Investors continue to make a beeline for consumer internet start-ups

The increased interest in consumer companies is also because users have shown their willingness to spend, especially with more credit options being available.

Venture capital firms continue to show interest in consumer tech start-ups because of which deal activity remains strong in the sector, even as the larger ecosystem hasn’t fully recovered from a trough it hit in 2023. Promising liquidity events, higher discretionary income and the ease of launching brands are some of the reasons why brands are mushrooming in the world’s third largest start-up ecosystem, where the consumer deal pipeline is only strengthening.

Bessemer Venture Partners is likely to lead a $12-15 million round in Vetic, a multispeciality veterinary hospital chain, people aware of the developments told Moneycontrol. In a separate deal, Nexus Venture Partners is in talks to back Kisah, an ethnic men’s fashion wear company, in a $4-6 million round, two people in the know told Moneycontrol.

Bessemer offered no comments while Vetic and Nexus did not reply to Moneycontrol’s queries. Kisah said the information is “incorrect” but did not provide more details.

After the two deals close, the companies will join a growing list of consumer internet start-ups that have raised VC money over the past few months to capitalise on the growing demand.

Vetic’s round is similar to Supertails’ $15 million round that was led by RPSG in February this year. Supertails is a pet care start-up that is expanding its operations to offer more, including veterinary services.

VCs are not restricting themselves and are pumping money into consumer-focused companies across sectors.

More recently, Cureskin, an AI-based skincare start-up, bagged $20 million from HealthQuad, JSW Ventures, Khosla Ventures, and Sharrp Ventures. Foxtale, which raised $14 million in a round led by Panthera Growth Partners, and Nat Habit, which scooped up $10.2 million from Bertelsmann India Investments (BII), are the other deals that have happened in the space.

Skincare is not the only sector that’s been in focus over the past few months. Food and beverages (F&B) also has been a key theme.

At the beginning of the year, Wow! Momo said it raised $49 million from Khazanah Nasional Berhad, the sovereign wealth fund of Malaysia.

AbCoffee, a specialty coffee chain, raised $3.4 million from Nexus VP earlier this month as investors continue to be bullish on the premiumisation trend. Walko Food, which operates the ice cream brand NIC, picked up $20 million from Jungle Ventures as it looks to cash in on the premiumisation trend, too.

The trend went beyond the F&B space.

Mokobara, a direct to consumer (D2C) luggage and accessories start-up that targets the mid-premium to premium customer cohort, raised $12 million from Peak XV Partners (former Sequoia Capital India) and others.

A bulk of the consumer deals was also thanks to Mamamearth’s successful initial public offering (IPO) in November, 2o23. Despite the initial noise around its valuation and multiples, the company had a decent public market debut and has shown an improvement in financials in the quarter after that.

At least three investors that Moneycontrol spoke with, said they’re now looking for a Mamaearth-like brand that will give them similar returns.

Gurugram-based Honasa Consumer, which operates Mamaearth, handsomely rewarded its early investors. Consumer brands-focused Fireside Ventures invested around Rs 30 crore in the company and has already earned Rs 550 crore from the bet. Similarly, Snapdeal’s Kunal Bahl and Rohit Bansal earned around Rs 160 crore by investing Rs 2 crore.

Fireside and Snapdeal founders still hold some shares in the company.

“The liquidity events from consumer companies have been very impressive. We first saw that with Nykaa and then more recently with Mamaearth which gave their investors handsome returns, that’s something not a lot of tech companies have been able to do,” an investor in the space told Moneycontrol.

Consumer companies are also considered a safer bet because valuations are more in sync with reality, versus a SaaS start-up which corrects from a 100X multiple to a 5X multiple in a matter of months.

“A lot of the larger funds which have been doing tech have realised that their tech portfolios have not performed as well as they would have liked it to…so suddenly, everyone's jumping into consumer. One can question if this strategy works in the long-term or not because consumer companies are different and have a longer gestation period versus  a SaaS or others but everyone feels there’s activity happening in consumer and they want to be a part of it,” the investor added.

Another investor said that large international funds, that are specialists in B2B, SaaS, fintech, deeptech and other sectors, have shown interest in consumer deals in India.

The increased interest in consumer companies is also because users have shown a willingness to spend, especially with more credit options being available. Credit card spends were at their highest ever last festive season during Diwali, as per several reports.

Satish Meena, advisor to Datum Intelligence, a market research firm focused on consumer technology, said changing consumer preferences have given validation to newer brands that are starting up.

“In the last 12-18 months, consumer behaviour has been tilted more towards the premium side of things. Be it phones or travel. Customers have also become more accepting and are willing to experiment with new brands, thanks to better distribution channels, including e-commerce and quick-commerce,” Meena said.

Over a longer period, a maturing internet economy is another reason why deal activity has picked up. Former executives from Amazon, Flipkart, Nykaa and other established companies have learnt enough about brands and are starting up now, investors said.

“It is much easier to launch a brand now that there’s a D2C playbook – there is a more mature e-commerce infrastructure and the emergence of quick-commerce has helped in launching brands quicker,” the second investor cited above said.

Quick-commerce companies are expanding their stock keeping units (SKUs) base to compete with traditional e-commerce companies, which has helped widen the larger ecosystem.

All things considered, investors in the space are upbeat on consumer companies and expect more start-ups to raise venture capital to expand operations in the months to come.