VC funds focused on India’s consumption story draw strong investor interest
3 min read.Updated: 21 May 2019, 10:19 PM ISTM. Sriram
The interest in these funds is also driven by LP’s need to invest in specialized funds as they bet more on India
A91 Partners, the venture capital fund set up by three former managing directors at Sequoia Capital, is nearing the final close of its $350 million debut fund
Venture capital (VC) funds focused purely on the consumer segment are seeing heavy traction from limited partners (LP, investors in VC funds), raising money thick and fast, driven by the rise in new disruptive brands that are riding the Indian consumption growth story.
At least three consumer focused funds, including DSG Consumer Partners (DSGCP), A91 Partners, and Fireside Ventures, are either closing or are in the process of fundraising in increasingly short intervals.
“The last seven years have confirmed the potential of building large consumer product businesses and the momentum insurgent brands have across categories as they enter white spaces or take on large local or global MNCs," managing partner Deepak Shahdadpuri had said in March.
Mint reported on 31 March that DSGCP, known for its early bets on Oyo Rooms and Raw Pressery, which makes cold pressed juices, has marked the first close of its $50 million third fund—DSGCP III—at $30 million.
A91 Partners, the venture capital fund set up by three former managing directors at Sequoia Capital, is nearing the final close of its $350 million debut fund. A91 plans to invest in consumer startups in the fields of healthcare, financial services and retail brands.
A91’s fund of $350 million is one of the largest debut funds raised by an Indian fund manager, highlighting the interest that LPs have in the consumer sector.
These investors are betting on new fast-growing consumer brands that are tapping into rising disposable incomes and the country’s large population of millennials. India’s affluent consumers and households, which earn between ₹5 lakh and ₹20 lakh per annum, have contributed to 43% of the ₹110 trillion in annual consumption in the country in 2018, according to a February 2019 report by Boston Consulting Group along with the Retailers Association of India.
The number of affluent households grew 9% annually from 10.7 million in 2008 to 24 million in 2018, the report said.
In January, US private equity firm KKR pointed out that millennials in Asia, led by China and India, are expected to drive consumer demand globally.
Millennials are expected to drive long-term growth in personal financial services, healthcare services, wellness/beauty, healthier foods, and food safety, according to KKR.
Fireside Ventures, another consumer focused VC fund, which closed its debut $50 million fund just last year, has hit the market again to raise $100 million for its second fund, riding on these broad macro trends, Times of India reported on 29 January.
“The legitimacy in consumer brands as an investment thesis and the opportunity has been strongly acknowledged by the investing community," said Kanwaljit Singh, managing partner, Fireside Ventures. Singh did not comment on the fundraise, but a person aware of the matter said that FiresideVentures is finalizing its documents to launch the second fund.
“The value of being a focused fund and looking exclusively at a specific sector or theme is also being realized. So the demand for consumer funds is not surprising at all," Singh said.
The investor interest in these funds is also driven by LP’s need to invest in specialized funds as they bet more on India and the successful track record of fund managers in the consumer space.
“LPs are bullish on consumer-focused funds because they like this space, given the number of new and often disruptive brands being created, and the stellar track record of fund managers who have emerged in this sector. There is more specialization in the themes for funds and investments and LPs, as they go deeper, prefer this, compared to broad brush of tech funds," said George Mitra, chief executive officer of Avendus Wealth Management.