Indian consumption story going strong each passing day

Domestic consumption story of India is a solid theme to invest as the country sees sharp rise in the per capita income. With India all set to become the third largest economy in the coming years, this domestic consumption is likely to increase further. Many domestic VC funds are betting big on this theme as they support many home-grown brands in their growth journey. Fireside Ventures, which is a Rs 3,000 crore big fund house, is one such VC fund which has invested in many marquee startups including boAt, MamaEarth, SlurrpFarm, YogaBar, Vahdam, Kapiva and many others.In a conversation with the Bizz Buzz, Dipanjan Basu, Cofounder & Partner at consumption-focussed VC fund, Fireside Ventures said that India will see several large consumer brands in coming years. The company, which invests in pre-series A level, usually invests around Rs 10-Rs 15 crore in a consumer startup initially and scales up in future fund-raising rounds. It has one of the best track records in terms of exits. The VC fund is currently evaluating several consumer brands across the spectrum as it is planning to deploy capital from its third fund. So far, it has deployed capital in around 40 startups, several of which have turn into big consumer brands

What kind of opportunities Fireside Ventures see in the consumption space? Can you throw some light on your evaluation criteria for investing in a startup?

We are seeing a very massive opportunity in front of us, which is playing out to a large extent. It will increase in the coming years. Of course, there is a strong Indian consumption story, which is becoming better.

To invest in the consumption space, one requires expertise. You need to understand what works. At Fireside Ventures, we all come from a background of consumer industry. What we have done over the years is that we have created a playbook or method to decode how a consumer company in India should grow and grow profitably, which is more important. That is what is the differentiator factor between Fireside Ventures as a VC fund versus other firms. One is understanding the brand. We do very deep analysis of where to invest, where the opportunities are emerging, why the product will be adopted and then identify an area for investment. Second is understanding the channels. You have a great brand but where do you sell- online, offline, or omnichannel. There is a method of doing it. We look at goodness in the brand like governance, impact on planet & environment, and right talent. Effectively, we are not investing just for returns, we are investing in building a long-term entity. With such evaluation, we have no doubt that with this formula and if the product is good, these companies will turn into large companies. We have several companies in our portfolio, which we believe that will be very large firms.

Consumption is a very big theme. Can you provide some idea on the big themes within consumption you are focussed on?

We have over a period of time sharpened our views. When we started Fireside Ventures, we took the theme of how Indians look better, live better and eat better. These mega areas still exist. Within these mega themes, newer themes keep getting added. For instance, millennials became a big theme two years back. That’s a consumption class, which is very big and it continues to grow. Now, we have sharpened our themes into themes into India 1, India 2 and India 3. In India 1, taking the house hold income of more than Rs 20 lakh per year, this is the class who are looking for better products and innovations. Health and wellness are the big areas of focus. Compared to the west, there are very few products which are catering to this class. So, several new companies can e built in this space. We are investing to several companies which are serving the needs of this class.

Within India 2, which comprises middle to higher middle class including the Gen Z, value is very important. They are looking for best value for the money. There are several companies, which are catering the requirements of this class. We see several of these companies, which are going to be very big.

So, the myth that if you are not a big company, you can’t establish a consumer brand. Has that myth broken?

Yes, that is completely broken. Because, today there are funds like us, who can give capital. There is social media, where a brand can market its products. There are many distribution channels like several ecommerce sites, where a brand can sell its products. There are also new-age kirana stores that are coming up. Earlier, this ecosystem was not present. But today, the infrastructure is there to support a brand.

Fireside Ventures is an early stage investment fund. How early do you invest in a company? In which stage of the company you invest in a firm?

We are an early stage investment fund. We come in at pre-series A level. We don’t come in at pre-market or pre-revenue stage. If a company is doing a Rs 5-Rs 10 crore of revenue, we look at that startup for investment. Then, we see the product-market fit. We come in at this stage. Butwe keep investing in the company as it scales up. Therefore, though we come in early, we are a long-term partner. Our typical investment size during pre-series A is around Rs 10-Rs 15 crore. If the company is doing well, we end of putting in around Rs 80-Rs 85 crore in it.

Fireside Ventures has invested in Mamaearth, which has gone public recently. Do you still hold stake in the company?

We still hold. We partially exited (during the listing) and hold the rest now.

The fund house has three funds. Can you give some insight on from which fund the investment is getting deployed now? Will you look at floating more funds going ahead?

We have three funds. The first fund is Rs 340 crore fund, the second fund has value of Rs 870 crore and third fund is worth Rs 1,830 crore. We have done 12-13 investments from the third fund. We will do about 25 investments from the third fund. We will continue to do investments from our third fund for next one and half year.

As far as exits are concerned, we are probably one of the best funds in terms of exits. We are a fund house, which look at exits in a very thematic manner. In fact, a very team member is only focussed on the exits. From our first fund, we have done several exits,- both full and partial. As a policy, when a company does well and raises several rounds, we take partial exits. We are also not focussed any one channel for exits. What we do is we wait for 4-5 years for the company to reach a certain stage and then plan our exits. From our second fund, we have not any exits as it is only three years old. So, it is a much planned and well thought-out process. That is a very unique feature of our fund house.