Venture Capital Q&A: Archana Jahagirdar, Rukam Capital

A recent report from the International Monetary Fund suggests India is set to grow by 6.8% in 2024 and 6.5% in 2025, putting it among the leaders. But the country has also suffered from the pull back in the global venture capital market globally has found its way to the world’s second most populous nation, as fundraising and deal activity were down last year. Greg Winterton spoke to Archana Jahagirdar, Managing Partner at venture capital firm Rukam Capital, to get her thoughts on India’s VC market.

GW: Archana, for those that might not be familiar with Rukam Capital, tell us a little bit about the firm.

AJ: India is now home to over two hundred thousand startups, with many more starting up and others dreaming of doing so. India has been an undercapitalized country, especially from an early-stage equity point of view, so starting a VC fund seemed like an obvious next step. Rukam translates to ‘gold’ in Sanskrit; we want to create value for our investors and founders, and India is the third-largest homogeneous market, so we feel that by backing early-stage founders, we will create value for all our stakeholders.

GW: Despite the pull back in activity last year, the venture capital market in India has generally been growing steadily in recent years. What are some of the drivers of the activity?

AJ: India’s aspirational and well-educated population provides significant tailwinds. It is a composite market with 65% of its population under the age of 35. This is an important data point as it gives us a strong base of working individuals who are also consumers of various products and services. Different regions in India have significant depth and expertise in building products and services.

In the past, India has valued businesses where a large number of working individuals were self-employed. While that can’t be equated with startups, the current crop of founders comes from backgrounds where being a small business owner was a way of life. The current generations are now equipped with education, capital, and technology, which is making India a startup nation. The quick and early adoption of various technologies has led to many more opportunities to build large businesses in a short period, unlike in the past. With mobile penetration exceeding 80% and the rollout of 4G and 5G networks, the technological infrastructure is robust and growing.

GW: Rukam Capital invests in early-stage consumer products and services companies. What is it about these sectors that you find most appealing?

AJ: India is an underserved market when it comes to consumer products and services. Traditionally, we have had either large multinational companies or products from the unorganized segment targeted towards the consumer. As Indians improve financially, they are now more aspirational in their choices of goods and services. The advent of social media - and India is one of the largest consumers of social media - has also made consumers more aware of different categories. For example, women didn’t buy make-up in the same proportion as their western counterparts, but now with reels and YouTube videos becoming the norm, make-up has become mainstream. Earlier, skincare meant buying a cheap, functional soap that would also double up as shampoo. Now, there are many different ways in which the consumer is thinking about these things. Therefore, even this one category has tremendous potential for building different brands.

There are other sectors too, like elder care, for instance. While the obvious categories like adult diapers and senior living are up for grabs, the sixty-plus well-heeled Indian is not slowing down from being a consumer. In fact, this generation finally has disposable income, and they are done with their financial responsibilities and are looking to “live it up.” This segment did not exist earlier as a consumer segment. And in India, even if percentages are small, absolute numbers compensate for it. There are many such new categories emerging apart from the opportunity that exists within well-established segments.

GW: What about tech? Why is the Indian tech space so exciting?

AJ: India has long provided a home to many of the world’s largest tech companies – we have a significant position in the global tech economy in terms of talent. But previously, that talent was largely employed by the global, multinational firms. Now we’re seeing tech entrepreneurs launching their own firms. It was bound to happen eventually, given the sheer amount of tech talent in India.

GW: Lastly, Archana, what’s your message to global investors in terms of why they should be carving out an allocation to the Indian venture capital market? What is the medium to long term opportunity here?

AJ: India is a stable and safe democracy, which is an important point to consider when thinking about investing geographically. This political stability means that policies, vision documents, and overall governance have continuity. With this context, the fundamentals are strong, and even a pandemic hasn’t dimmed that growth trajectory. The recent GDP growth numbers put out by the IMF are 6.8%, which puts India squarely in the top quartile in the world. Startups are the growth engine of India’s economy, and therefore investors can look to book handsome returns in both the medium and long term.

The government has also introduced several schemes to bolster the startup ecosystem, such as the Startup India Initiative, which provides tax benefits, easier compliance, and various funding support programs. Additionally, the Atal Innovation Mission (AIM) aims to promote a culture of innovation and entrepreneurship. These initiatives, combined with a growing market and a young, dynamic population, make India an attractive destination for venture capital.

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Archana Jahagirdar is Managing Partner at Rukam Capital