Mamaearth, boAt, Yoga Bar, Bombay Shaving Company, The Sleep Company, Vahdam, Slurrp Farm — these are some of the buzziest consumer brands to have shot to fame in the country over the last half a decade.
And, what do they have in common? The answer is: Fireside Ventures as an early investor.
Kanwaljit Singh, who started the first fund of Fireside Ventures in 2018, was also the co-founder of Helion, one of the earliest venture capital firms in the country that took bets on companies like MakeMyTrip and Flipkart.
But Singh, a former Unilever executive who had spent a decade in the consumer products major in the beginning of his career, left Helion when he wanted to take a bet on digital-first consumer brands.
“The hypothesis was that there is a large young consuming population in the country who are looking for more brand choices. The fact that there was not more choice was a constraint of the infrastructure,” he said.
As of date, Fireside manages over Rs 3,000 crore of capital across 3 funds and has invested in 45 consumer brand startups.
That insight has yielded some big wins for Fireside — the most prominent one being Mamaearth, on which it registered a return of more than 45X as the company went public last year. Similarly, it is expected to log significantly large returns when boAt goes for an initial public offer.
Moneycontrol caught up with Singh on the sidelines of a D2C conference organised by TiE Delhi-NCR last week. Edited excerpts from the conversation:
Quick commerce has opened up a new opportunity for new age consumer brands. Which categories do you see benefiting the most from quick commerce?
There are categories like snacking, chocolates, dairy, ice creams which are much more amenable to quick commerce. At one level, I think the answer is that we do look at new categories which earlier could not be digital-first and therefore it opens up more opportunities for us.
For example, we have a company called the Baker's Dozen which does artisanal bakery products from sourdough breads to cakes. About 50-60 percent of their business is coming from quick commerce because that is the most obvious choice when the consumer wants to order a loaf of bread, a cake or cookies. But if you look at the more classic ones – let's say a Slurrp Farm or a Yoga Bar — they are seeing significant growth in quick commerce. And then you have categories like personal care and beauty, baby care, pet care products where we see an opportunity.
As a venture capital investor in the consumer space, how is quick commerce impacting your investment strategy?
It allows us to start thinking deeply about how we can have more strategic relationships with the e-commerce players. At Fireside, we are working with all the top players like Blinkit, Zepto, Instamart. Now, Flipkart and Jio are launching. Our effort is always to see if there is a strategic way to engage with these partners like we have done in the past with Amazon and Flipkart. This is an emerging opportunity to take advantage of an interesting convergence of e-commerce and physical retail.
There is a view that India is still a $2,500 per capita income country. So, there is not enough appetite to absorb so many new consumer brands that are getting early traction — and that the new brands have to just snatch each other's market share. What is your take?
At the macro level, we are talking about a $3.5 trillion economy going to $5-7 trillion in the next 7-8 years. About 60-65 percent of that economic expansion is in the consumption space which will open up another $2 trillion of market opportunity.
As people are starting to consume new categories and starting to look for more choices, market expansion is our biggest opportunity. Now, obviously there is also some amount of market share movement between different brands and that's why our focus is always on identifying brands which have very deep consumer insight, very clearly defined value proposition because that is what builds consumer loyalty.
When you started Fireside, most of the venture capital focus was on marketplaces and platforms. D2C was not a trendy segment yet. What was your hypothesis then?
The hypothesis was that there is a large young consuming population in the country who are looking for more brand choices. The fact that there was not more choice was a constraint of infrastructure — because building brands by selling them in small mom-and-pop stores was very difficult for young entrepreneurs. It was a bit of a vicious cycle where if you don't have infrastructure and it is expensive to build brands, then no entrepreneurial activity happens. So, there is no capital going into that space — and consequently the negative cycle keeps happening.
What my hypothesis was and we really bet on was that we will target this whole space through digital first. And that really is what worked out. Obviously COVID helped because a lot of people who are not buying online, but suddenly there was no choice.
It must have been difficult to raise money from limited partners for a consumer fund. How much have LP conversations changed between then and now?
In terms of LPs, obviously it was a difficult proposition. So, interestingly, if you look at it we have always raised more money from domestic investors and initially the largest contribution of money for us came from consumer companies or their promoters’ family offices. The Mariwala family, Premji Invest, Sanjiv Goenka family, Sunil Munjal family — they all invested in us because they understood that this phenomenon was happening.
We did not have the traditional financial investors, but people who understood the consumer space and who wanted to support us. Today, that range of LPs has expanded as we have global investors and financial institutions. Now, there is a far better understanding and acceptance that this is a space.
The most prominent exit route for a consumer brand startup is getting acquired by one of the major players in the space. One issue that comes up is culture: integrating a startup with a legacy business. As such, is there enough appetite for such acquisitions?
I think interest levels are very high. Marico, Tata, ITC and Emami have acquired a lot of companies. In more recent times, we are also seeing the D2C startups themselves becoming acquirers such as Honasa (the parent company of Mamaearth). That's a very virtuous cycle.
Secondly, obviously there is always this whole question for a large organization: how do you integrate small brands. Mostly, what they are doing is they are allowing those brands to exist semi-independently, so that they don't get consumed or subsumed within the large you know organizational complexity. Marico has created a separate organization, where all the four or five brands they have acquired are run independently. They get the benefit of all that Marico has to offer in terms of distribution, quality, production, sourcing, pricing, but they still have their space. The same is with Yoga Bar as ITC is almost running it like a separate business and the founder continues to work with them.
You are an investor in boAt. Is consumer electronics a category more interesting now given the government’s push for domestic manufacturing in the sector?
Broadly, I would call these as either lifestyle brands or in the appliances and the home & kitchen space. We do have some interesting companies in the pipeline and the government is providing a lot of opportunities such as production-linked incentives (PLIs). There is a demand in the market for exciting new products in some of these areas like lifestyle products or slightly next level of either internet of things based or automation based home products. They're very interesting spaces.
Do you have plans to raise a fresh fund in the near future?
Our third fund is only about one and a half years old. We are still deploying from that. So right now we are not raising another fund.
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