed to text input (Indians are not comfortable on text as
‘dating’).
much as audio).
➔ Similar to Pocket FM, they created a pay-per-use model where users could pay
very little to purchase app currency or virtual gifts. App currency is needed to
initiate one-on-one audio conversations or video chat, or access training sessions
(‘Love Skool’). Virtual gifts (‘roses’ or bouquets) can also be used to impress
members of the opposite gender. Some basic interaction, like text, group audio
and one audio call per day are free.
Performance ➔ One aspect that is worth highlighting is that such pay-per-use models like FRND
● ARR of around $15m (hearsay) lead to a small minority of ‘whale users’ (~5% in their case) who account for ~80%
● Profitable
of transaction income.
● 250k payers (16% of users)
now vs 7k (0.5%) in Jan-22
“Because most Indian users on the internet came post-Jio in ‘16, their internet age is
7 yrs old, and not 20+ like with us or in the West, and hence you can’t use the
models like text that will work with us or in the West” - Bhanu, founder FRND
Source: The India Notes by Dharmesh Ba, India Quotient,
Blume Research, and various news reports 126
An Indus Valley consumertech model emerges

We are seeing a wave of consumertech startups emerge attacking distinctly Indian usecases, and monetising via
microtransactions. UPI has removed a considerable amount of microtransaction payment friction.
This is not an exhaustive list.
We find most consumertech startups can be
Microtransactions mapped on this 2x2 axis.
Many of these startups prioritise voice / oral /

aural interactions or even visual and not text as
much.
We find that using pay-per-use with

microtransaction models leveraging UPI, is
another key theme. These could be in app
currency purchased in advance, or virtual gifts or
products for in app use.
Indianized Plays Only in India Plays
UPI Autopay has been a key tool for those who
prefer the subscription approach, enabling better
retention, and reducing CAC overall.
All have relied on low prices, or sachet pricing to

attract and monetise customers.
Subscriptions
“Our users are happier to pay ₹10 every day for a month
The emergence of a large number of users habituated to paying digitally via UPI has created a than pay ₹300 upfront” - Harsh Jain of Dream11
fertile environment for these consumertech experiments. (during a conversation with Blume portfolio founders)

Merchant Media is bigger than Print Ads!

₹5,380crs / $670m (FY23) (Economic Times)
4-4.5% of GMV
₹3,324 / $415m (FY23) (Economic Times)

3-3.5% of GMV
Annualised run rate of ₹1,000crs ($120m) (Jan’24)

3-3.5% of GMV
Zomato (₹200crs) and Blinkit (₹160crs) in FY23

Annualised run rate of 1,600crs ($200m) for both
basis Jefferies / BofA estimate of 3% of GMV.
₹~600crs in FY23 (Jefferies estimate at 6% of GMV)
$85m in FY23 (4% of NMV per The Arc)

$100m+ run rate for FY24
At ₹~14k crs ($ 1.8b) Retail Media is almost as big as Google’s search business, and equal to the print business.
The growth of Retail or Merchant Media has been one of the notable trends in the startup ecosystem. Ecommerce and QCommerce / Food Delivery Platforms are
seeing anywhere 3-6% of their GMV and 10-15% of their revenue coming from ads. Given how high margin this is (at least 90% gross margins), it is clearly driving a
good chunk of the bottomline.
Who would have expected that ecommerce, grocery and food delivery would become ad businesses? In the early ‘80s, the Times of India Group pioneered the idea
of making losses on newspaper sales to acquire audiences to be sold to advertisers. Four decades hence, online retail stores are replicating the same model.
Source: GroupM, Economic Times, The Arc, Jefferies 128

Zetwerk: Pioneer of ‘cloud factories’ or aggregated manufacturing
Playbook
➔ Initially launched a SaaS product helping companies manage sourcing from their vendors,
then understood that the real value is in not helping companies manage their vendors
One stop destination for companies to meet
better so much as helping them source better, and if it meant fulfilling the order, then so be
their manufacturing demand, essentially acting
like a cloud factory aggregating SMEs to
it. Pivoted to fulfilling the order / full stack.
◆ Shailesh Lakhani, Peak XV: ““I think another key insight that Zetwerk had in the early days
execute production faster and help customers
was that they are the best users of their software themselves. That a customer wouldn’t be
reduce costs.
able to get the most out of it because of the organizational mindset, the systems and the
processes, and the motivation to use it well, is something that they have much more
in-house than they can imbibe on a customer.”
➔
Fragmented
Pioneered a new model of sourcing by aggregating orders and then getting it

manufactured by SMEs. This ‘parallel manufacturing’ or ‘cloud factory’ model helped them
derisk timeline and quality by spreading it across multiple vendors and using tech to
control the outsourcing.
We believe that B2B marketplaces can be seen as

SUPPLY
operating a 2x2 axis, as shown here. Businesses, like

Zetwerk, which aggregated across a fragmented
supplier base and sell into a consolidated or organised
demand base, has better unit economics than some one
who follows an inverted model, such as Udaan. We
have covered our rationale here.
Consolidated DEMAND Frag

mented 129
Source: Peak XV Moonshot podcast, Blume Research
Source: Twitter 130
Appendix
Acknowledgements
As with all reports, this too rests on the labour of several analysts, researchers and writers whose work we used to
build on. We stand on the shoulders of giants. We have acknowledged the sources and their contributions on each
of the pages; a shout out to Jefferies, Goldman, Redseer, UBS, CRIF, Barclays, Nuvama, CLSA, Tracxn in
particular for their regular reports enabling greater access to data, and enhancing our understanding of the Indian
startup ecosystem. We also acknowledge the inputs and insights, including writings of Tanuj Bhojwani, Dharmesh
Ba, Mithun Madhusudhan and Rahul Sanghi. To those of you working on Digital Public Infrastructure who wanted
to keep their names out of the report, please allow me to share that your inputs were invaluable - thank you for
your openness in explaining the world from your perspective, and sharing insights that inform this report.
Lastly, we would also like to thank the wider Blume team for their inputs. A shout out to our intern, Ayan Bindra, for
his work on the report.
- Sajith, Anurag & Nachammai
131
Appendix
About Blume Ventures
Blume Ventures is an early stage venture firm based across Mumbai, Bangalore, Delhi and San Francisco, that
provides ‘conviction capital’ to founders across India consumer internet as well as software & enterprise technology.
We add value through a platform approach – over 85 specialists across shared CFO services, legal advisory, talent
acquisition, capital raising, GTM enablement, operations support – who focus entirely on supporting portfolio
companies and helping founders learn, thereby greatly improving their chances of success. Our value-added
approach has helped us retain board representation in the vast majority of our top companies; the enterprise value
of our top 30 companies is collectively valued at $14.6 bn presently (all invested at seed stage).
You can read more about us at blume.vc
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➔ Peer comparison Up next…

India is a key driver of the globe’s economic engine today

India’s 6% GDP growth

China -> 4.7%

Source: Jefferies, UBS / OECD, Ministry of Finance

Is 6% the new ‘Hindu Growth Rate’?

China has roughly

Source: IMF, Wikipedia

India’s GDP is led by consumption spends, unlike China’s

Source: RBI, IMF

➔ Why corporate India under

➔ Why government over

India has consistently underinvested in capital formation

China’s GFCF has stayed

Source: Jefferies (for India), The Global Economy (for China)

Why India under invests in capital formation

Source: UBS, World Bank

Why does the private sector not borrow enough?

Source: Jefferies, Allianz Research

The government treads where the private sector doesn’t

Source: World Bank, Jefferies

However, India’s tax collection growth has not been buoyant

Source: Tax India Online, Business Today

It is illuminating to look at India’s direct tax efforts

From corporates, the share of burden has

Source: India Budget, Jefferies

1.5% of Indians (22m) pay India’s income tax in entirety

Only 5% Indians are tax filers

Only 1.5% Indians are taxpayers, vs

And 0.3% Indians contribute

Source: Income Tax Data, Bloomberg, CBDT via Jefferies

Due to low tax collections, the government relies on borrowings

This is reflected by a higher ratio India’s government debt as a % of GDP

Source: Asia Economics, UBS, Fortune India

Do rising government borrowings risk crowding out private

With government borrowings dominating the bond

Source: EY, BIS, Twitter

➔ The India123 Framework

From GFCF, now to consumption, which dominates India’s GDP

Additionally, consumption’s high share of GDP has a

Source: RBI, IMF

Necessities, including food, dominate India’s consumption spends

India’s Discretionaries spend India’s retail spends are tilted in

Per MPCE data,

Source: Macquarie, Bain & Company, Blume Research

With such a high spend on Necessities, India under-consumes on

0.5 elevators per 1000 inhabitants

Source: Civil Aviation Ministry, Aviation Week Source: Barclays

Source: OurWorldinData Source: IVAR23, NFHS, Credit Suisse 25

A key reason for that is a tiny consuming class

PRICE ICE360 (2020-21) Goldman Sachs (2022) Redseer (2021)

60 mn (Income >$10k) 156 Mn

1276 Mn (Income <$5k)

Source: PRICE ICE360, Goldman Sachs, Redseer 26

How Blume looks at the Indian consumer stack

India2 is the emerging aspirant class. They are heavy

India123 is a powerful organising framework to understand India