As India’s food regulator steps up scrutiny, investors are changing how they assess food and health-focused consumer startups, turning product claims, ingredient quality and supply-chain traceability into potential deal-breakers.
Investors are going beyond licences and certifications to examine whether claims on packaging can be substantiated, whether ingredients match those claims and whether manufacturers can be traced and audited. For some, weak evidence is now enough to walk away from a deal.
The shift comes as the Food Safety and Standards Authority of India (FSSAI) has intensified enforcement across food and health-focused companies. Risk-based inspections rose from 11,904 in FY23 to 26,267 in FY25, according to a government release in March 2026. In August, FSSAI issued notices to more than 150 companies over misleading advertisements, false claims and labelling non-compliances, according to a post by the food regulator on social media.
Deals scrutiny
For some investors, inadequate substantiation is no longer a diligence issue to be resolved after an investment decision. It can kill the deal.
“I’ll not take the name of the brand, but I recently came across a snacking brand that claimed ‘zero percent fat’ or ‘zero palm oil’ on the front of the pack. However, on the back of the pack, it listed hydrogenated vegetable oil…So, we said no to that deal,” said Ankita Balotia, principal at VC firm Fireside Ventures.
“We have become very clear that it is not only about being label-proof; contract manufacturers and traceability across the supply chain also need to meet a much higher standard than before. And this needs to be maintained on a continuing basis because companies will keep launching more and newer products," said Balotia.
Fireside has conducted in-house training to help its team assess product claims, validate them and determine what follow-up questions to ask.
In another example, Balotia said, “I was meeting a protein company today whose key claim was high absorption. Our first questions were: Where are your lab tests? Were they conducted independently? Was the sample randomized? Which competing brands did you benchmark against? You cannot compare yourself only with poor-performing brands and call it differentiation. If there isn't enough credible data, we simply say there is no meaningful differentiation.”
The scrutiny is also extending to companies’ internal compliance systems.
“Most of the deals I am doing now involve investors asking companies to have a compliance officer. It has become part of the deal because non-compliance can happen for many reasons, whether it is a regulatory filing that has not been done or a licence issue. Investors want someone internally responsible for making sure these things are monitored on an ongoing basis. They are also increasingly conscious of the risk of an FSSAI licence being cancelled, because that can have a direct impact on the business,” said Sumeet Seraf, founder, Equity 360, an investment banking firm.
Seraf said the requirement arose in a D2C protein and other-category brand where the investor wanted to review product labels and understand FSSAI’s position on them. “Going forward, given that a lot of YouTubers are also discussing the same issues, they wanted to have a compliance officer who could take care of the legal aspects and provide other guidance,” he said.
From claims to controls
Investment bankers say the change reflects a broader shift in what investors want to verify before putting money into food and wellness brands.
“The diligence process has shifted from verifying licences and certifications to verifying claims. This shift is more consumer led because consumers started reading the back of the pack and brands began building entire businesses on a single claim: organic, then no palm oil, no added sugar, no maida, and now 'real, not processed,” said Namrata Mishra, director of investment banking firm IndigoEdge.
IndigoEdge has advised D2C brands including beauty marketplace Purplle, beauty brand Foxtale, food brand Anveshan and sustainable-products company Arboreal.
India’s healthy food market was valued at $25.8 billion in 2025 and is projected to reach $59.8 billion by 2034, growing at a compound annual growth rate of 9.8%, according to IMARC.
D2C brands are responding by strengthening their compliance teams and turning to third parties for audits.
"We have an in-house R&D team, and recently we hired more senior people for our compliance and legal compliance functions. We felt that if there are areas where we can become more transparent as a consumer-facing brand, we should improve them rather than simply continuing with what we were already doing. We are thinking about how we can make things better and improve day by day,” Amit Tyagi, founder of consumer wellness brand Neuherbs which sells supplements such as Omega-3. The company plans to start its fundraising talks in the next two months.
Compliance advisers are seeing the same shift from companies. “Most of the enquiries we receive are related to compliance. These include hygiene audits and compliance requirements for manufacturing setups and existing industries. Companies want to know whether their manufacturing facilities are actually compliant with the guidelines, including hygiene requirements and the overall system,” said Harish Vaishnav, director at Foodyaari, a startup that, among other services, helps brands with food compliance requirements.
Vaishnav said demand from brands has increased fivefold from last year.
For investors, the change means compliance is increasingly moving from a back-office requirement to part of the investment case itself.