The Sound Crafters boAt sets the sail for the first Indian D2C IPO. Will it have a winning float?

boAt co-founder Aman Gupta says his company avoids pitfalls of its startup peers for one big reason: It's profitable. The 40-year-old started the digital-first consumer products company, Imagine Marketing with his partner, Sameer Mehta, in 2013 led by its flagship brand "boAt" launched in 2014 and said it makes money and generates cash. That may help it stand out from other startup companies that have gone public in recent years and disappointed investors.

The DTC business model disrupted retail last decade when companies like boAt pitched consumer goods at lower prices by cutting out retailers and selling directly to shoppers. According to the RedSeer Report boAt is one of the largest Indian digital-first brands in terms of revenue from operations for the financial year 2021. They have established leading market positions in volume and value terms in India across multiple, high-growth consumer categories such as audio and smartwatches. As the brand is all set to go public, we understand the harmony of the founders and will it make investors dance to the new sound of music?

LET THE MUSIC PLAY!
When the lockdown was announced in March 2020 due to Covid19 Aman Gupta went to the drawing board to think about what is to be done now. In the words of Aman, "It gave us the required break to start thinking about the next." The company never thought of building its supply chain beyond one country, which is China but Covid gave the required push to do so. The brand started to think of raising more funds for channel expansion. As work from home, online education and entertainment at home became the norm; the brand witnessed a rise in sales. Their revenue from operations was ₹2,258.49 million, 6,091.07 million, ₹13,137.16 million and₹15,478.66 million for the financial years 2019, 2020 and 2021 and the six months period ended September 30, 2021, respectively. This also was the time when the brand started thinking about launching newer products, which led to the launch of wearables as a new category. They have also embarked on similar product expansion initiatives across several other categories such as gaming accessories and personal care accessories. "We entered into an agreement to establish a joint venture with Dixon Technologies in January 2022 for manufacturing and developing our Bluetooth-enabled hearables products in India," shares Aman Gupta, Co-founder & CMO, boAt.

As a startup, they thought through marketing and media spent as soon as the lockdown opened, as there was pent-up demand with revenge shopping in the rear. The brand was able to cash in on the newfound buyers with its existing inventory.

The brand continued its marketing techniques that include initiatives and alliances with other brands and several celebrities, such as musicians, cricketers, actors and influencers to promote the brand across digital and non-digital platforms with over 20 brand ambassadors and influencers on board.

TWO'S COMPANY

When the startup world is reaming under partnerships going sour, Aman Gupta and Sameer Mehta have been true examples of sailing in the startup boat together. Talking about their partnership, Aman mentions, "Initially, people started questioning us as founders who stay in different cities, not knowing each other but started a business together. One of the investors in fact told us "I will only invest if both of you are in the same city.' Now, people have realized that you don't necessarily need to be in the same city. We used to do more Zoom calls and Google Meets even before COVID."

Both of them as co-founders and majority shareholders in the business made visits together to supplier meetings, business fairs and distributor events in various countries before finalizing their supply chain model. When asked about handling differences of opinion, Sameer Mehta, Co-founder, boAt says, "At the end of the day, what is right for the brand and for the company comes ahead and everything else takes a backseat." Apart from traveling together for work and vacation and staying in the same room at a hotel to save cost, the duo shares an unspoken trust. This can be witnessed from the fact that the opportunity to judge Shark Tank India reality show came to Sameer who passed it to Aman as he believes he's outspoken and extrovert of the two. The duo has ended up investing in 50 odd startups together and no single one is there where only one of them would invest.

When asked about bringing in a CEO a year back when most founders have issues with letting it go, Aman says, "You've seen in the last few quarters, what has happened to companies where the founders just wanted to do everything themselves. We know what we know and we don't know what we don't know. Vivek brings in some level of structure, organization build-out. Both of us agreed that we need somebody more senior for managing the organization and it worked out well." Now both the operating founders report to Vivek Gambhir the CEO, who's experienced in leading largescale organizations like Godrej. The brand is currently exploring opportunities in overseas markets, with its first foot set in Nepal. When asked if coming up with an IPO was something already on the cards when the CEO was roped in, Aman replies, "The day you start getting investors in the company, you start thinking about an exit, so why not a strategic IPO. The timing can be decided but to have an exit for the investors is something we all have signed up for. It's actually a journey for any entrepreneur. We've been profitable and that actually moved that decision closer and we thought it was the right time to do it."

Nudging the importance of profitability in the startup world, Mehta mentions, "Everybody's now looking at profitability. You've seen how some of these tech companies have tanked because of profitability, I think now sanity is much more important and realise companies are run for profits."

Talking about corporate governance becoming a question in today's startups, Aman adds, "Today, the world is looking at founders from a different angle, right? So compliances and ethics for us were given from day zero. We were very compliant in everything we did and that is paid off today."

In the startup world where founders give up more equity for better valuation, boAt founders still hold more than 50% stake, which gives them an upper hand in decision making. Voicing his concern Aman goes on to say, "I feel that founders need to be controlled. Issues happen because of more dilution. I think it's a rat race and I feel a lot of founders, unfortunately, are getting into the rat race to become the next unicorn, which is unfortunately not good."

As the company enters its new phase a new set of challenges await the founders. In the words of Aman, "Our biggest challenge right now is how to manage the culture where the new and the old start functioning better. There's an old team who has made the brand where it is today. Then there is a new team that thinks it was good for up to a level, but for a bigger company, there are better ways to do things. So how do we integrate culturally is one of our biggest challenges in terms of people management and culture."

While Mehta from an operations perspective talks about the rising prices and component costs in manufacturing. As per him, "Make in India should be happening. There will be some challenges on that front. We have got Qualcomm now as our investor, who's helping us with new age, better products, they are helping us streamline India manufacturing. We had it in our mind, but COVID accelerated it. The dependence on one country for anything and everything was not, and is not good."

They are further supported by marquee investors such as Fireside Ventures, Qualcomm Ventures LLC and South Lake Investment Ltd, an affiliate of the Warburg Pincus Group. Talking about his relationship with the brand as an investor Kanwaljit Singh, Managing Partner of Fireside Ventures says, "For me, boAt is the textbook example of building a brand built entirely around its consumers. Call it what you will -- insight, understanding, customer centricity, boAt has it in spades. Aman and Sameer built the brand on the conviction that boAt is for everyone. And that's why they were able to disrupt a massive industry as audio accessories with so many global incumbents, and then take it up a notch to rank among global leaders." Talking about continuous innovation, Aman mentions, "You need to first be updated with the technology and then be ready for breaking that technology. There's so much innovation happening at the back end that you have to be at the top of your game, delivering the right product and the right experience to the customer. We have made the right investments around it and have a massive R&D team."

Over the years with boAtheads and great marketing they have built a community wherein they can float newly launched products and see an immediate reaction. Today, a big part of the business comes from wearables, which wasn't the case earlier. Being an audio brand, creating a new category was an achievement. Ruchit Jain, Lead - Research, 5paisa.com says, "They are in a unique leadership position in a consumer business, where spend-loving Millenial and GenZs are the buyers. This looks like a promising firm to watch."

Whether it's through boAtheads or meeting Aman the founder who's always wearing his brand t-shirt as a frugal way of marketing. The brand has created great recall value but will boAt become a Direct to Consumer Darling Stock, we will have to wait and watch.