Vertex Ventures on the next wave of scale in India’s startup ecosystem

*This article is adapted from *Entrepreneur.com

Kanika Mayar joined Vertex as the fourth member of its investing team, at the point when the firm was beginning to deploy its fourth fund. Today, Vertex is deploying its fifth fund, a $540 million vehicle, while looking well beyond some of the categories that once defined its India strategy.

When Kanika Mayar joined Vertex Ventures in January 2020, she arrived just before the world changed forever. Within weeks, offices shut down, investment meetings moved to Zoom and the Indian startup ecosystem entered a cycle that would take it from an unprecedented funding boom to a painful correction and, eventually, into a more measured phase of company building.

She joined Vertex as the fourth member of its investing team, at the point when the firm was beginning to deploy its fourth fund. Today, Vertex is deploying its fifth fund, a $540 million vehicle, while looking well beyond some of the categories that once defined its India strategy.

If there is one idea that ties the firm's increasingly broad investment map together, it is scale.

“We want to invest in sectors or business models which can scale, and scale for us is a proxy of a good investment outcome,” Mayar told ETEntrepreneur.

It sounds simple. In practice, it is a demanding way of looking at an early-stage company.

Vertex tries to look three to five years ahead of the business it is evaluating, rather than simply underwriting the product or revenue that exists today. Even when a company is still figuring out its customer or product, the firm tries to work backwards from what the business could eventually look like in terms of unit economics and P&L, and whether that could lead to a sufficiently large outcome.

The outcome, according to her, can take two forms: a business large enough to be built for India, or one that can be built in India and sold to the world.

India's depth as a domestic market makes the first possible across an expanding number of categories. The country's engineering and entrepreneurial base makes the second increasingly plausible.

But Mayar's experience of the last five years has also made her more cautious about taking India's headline market sizes at face value.

“India is not a contiguous market,” she said.

That lesson came, in part, from one of the investment theses that seemed particularly compelling during Covid: digitising India's fragmented offline economy. The logic was intuitive. Take sectors populated by thousands of small businesses and middlemen, put a technology layer over the supply chain, aggregate demand and supply, and create efficiency.

The reality proved harder.

Small businesses, Mayar said, can themselves be remarkably efficient within their local markets. A technology layer does not automatically change the way commerce works on the ground. The lesson for Vertex was that a large theoretical TAM can conceal substantial friction.

It is one of the reasons why Mayar's view of India's consumer opportunity has become more nuanced.

A willing, value-conscious consumer

There is a striking change in the Indian consumer that Mayar has observed over the past few years.

“People are willing to pay,” she said. “But for the right value.”

The firm's portfolio offers several examples. Licious and FirstCry represent earlier bets in categories that have since become much more established. Pilgrim, Kapiva and Palmonas point to a somewhat different opportunity: businesses that take an existing consumer need and offer a product that is better, more aspirational or more accessible; preferably all three.

For Mayar, the starting point remains the product.

The post-Covid consumer, she argued, has begun spending more deliberately on different aspects of everyday life. That distinction changes the way a consumer TAM needs to be understood.

A consumer may spend heavily on a visible product such as a pair of sneakers while continuing to buy an inexpensive mass-market coffee. But the same consumer may also be quietly upgrading the ingredients in their kitchen, spending incrementally more on health and wellness products or paying for services that improve their everyday life.

The individual purchases may not look like a large consumer category. Aggregated over a year, however, they can represent a meaningful share of household spending.

This is where Mayar thinks the old frameworks for India's online consumer market have begun to lose relevance. The oft-cited 10-million online-consumer figure, she said, is now “significantly larger as consumers are spending more across categories”.

Quick commerce is changing what can be a category

For established consumer brands such as Pilgrim and Kapiva, Mayar sees quick commerce as a powerful new distribution channel. But its more consequential effect may be on categories that historically struggled to fit the D2C model.

Consider everyday products such as tea, ghee, oils and other staples. A consumer is unlikely to visit a brand's website to buy a single pack of a product they could simply add to their regular grocery order. That makes standalone D2C economics difficult.

Quick commerce changes the equation.

When a product can be added to an existing basket and delivered within minutes, the consumer does not have to make a separate purchase decision around it. For brands, that can make high-frequency, lower-AOV products much more viable.

It also changes what happens after the purchase.

Mayar points to the compressed period between decision and delivery. A consumer who receives a product within minutes has less time to reconsider the purchase, which can mean fewer returns and potentially greater product usage.

For Vertex, quick commerce can expand the range of categories in which a new consumer business can be built.

That logic is now extending to the platforms themselves. Mayar said Vertex is evaluating a newer generation of quick-commerce businesses, including more verticalised models and services, as they reach the series A and series B stages.

The AI opportunity may be hiding in plain sight

AI is presenting a different challenge: separating genuinely new businesses from an enormous amount of activity that merely has an AI layer attached to it.

Mayar said Vertex is seeing a meaningful increase in AI-native companies emerging from India. But she is also clear about what she does not expect.

India, she said, is not currently producing many foundational models, and “frankly, there shouldn't be also”.

The more interesting opportunity is further up the stack: products built in India for global markets, particularly the US.

But even there, Mayar does not want Vertex to become too prescriptive about subsectors.

That is because some of the most interesting AI opportunities may emerge in industries that would never appear on a conventional list of AI investment categories.

She points to Hakimo, a portfolio company providing surveillance software for smaller and mid-sized premises such as warehouses, car dealerships, schools and hotels. It is not the sort of category that instinctively comes to mind when investors talk about AI.

AI can create an opportunity to rethink industries that have spent years operating with traditional technology, and allow a new entrant to challenge an incumbent with a fundamentally different product.

For Vertex, the question is therefore: “Which business model can be built from India, and where can AI change the economics or product enough to create a new category?”

Deeptech asks for a different kind of investor

Deeptech is quite explicitly a new frontier for the firm.

The investment in an Indian semiconductor company in 2024 was an early marker. But Mayar is clear that the thesis extends beyond semiconductors into areas such as robotics and manufacturing.

It is also an area where Vertex is still learning.

At the stage where the firm invests, a deeptech company may have only an early product and little or no revenue.

For Vertex, India needs to offer some underlying advantage such as an existing skill base, a relevant ecosystem capability or, in some cases, a national mandate to develop a technology. But that alone is not enough.

The resulting product must have global relevance.

That brings the deeptech thesis back to the same scale-first principle that sits at the centre of the firm's India strategy.

Karkhana is an example of how that thesis can evolve. The company began as an aggregation play before developing its own manufacturing capabilities. It is now positioned around supply-chain localisation, helping companies establish electronics manufacturing in India and diversify their supply chains away from China.

What began as one thesis has, over time, become part of a larger view of India's manufacturing and deeptech opportunity.

The same evolution is visible in Vertex's thinking about consumer electronics. Nuuk, for instance, was not treated as a standalone thesis around design-led products. Rather, Mayar sees it as an extension of the firm's consumer thesis: a product should not only perform better but look better.

After six years at Vertex, Mayar has seen enough cycles to know some of the answers.

The startup ecosystem may have become more mature, but for Mayar, that has not made investing simpler. It has only made the questions better.

“I think overall it's been an interesting five to six years,” she said. “Hopefully we're smarter investors.”

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