Companies
We will focus on investing in essential categories: Powerhouse91’s Aqib Mohammed
Summary
- He says the company stays away from fashion and luxury categories. They are already operating three brands in such categories, and are patient with the acquisitions
Thrasio-style ventures, seeking to replicate the ecommerce model made popular by Massachusetts-based startup Thrasio, have mushroomed during the pandemic in India, and attracted significant funding in a short period of time. Powerhouse91 is one such venture.
In an interview with VCCircle, Powerhouse91’s Co-founder Aqib Mohammed said that Powerhouse has already made three investments, and plans to invest in brands focused on essentials and health, going forward.
Edited excerpts:
Q. What inspired you to start a Thrasio-style venture?
A: Prior to starting Powerhouse91, we had a direct-to-consumer (D2C) hygiene brand called Azah, with which we gained experience on how to run an online-first brand. We spent the last three years building this, taking the brand to over $1 million dollars in annual revenue rate, with profitable margins. This is also a very commoditised product, and also a category that is dominated by FMCG giants. By building this brand, we realised that the learnings we got from this can be implemented in a broader sense, and help other brands scale as well. There are many sellers across India, especially in Tier-2 cities, whose revenue is in crores by selling great products, but they lack the resources to take it forward. Even if it gains traction, there will be FMCGs with large marketing budgets that they will have to compete with. So, we want to use our learnings from Azah to help these smaller brands grow.
Q. Since moving from D2C to a Thrassio-style venture, have you received inbound interest from investors?
We have already raised a seed funding round from Cross Venture Partners and Titan Capital, considering this is a very hot space right now. There is investor interest, but we are trying to be a little different here. We are trying to build a lot of in-house capabilities to help our brands, and develop a track record as we don’t want just capital to be the differentiator.
Q. What segments are Powerhouse91 focused on for acquisitions?
We started with a sector-agnostic thesis and are open to different categories, but for now, we are focused on essentials, everyday products around health that people use regularly. We stay away from fashion and luxury categories. We are already operating three brands in such categories, and we are patient with our acquisitions. We have kept tough growth targets, rather than the number of deals.
Q. What does your acquisition pipeline look like? What is your typical ticket size?
A. Our process in terms of valuation is that we choose profitable brands with a good product-market fit, and value it in terms of EBITA multiples rather than revenue multiples. Going forward, in 2022, we will scout for opportunities in different categories like baby care and gardening. We are expecting faster growth in these brands because of our early-stage entry as compared to other roll-up firms operating in this space. As long as the products have some essential use and a good market fit, we are open to those ventures.
Q. Thrasio-style ventures have also received significant funding this year. Has that made the space more competitive?
A. It’s a proven model which has been replicated in every market, so investor interest is justified. In terms of heated competition, I feel that if there are enough brands that can run profitably across categories, then we have enough room for roll-up companies. Only the model doesn't guarantee success, it’s the implementation in this market that will prove if there is enough space for these companies. Further, this is not a winner-takes-all play, given the humongous market that India is.
Q. There are also a host of venture capital-backed start-ups in India. Do you see them as potential targets for acquisitions?
A. It ultimately depends on the financials. Our acquisition model is completely based on the brand’s financial health, we focus on strong unit economics, market fit and profitability. If a brand fits our model, then whether it is bootstrapped or a venture-funded firm won't matter.
Q.What is the larger vision for the company?
A. Since we rolled up Azah, we are growing the brand. In October alone, we have a 50% month-on-month growth. We want to find good brands from all over the country and scale them, and our longer-term vision is to touch $1 billion in revenue in the next five to seven years by scaling our brands.
