This tweet from Anand Lunia (IndiaQuotient) really got me thinking last week.
Here was my response to him:
I think Anand is bang on here. Based on my interactions with several large US-India cross-border VCs, they are all looking to invest in the Valley and are mostly on the lookout to back Indian-origin founders.
This, of course, is a great way to ride the current AI momentum in the Bay Area. At Operators Studio, this founder persona is also one of my core focus areas in AI/ enterprise software, having backed the likes of Loop (AI for Restaurants), Confido Health (Healthcare AI), Noon (AI for Designers), Soulside (Behavioral Health), Muro AI (Construction AI), and Guard0 (Cybersecurity).
However, these are also some of the most coveted and competitive deals. The Valley-immersed Indian founder isn’t an unknown or undiscovered phenomenon today, unlike, say, when the likes of Nexus Venture Partners started focusing on it in the 2010s.
For smaller, operator-led funds like Operators Studio that write $100-300K collaborative checks, I still have a shot at winning over the founder with a sharply-defined value-add. But for larger funds that are looking to lead rounds/ put sizable capital to work in these Valley deals despite being largely offshore brands, their right-to-win against Valley competitors is unclear.
But then, how do they play AI? I understand their predicament.
One of my core beliefs about venture is that the greatest alpha lies in backing undiscovered founders, the non-consensus teams and companies that eventually turn out to be “right”. I have written about this idea before in multiple posts, including An Investing Framework to Find Startup Diamonds, A Talent Scout Mindset For VC, and One Person’s Conviction For Easier Fundraising.
Ergo, my investing strategy has two pillars – in addition to backing Indian diaspora founders in the US, I also back founders based in India but building for global markets.
Double-clicking on the latter bucket, in terms of markets, I am most excited about hardtech products that are not only core building blocks for the Indian economy, but also have the potential to be exported eventually.
These startups are being built in the “Real India”, as Anand puts it. These founders aren’t necessarily hanging out at Third Wave and Beanlore in Bangalore in their hoodies. They are building messy businesses, require workshops & facilities to be created in far-flung areas, and require hiring & financing strategies that look quite different from the classic Bay Area or Bangalore playbooks.
To illustrate this, let me give you a sample of companies I have recently invested in or am deeply evaluating as we speak:
- Naxatra Labs – motor-tech that can beat Chinese and European products. Manufacturing in Ahmedabad.
- Astrophel Aerospace – space propulsion engine components like valves & pumps. Developed and manufactured on the outskirts of Pune.
- Planet Material Labs – new-age composites for logistics boxes and containers. Developed and manufactured on the outskirts of Gurgaon.
- Climate & materials startup that has developed a low-carbon, cement-alternative material for concrete mixing. The concrete unit is on the outskirts of Bangalore, and so dusty that one needs a layer of masks just to breathe.
- Battery-tech startup in Ahmednagar (3 hrs from Pune) for new-age use cases like Robotics, Defense, and Power Tools.
It’s ironic that while Indian VCs are shuttling to the Bay Area, trying to invest in deals here, as an SF-based fund, Operators Studio is actively investing in India-based founders building real, no-nonsense, unsexy hardtech products with massive cross-sectoral local and global TAMs and market demand that needs no validation.
One final point – while I actively co-invest with several major domestic and global funds in India, specifically in this second pillar of “India-based hardtech founders”, my worldview has resonated the most with Rainmatter, the prop money fund of Zerodha founders.
From what I have observed, the Rainmatter team is smartly identifying problem statements that are core gaps in the Indian economy and society, and backing founders that have an authentic commitment, passion & and domain-fit with these problems. An unsolicited kudos to the team!
Large funds have a tendency to go top-down in venture capital, spending a lot of time understanding markets and building thesis & maps. While this probably helps in Series B & beyond, my view is that at Seed and Series A, going bottoms-up is more beneficial. And founders are the best suited to observe and identify these opportunities.
At least this is the approach I am taking at Operators Studio while looking to back India-based hardtech companies with global ambitions.
