Millennials fast-tracking recovery of consumer startups: Fireside Ventures

India has begun lifting lockdown restrictions in a staggered manner as the economy gingerly reopens after more than two months of lockdown that has ruined several businesses.

But in all this gloom, there is some cheer. Some companies catering to millennials are seeing their revenues return steadily to pre-COVID levels, Kanwaljit Singh, the managing partner of Fireside Ventures, a $100-million consumer brand-focused venture fund, has told Moneycontrol.

“Most of the new-age brands are targeting the urban millennials who have shown strong resilience to the COVID situation and several of our portfolio companies are tracking revenues back to pre-COVID levels,” Singh said.

The coronavirus and the lockdown made startups and their investors—venture capital funds--cautious as survival took precedence over growth.

Even otherwise, the general talk has been about conserving money to tide over an uncertain period where jobs are on the line and layoffs order of the day.

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Yet, Singh is not worried about consumption, the core theme of Fireside’s investing.

“We believe that consumers will certainly get more value-conscious but that doesn’t mean that they will choose the cheapest products available in a category. In fact, the focus will be even more on trust and areas like hygiene and safety, so we may see a stronger move towards more branded consumption,” he said.

Fireside’s portfolio companies include boAt earphones, wellness brand Mamaearth, and grooming brand Bombay Shaving Company, among others.

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Currently, it is deploying from its second fund of $100 million, for which it raised $60 million towards the end of the last year. Closing of the fund could take longer as investors may stay away from risky opportunities during an economic slowdown.

While global investors were less keen, Indian family offices were still bullish on consumer brands, he said.

The fund’s backers include French cosmetics giant L’Oreal, Unilever Ventures, Emami Ltd and the family offices of Harsh Mariwala, Azim Premji and Sanjiv Goenka.

Investors also expect valuations to come down across stages (early to late), a trend generally seen every few years and especially during a slowdown.

“So far, we haven’t seen early-stage valuations impacted significantly, especially at the stage we invest (pre-series A). We believe that series A will likely see some reduction and series B may see even more because consumer companies as valuations at series B had become quite high pre-COVID,” Singh said.

While many traditional and offline businesses suffered losses and had to evolve overnight after the outbreak, online services have become more valuable and are seen as a long-term change.

Online education, shopping and gaming have all seen record levels of traction as people stayed home.

“We are primarily on digital-first brands. We believe that India’s large percentage of digitally connected millennial and Gen Z consumers are looking for exciting new brands and narratives and with the growth of the digital infrastructure, the time is ripe for hundreds of new digital-first brands to get built in the next decade and more,” Singh said.

There is debate on who a millennial is but a general agreement is anyone born between 1981 and 1996. Some say Gen Z begins where millennials end but there is an overlap. Generation Z is said to be born between the mid-1990s and the mid-2000s.

“We believe that with the significant shift in consumer buying behaviour to more digital transactions because of COVID-19 and the resultant lockdown, the opportunity will become even more exciting. We also believe that new categories in wellness, immunity and ‘experiences at home’ will emerge strongly during and post-COVID,” he added.