Accel, Fireside have a new mandate for D2C brands: beyond online

These two leading venture capital investors will, however, continue to invest in businesses having both an online and offline (omnichannel) strategy, underlining a conclusive shift in how consumer brands are being built and evaluated by early-stage investors.

“Investors are looking for teams today that have the ability and ambition to go beyond D2C," Prashanth Prakash, partner at Accel Ventures, said in an interview to Mint. “Investors are looking to fund companies and entrepreneurs who are willing to be not only just digital D2C but omnichannel."

India currently hosts about 10,000 D2C brands, a concept that gained currency a few years ago and was originally focused on an online-only or digital-first approach. Buyers became more comfortable shopping, discovering and experimenting with new brands online during the covid lockdowns, and in 2021 about 100 Indian D2C companies raised more than $2.1 billion. 

“Early-stage companies might start as D2C but will have to go omnichannel to grow beyond the initial traction that online channel offers," Prakash said, adding that Accel was ready to back such companies.

But what founders and companies perceived to be a new digital normal has not played out as they had expected it to, and over the past two years investors grew increasingly wary of backing these digital-first companies.

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The stretched-out funding winter has also made things harder for D2C brands, which now have to figure out not only how reach customers but also how to deliver a sticky brand experience that reduces their customer acquisition costs.

Eyewear retailer Lenskart, cosmetics brand Mamaearth, and meat-delivery platform Licious all began with an digital-focused strategy, but have since invested heavily to grow offline as well as they evolved into unicorns—companies estimated to be worth at least $1 billion.

Changing tack

Stuck with investments that will take longer than expected to deliver returns, investors are now following the more traditional approach of being where the customers are. 

To avoid being capital-intensive, startups are adopting the franchisee-owned, company-operated (FOCO) model, in which franchisees take on the risk while the company delivers the brand experience, Prakash explained.

A report titled ‘Decoding Omnichannel: Strategies for D2C Brands’, published by Accel, Fireside and consulting firm Redseer on Thursday, states that about 90% of sales will happen offline, though discovery of brands and a significant portion of purchases are likely to be influenced online. 

In 2023, India's offline retail market was worth $1.1 trillion, while online retail stood at $65 billion. By 2030, offline retail is expected to grow to more than $2 trillion and online retail to $150-200 billion, the report said.

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“We believe all brands will eventually have an omnichannel presence. The real opportunity is to integrate the digital and offline channels into a seamless consumer journey," said Kanwaljit Singh, founder and managing partner at Fireside Ventures.

This fusion of online and offline sales is distinctly Indian, reflecting the behaviours and preferences of Indian consumers, according to the report. “It bridges trust and convenience barriers, accommodating a shopping journey characterised by a mix of traditional values and modern conveniences," the report said.

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