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Over the past five years, while much of the world was busy navigating pandemics, inflation, and geopolitical spats, India quietly (and sometimes not so quietly) emerged as the poster child of emerging market investment options. Every other day, I stumble upon an investor report, both domestic and international, extolling the virtues of India’s growth story.

The reasons they trot out are usually the same: a vast, young workforce, a growing middle class that’s ready to spend, business-friendly policies, the digital transformation, and the much-talked-about “China + 1” strategy. These factors will undeniably drive India’s growth for the foreseeable future. In fact, it’s what led my co-founders and I to dive into Indian VC 12 years ago. But here’s the thing—while everyone’s clinking glasses, celebrating Tier-1 cities and their unicorns, they’re missing the real story: Middle India.

From 2018 to 2030, the number of “Lower-middle” (light grey) income households is slated to increase from 97M to 136M, and the number of “Upper-middle” (dark grey) households to increase from 61M to 165 M. Our guiding light is to invest in companies that facilitate the growth of this segment. What baffles me is that many investors still approach this market with a metro-centric view.

At Capria, we’ve spent the last 12 years understanding every aspect of Middle India. We invested in companies that aren’t just chasing the next billion-dollar valuation but are truly transforming sectors. We believe that valuations are a by-product of sustainable, scalable business solutions.

Tier-2 and Tier-3 cities are where digital transformation is truly taking hold. Internet penetration in these areas has skyrocketed by over 30% in the last three years. Meanwhile, digital transactions are growing at a dizzying rate of 43% year-on-year. Sure, there’s still work to be done—rural internet penetration is only 37% compared to 70% in urban areas. But therein lies the opportunity: bridging this gap and scaling digital businesses to meet the demand.

Relative to income levels and the socio-economic status of the population, Indian Tier-2 cities are underdeveloped. The pace of urbanization has not kept up with increasing economic prosperity and population growth. We are witnessing a massive demand-supply imbalance in infrastructure. To solve this, we require innovative solutions – things that haven’t been done before.

I want to talk about 3 of our portfolio companies achieving success by leveraging Middle India’s astonishing growth:

• Bandhoo connects construction workers with builders – think of them as a matchmaker but for hard hats and blueprints. 75% of Bandhoo’s construction activity occurs in Tier 2 and 3 cities. With clients like DLF, Embassy, and the Saifee Burhani Upliftment Trust, Bandhoo is proving that technology, coupled with access to the largest segment of the Indian workforce, effectively serves
• Supermoney is an anchor-led supply chain finance provider that enables small businesses to scale. It provides short-term working capital solutions to MSMEs. Supermoney has 20,000 merchants/retailers on its platform, and 80% of them are from Tier 2 and 3 cities. Supermoney is playing an integral role in formalizing finance for Middle India.
• Agrizy is a B2B platform that optimizes transactions between farmers, agri-processors, and food brands. Agrizy helps MSME agri-processors access export markets and comply with global quality standards. 80% of their processors are based in Tier-2 and 3 cities.

With over 50,000 startups, India boasts the third-largest ecosystem globally, a fact that is widely recognized. However, we also understand that many of these ventures will not succeed. Our expertise lies in skillfully navigating this complex environment to uncover hidden opportunities. So, as we launch this fund, we invite new and old partners to join us on our journey. The next decade is going to be exhilarating. We’re excited to be at the forefront of this journey, investing in the visionary founders shaping the future.

If you’re in Bangalore and want to discuss our new fund or any of our portfolio companies, I’d love to catch up over coffee. We can also connect virtually—just reply to this email, and we’ll set it up.