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Fireside Ventures made its 10th investment from its $118 million second fund this week, in sampling and engagement platform for direct-to-consumer (D2C) brands Smytten, as the early stage venture capital firm continues to bet on digital-first consumer brands. Launched in 2017 by Kanwaljit Singh, who co-founded Helion Venture Partners, Fireside raised $50 million for its first fund in 2018 and counts Unilever Ventures, ITC and Premji Invest as some of its investors. In an interview, Singh, founder and MD, Fireside Ventures, spoke about the higher adoption of online consumer brands, the IPO frenzy and changing consumer mindset. Edited excerpts:

How different is the investment strategy for the second fund?

We still believe that our forte is consumer brands. Nothing has changed at a fundamental level, but at the thematic level, we are finding newer spaces that are starting to evolve. We found the concept of wellness has become all pervading across categories, whether it is food and beverages, home or personal care and beauty. We are seeing many health and health-related businesses coming up targeting direct consumers. We have invested in 10 companies all through covid and our pace of investing has been active.

Has covid opened up more opportunities for digital first, consumer-focused investors?

The pandemic has almost force multiplied the adoption of e-commerce and digital brands. The ecosystem took a massive leap forward and the opportunity to leverage a distribution system in an efficient way was established. That’s where we think we add a lot of value. Infrastructure around D2C brands became more robust. As covid recedes and the offline world opens up, omnichannel play will be significant to access the consumer. If we can leverage D2C, e-commerce and offline trade and wrap it all with a strong value and brand proposition, we can build mega brands. This multiple or omnichannel play will allow us to leverage a very different size of the market and consumer definition. We have breakthroughs with companies such as boaT and Mamaearth, which have gone to a different level. However, we are also seeing other companies reaching 100 crore- 300 crore revenue level in 4-5 years.

What about tier-2 markets where e-commerce has made big inroads?

The canvas of the playing field is growing. We are looking at opportunities in what we call Bharat, which is tier-2 and 3 markets, where we have companies such as Amazon, improved payment systems and organized logistics support. The aspirations of these consumers are no different in consuming brands.

This can be addressed with one’s current brand and value proposition to the consumer. The best example in our portfolio would be boaT. They have found acceptance of what they stand for and are moving to deeper markets. Second, these markets may require a different approach in designing brands, looking at pack sizes, price points and formulation. We can’t rule out the possibility that some of our brands will create ‘made for Bharat’ sub-brands or we will invest with brands that start with Bharat as the market and look at that sensibility. It’s an evolution that’s happening and will only become larger.

Global markets are another exciting opportunity for us. Amazon has been a great partner for us through its global seller programme. Brands can expand by creating multi-brands for different markets. Today, the idea of building different brands for different consumers is there because digital allows you that efficiency and not much investment in distribution and marketing is needed.

What is your view on the ongoing IPO frenzy, valuations and exits?

There will be a spate of IPOs. More than half of the unicorns formed in the last five years and particularly in the last 18 months are in the consumer tech space. The big buildout of infrastructure will hugely benefit brands. The transition from unorganized to organized and unbranded to branded is ready to happen.

Exits will happen in multiple ways. Private equity players wanting to buy out early investors because they need to get that ownership. This has prompted us to have a few exits.

We have returned more than 60% of the money from our first fund to investors already. Fortunately, we still have meaningful ownership in all these companies because we believe that they can build a significant scale. Brands such as boaT, Mamaearth, and Licious have the ability to think of a potential IPO even if the timeframe is not certain. They have reached the size and scale and also the brand strength.

More entrepreneur activity is good but valuations becoming unreasonable is not. We are being highly disciplined where we stick to our investment thesis and not pay an exorbitant price for that. The consumer space will spin out hundreds of brands and that’s happening faster than we thought. There is more money chasing these companies. We have to pick and choose those 15-20 companies in every fund where we are excited about the space and the entrepreneur teams.

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