November 2020. The covid pandemic is raging around the world. In India, where we are confined to our homes in a complete lockdown, two teenagers ask a simple question: Why does it take a full 24 hours to get groceries delivered at home?
Can we combine the service levels of the local kirana (or neighbourhood) store with the range and convenience of e-commerce to deliver everything now?
Fast-forward to October 2024. The business they started has become a household name: Zepto. Today, the company not only operates on a scale best described as massive—it fulfils an estimated 1 million orders a day and operates in 12 cities across India—it has begun to transform our very consumption habits.
Was Zepto a ‘moonshot’ idea? Some dismiss it as a simple logistics operation that thrives on labour-cost arbitrage. They couldn’t be more wrong.
The company delivers products in near real-time, fulfilling almost every order perfectly, with packages sent across to homes from hundreds of dark stores set up in customer neighbourhoods. For this, it gets thousands of delivery executives to use technology and follow standard operating protocols. And it does it a million times a day. This is a feat only a handful of businesses can pull off. That a 4-year-old company started by teenagers is doing it is nothing short of a miracle.
Venture capital (VC) firms have invested $1.6 billion ( ₹13,400 crore) in Zepto so far. Is that moonshot enough?
The example is illustrative of a larger point—that the technologies that deliver the greatest impact could differ depending on the economy they are applied in. In highly efficient markets, a moonshot idea may promise full automation: the American or European equivalent of quick commerce might, for instance, be autonomous delivery by drones or robots. In India, there is enormous value to be created through productivity and efficiency gains.
For example, last month I encountered a shopkeeper in Gundlupet, a tiny place in Karnataka. He runs a small shop, but a full 70% of his monthly cash flow is now through digital payments. For his financial life, this figure is transformative: It provides him access to credit and financial investments for the first time.
Replicated across the country, digital adoption increases the level of formalization and thus tax compliance in the economy. The firms that enabled this, VC-funded ones like Paytm and PhonePe, did not invent new technology, but instead used existing tech to deliver massive efficiency gains.
My submission, therefore, is that impact is the ultimate measure of the quality of a VC investment, not the technology it’s built on. Even if we restrict the discussion to the ‘deep tech’ industry, India’s venture capitalists are funding these startups in increasing numbers. Take space startups as an example—literally an arena of rocket science. India is home to at least 140 ‘space-tech’ startups that have garnered hundreds of millions in venture funding.
Indian VCs are funding rocket launches (Agnikul got $61 million in funding and Skyroot $100 million), satellite constellations (Pixxel raised $71 million and Dhruva $16 million) and satellite data analysis (Satsure got $25 million).
Similar investments are being made across other core technology sectors like artificial intelligence (AI), hardware, robotics and autonomous vehicles. My own firm has funded a company that automatically writes software from a drawing (Kombai), another that creates comic strips from text (Dashtoon), and voice bots to automate everything from call centres to physics coaching.
There are challenges, of course. Perhaps the biggest of them is talent availability. India produces far more engineers than scientists and researchers. Any company that requires even a dozen PhDs to deliver its product will face a serious hiring challenge. India’s public university system doesn’t help by creating roadblocks to academic-industry collaboration. Granting professors and academic researchers sabbaticals from work to pursue startups, allowing them to take personal equity in these companies and providing them the security of being able to return to their academic jobs if the startup doesn’t work will go a long way towards alleviating the talent crunch.
Capital availability is another significant barrier to investment in the deep-tech sector. Such investments have a longer gestation period than most commercial investments, and require large capital outlays before the product even hits the market. Unlike other major economies, India doesn’t have a substantial government programme to provide patient capital to such startups, either directly or through venture funds. A deep-tech funding scheme with a multi-decade tenure would provide the capital required to get such startups off the ground.
The venture business model relies on the portfolio effect: In a high-risk sector, you need to fund several companies to generate one large winner. A fund will only find it viable to invest in a new sector when it sees an opportunity to invest in at least 15-20 such startups over a 3-4 year period. Only then will a VC fund invest in the expertise required to evaluate them.
A new space attains a critical mass of fundable opportunities when at least 100-200 credible new companies are created in it every year. When this starts to happen in deep technology areas, we will likely see VC money rush into them. Hopefully, we will finally be able to put the moonshot debate to rest then.