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When we started Misfits in late 2022, we had a very specific investment thesis: we would focus exclusively on developer tools and companies building technology for developers. This narrow focus made sense at the time—we believed that the biggest leverage a business could get was from technology, and we wanted to invest in "tech-first" companies.
Our early investments reflected this thesis. We backed companies like Dev Rev, Postman, Middleware, and Codecrafters—all focused on developers or developer tools. The strategy was working, and even today, people ask us about these types of investments.
But as we've evolved over the past two years, our investment thesis has shifted from "tech-first" to "product-first." This evolution wasn't random—it was driven by several important realizations and market changes.
Our initial focus on developer tools was based on a clear hypothesis: a new segment of potential investors had emerged—engineers who had become wealthy through high salaries and ESOP exits. We believed these technical professionals would naturally want to invest in the types of companies they understood best: developer tools and software.
We also thought these technical investors would relate better to developer-focused companies than to enterprise or consumer businesses. By starting with this narrow focus, we planned to gradually expand both the types of companies we invested in and the investor segments we served.
Several factors led us to broaden our investment thesis:
While technical professionals could indeed relate to developer tools, they weren't necessarily the most active investors. Instead, we saw higher adoption among marketing professionals, product managers, business operators, and C-level executives—people closer to business metrics rather than technical implementation.
For various reasons, developers were somewhat shielded from business metrics, with product managers serving as the interface between technical and business concerns. This made developers less likely to actively invest, despite understanding the technology.
Changes in SEBI regulations made it harder for Indians to invest in companies incorporated outside India. Since many developer tools companies were incorporated in the US (even if built by Indian founders), this regulatory shift forced us to focus more on India-incorporated companies.
In India, the startup ecosystem is more focused on application layers rather than core technology infrastructure, which naturally broadened the types of companies we evaluated.
Perhaps most significantly, the rise of AI tools like GitHub Copilot dramatically increased developer productivity. Code became more of a commodity, and the ratio between product managers and engineers began to shift.
Fifteen years ago, it was almost impossible to build a product without a technical co-founder. Then came a time when founders didn't necessarily need to be technical, but they needed someone senior on the team who was. Now, with AI assistance, the premium is increasingly on founders who understand users and can think about products, rather than those who can write code.
Despite broadening our thesis, having a sharp initial focus provided significant benefits:
It allowed us to go deeper into specific spaces, develop real insights, and understand what was working and what wasn't. This focus helped us avoid hype cycles—for example, when consumer brands were being funded at rich valuations in late 2022, our narrow focus on tech companies kept us away from those investments.
Now that the hype has subsided, we can evaluate consumer brands at more reasonable valuations with the benefit of having observed the space from a distance.
As our perspective has evolved, we've realized that the fundamental question isn't whether a company is tech-first, product-first, or brand-first. What really matters is:
In product-focused companies, there's a natural compounding effect. What you build stays with you, and you continue building on top of it. You get better at funnel optimization, user segmentation, communication, and understanding users. This creates a virtuous cycle where the product becomes more compelling over time.
Our initial hesitation about D2C (direct-to-consumer) brands stemmed from their apparent lack of differentiation. Many were selling on the same platforms (Amazon, Nykaa), advertising on the same channels (Instagram, YouTube), and even sourcing from the same suppliers.
Without clear differentiation, these brands were competing on the same keywords and fighting on price for the same customers. How could they build large companies with non-linear outcomes?
However, we've seen successful examples like Mamaearth, Boat, and Carrat Lane that have grown into substantial businesses. We've also noticed that Indian conglomerates have become more open to acquiring these brands at fair market prices, creating exit opportunities even at smaller scales.
The key differentiator for successful D2C brands appears to be distribution—those that can reach customers at lower costs or differentiate themselves in consumers' minds have a better chance of building sustainable businesses.
Our journey from tech-first to product-first investing reflects the evolving startup landscape and our growing understanding of what drives successful companies. While we started with a narrow focus on developer tools, we've expanded our view to include any company that demonstrates product excellence, regardless of sector.
This evolution doesn't mean abandoning our roots—we still appreciate and invest in great technical companies. But we now recognize that product thinking can create value across a much broader range of industries, from consumer brands to healthcare.
As we move forward, we'll continue to focus on founders who understand their users deeply and can build products that solve real problems, regardless of whether they come from technical or non-technical backgrounds. In today's world, with AI increasingly handling routine coding tasks, the premium is on product vision and user understanding—and that's where we're placing our bets.
