How We Invest: Part 2 - Markets & Non-Linear Growth

Our thesis isn’t just about backing great founders, but also about backing them in markets that allow for explosive growth. It’s easy to get caught up in the details — unit economics, customer acquisition costs, retention rates. 

But sometimes, the most important perspective is the market itself. 

It’s no news that in venture capital, the power law dictates that a handful of investments drive the majority of returns. Markets must enable non-linear growth, i.e. businesses to scale exponentially. 

So, what are the signs of a non-linear market? Here are three key indicators:

High Gross Margins & Low Variable Costs

SaaS is a prime example. Once software is built, distributing it to additional customers costs almost nothing, which can result in high gross margins. 

Compare that to a D2C brand, where every additional unit requires the same amount of raw materials and labor, leading to high variable costs and lower margins, making businesses' scalability a tricky game.

This, of course, isn’t just limited to SaaS. 

Our portfolio company Tamasha, a social gaming platform, exemplifies this. Once their core technology is built, the cost of serving additional players is next to zero. Today, they operate with a lean team while servicing a vast and rapidly growing user base. 

High Customer Stickiness & Lifetime Value

Another marker of a strong market is high customer retention. 

A great persona to study this is Indian SMBs, especially in manufacturing. They are often considered difficult customers due to their low willingness to pay and resistance to tech adoption. But once they are on board, they tend to stick around with the product for years.

One of our portfolio companies that aced this is MyGenie. Once they acquire a retail customer and provide a seamless fit-out solution, they get repeat orders with virtually zero Customer Acquisition Costs. For them, a one-time acquisition cost leads to long-term revenue, thus creating a perpetuity cycle that compounds over time.

Network Effects as a Competitive Moat

Some markets become stronger as more participants join. 

Uber is the classic example where more riders meant more drivers, which meant lower wait times, which meant even more riders. This flywheel turned Uber into a near-necessity. Many now even debate whether they even need to own a car when they can book a cab at their fingertips.

An example of this is Propacity, as they’re leveraging network effects by digitally connecting real estate agents across India. By matching tier-1 HNI investors with tier-2/3 developers, they have unlocked millions in additional sales by orchestrating supply and demand more efficiently through technology.

Finding Non-Linear Opportunities in Your Market

If you’re a current or a future founder, don’t forget to ask yourself: 

How can I use technology to make an existing process exponentially more efficient? 

Even operationally heavy industries (real estate, HoReCa, and manufacturing) offer opportunities for non-linear growth if tech is applied effectively.

At Good Capital, we invest in startups that re-empower intermediaries with technology, rather than replacing them. By leveraging technology to enhance efficiency and scale rather than adding operational complexity, we back businesses that grow markets rather than compete for slices of the existing pie. 

Scaling a business is hard, but scaling it in the wrong market is exponentially harder. That’s why we remain bullish on tech-driven models that create new opportunities for scale rather than just optimizing the old ways of doing business.

In our experience, the best businesses don’t fight for a tiny section of the market share, they aim to create new markets entirely.

Quotable

"The best way to predict the future is to create it." – Peter Drucker