Consumer brand start-ups, in areas such as food and beverages, apparel, and electronics, are seeing rising interest from venture capital funds, driven by a large user base and maturing market.
Investments in consumer brands for the quarter ended June 30, 2019 stood at $66 million, the highest in four quarters with the highest number of deals - 15 - in six quarters, according to data from Venture Intelligence.
Venture capital funds in India have generally backed technology and internet-driven start-ups, with a thesis that they can scale fast. But this thesis today is extending to consumer brands, across online and offline categories.
“I truly believe it is the golden age of building consumer brands in India and even globally. With internet penetration, social media and e-commerce, brand building has become much more efficient and scaling up is relatively easier," said Bala Sarda, founder and CEO of Vahdam Teas, a premium tea brand whose largest market is the US. It has raised over ₹30 crore from Fireside Ventures, a consumer-focused early stage fund, in the last three years.
The success and scale achieved by a few brands has also increased investors’ confidence in the sector. Craft beer brand Bira91, makeup and beauty products retailer Nykaa and ethnic drinks brand Paper Boat, have all attracted prolific domestic and international investors. While Paper Boat (Hector Beverages) and Bira (B91 Beverages) both count Sequoia Capital and Belgian firm Sofina as investors, Nykaa’s investors include TPG Growth and TVS Capital.
“I think a lot of investors who were focussed on technology, are way more receptive to consumer brands because of the opportunity to build scalable brands in a short period of time," Sarda added.
Investors say the rise of the aspirational and conscious millennial consumers and a sharp rise in consumer spending compared to economic growth makes them bullish on the space.
“The Indian wallet is growing larger. A recent estimate predicts that the per capita income for India will rise from $2,000 to $4,000 by 2030. The consumption habits, as well as the points of consumption, will undergo significant transformation due to three major factors, i.e., better supply chain infrastructure, ease of doing business under GST and deeper penetration of the internet. These factors have opened consumer space up for new brands and new entrepreneurs," said Anirudh Damani, managing partner, Artha Venture Fund, an early stage investor.
However, Damani also warned caution in a surging market, saying, “My most significant fear factor for any consumer brand is their over-reliance on offline and online retailers to push their sales."
“These platforms can take up to 30-35% of the gross sales without providing essential consumer data that will help with product-market fit and creating new products. The start-ups must spend additional rupees on building a brand which the consumer can recognize," he added.