Notwithstanding Consumption Slowdown, This VC Still Bullish On the Space
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“Within all this atmosphere of despair, start-ups is where there is a real beacon of hope,” said Kannan Sitaram, referring to the apparent gloom and doom around the consumer goods sector in India.
Industry experts and bellwether companies have voiced their concerns over the tepid growth that has enveloped the sector in recent times. Consumer sentiment has become a major talking point as data continues to point to an ongoing slowdown.
Sitaram is a venture partner at Fireside Ventures. The Bengaluru-based venture capital firm focuses solely on companies in the consumer space, with some of their star investments being Boat, the now famous lifestyle electronics start-up, and health foods brand Yogabars.
The average turnover of companies in the portfolio of Fireside has grown by 5.7 times since the VC first invested in them. “We have seen a lot of our companies scaling up over the last one year,” said Sitaram.
Fireside’s portfolio currently consists of one INR 500-crore company, two INR 100-crore companies and several others which have crossed the INR 50-crore mark.
According to Sitaram, there are multiple changes sweeping the consumer landscape in India and these are going to create opportunities for the companies they have invested in going forward.
“In recent big day events, we are seeing that as much as half the business that our brands are generating is coming from outside the top eight or nine towns,” he said.
Two of the VC firm’s portfolio companies—Vahdam Teas and The Ayurveda Experience—get almost all of their business from outside India.
Sitaram said the fact that global players such as Amazon are helping build businesses in India and getting them to markets outside presents “a very large opportunity” for many of their brands.
Apart from the benefits of e-commerce, Sitaram also stressed upon how businesses are getting built differently now compared with a few years ago. He said there were three important ways in which this was happening: capital efficiency, faster scaling and use of technology.
Speaking about the first two, he said they had seen brands getting bigger with much less money now. “This is something, I think, is specific to consumer brands, it may not necessarily apply to other areas,” he said.
On technology, Sitaram believes consumer brands would continue to leverage tech innovation to customize and personalize products at scale.
Elimination of Entry Barriers
What has really helped the growth of these new-age consumer focused start-ups is the elimination of entry barriers, said Harsh Mariwala, chairman of consumer goods giant Marico and an advisory board member at Fireside.
Mariwala said traditional fast moving consumer goods companies were often burdened by the challenge of distribution, something that brands today do not have to face. The rise of e-commerce and offline retail chains has ensured that products can reach their audience without companies having to spend the kind of money one needed to a few decades ago.
But not everyone can succeed, he said. “I think only the truly innovative start-ups will establish themselves.”
Aditya Ghosh, who has served in leadership positions at airline IndiGo and hospitality unicorn OYO, agreed with Mariwala’s view on the elimination of multiple entry barriers and said, “I genuinely believe that entry barriers will become absolutely irrelevant over a very, very short period of time.”
Ghosh, also part of Fireside’s advisory board, said while this was good news for up and coming start-ups, it was “extremely bad news” for those who are a little successful.
“I believe that success will be determined by how over a sustained period of time you can stay relevant in the life of the consumer,” he said, explaining the survival of brands would now depend on whether they can constantly adapt themselves to the fast-changing sentiment of each consumer.
Onward and Forward
The VC firm, which boasts of investors such as Unilever Ventures, ITC and the Mariwala Family Office, has set a target of a $100 million corpus for their second fund. Their first fund had a corpus of INR 340 crore.
From the new fund, the firm has invested in three companies, namely Sarva, Gynoveda and FableStreet. Sarva is a health and wellness start-up while Gynoveda focuses specifically on solving menstruation-related problems. FableStreet is a premium workwear brand for women.
Fireside has invested in a total of 21 start-ups so far, across seed and Series A rounds.
Fireside, having already raised $60 million of their target for the second fund, aims to continue investing in differentiated start-ups in the consumer space.