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BENGALURU: Consumer brands-focused venture capital (VC) funds such as DSG Consumer Partners, Sauce.vc, Fireside Ventures and others have cut back on new deals and look to deploy most of their dry powder—cash reserves meant for future investments and acquisitions—into existing portfolios.

Due to a shift in consumption patterns among consumers, especially in packaged goods, and due to curbs on inter-state logistics movement, consumer VC funds said their investment strategies may have to be tweaked.

Typically, startups in the consumer brands space have attracted a lot of attention from VC funds in the past.

VC funds in the consumer space, including Fireside Ventures and DSG Consumer Partners, have closed new funds in the last half of 2019, giving them enough time to respond to the on-going business crisis due to a pandemic, said fund managers and partners.

“Despite having a large amount of dry powder for new deals, we have de-prioritized new deals for the next quarter. Our immediate focus is to work with our existing companies to navigate through this unprecedented period that has impacted every business. New deals can wait as we better understand the short, medium and long term impact of COVID-19 and how consumer behavior will change," said Deepak Shahdadpuri, founder and managing partner, DSG Consumer Partners.

DSG, which closed its third fund worth $65 million in August 2019, has already made two seed-stage deals in the last two months, without renegotiating term sheets (due to covid-19), added Shahdadpuri. DSG has made around 40 active brands on its portfolio, including leading names like Raw Pressery, Chai Point, Sleepy Owl and Veeba foods.

Vinay Singh, co-founder, and Partner at Fireside Ventures said that the fund has been topping up money into some portfolio brands that are in doldrums but have shown significant sales during the lockdown.

“We are doing bridge rounds and committing to all outgoing tranches on basis of three variables including the current cash in hand in the portfolio brand, the category the brands are into, and the recovery plan post lockdown," added Singh.

Singh also pointed out that Fireside is currently not scouting for new investments since it might take another 3 to 4 months to understand how the on-going pandemic crisis might pan out for consumer brands.

“Before covid, there were some 7 to 8 categories that we were doubling down on…now in the post-covid world, we might reduce this to 3 or 4 categories depending on how consumers are reacting, and come out with a new investment thesis," he added.

Fireside Ventures had received commitments worth $60 million from its limited partners (LPs) for its second maiden fund in December 2019. The consumer-focused fund had set a target of $100 million for its second fund. However, Singh also said only 5% of the second fund has currently been allocated, indicating that there is an appetite for new deals.

Some of Fireside’s investments include boAt audio, Mama Earth, Vahdam Teas, Samosa Singh, Yoga Bar, and Bombay Shaving Company.

Even as consumer focused funds may continue to release its committed trances and re-invest in exiting portfolio brands via bridge rounds, investors point out that there won’t be any significant valuation jump in these rounds.

Manu Chandra, founding partner of early-stage VC fund Sauce.vc said that the fund has given out any new terms sheets in the past couple of months and that instead the focus would be on existing portfolio brands. Sauce.vc has invested across new emerging brands such as XYXX (innerwear brand), Bare Anatomy (personal care), and Postcard (snacks and packed foods).

“...We also don’t expect to invest in any existing portfolio companies at a significantly higher valuation than their previous rounds. But our tranches promised to portfolios will continue to be released. Around 50% of our existing funds are ready to be deployed," added Chandra in a phone interview.

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