Bengaluru-headquartered Fireside Ventures is betting on India’s evolving consumer story that is being redefined by the country’s large population of millennials.
“The idea is to invest in startups that innovate to cater to the Indian millennial. After all, consumption is getting disrupted from one-shoe-fits-all to different consumers having different consumption patterns and equally different expectations,” said Fireside Ventures founder and managing partner Kanwaljit Singh.
The venture capital firm is currently in advanced talks to raise as much as $100 million for its second fund to invest in early-stage consumer-focused startups. Singh said the second fund will close soon but declined to divulge further details.
A focus on India’s consumer story is not new for Singh, a former Unilever executive. Sensing the opportunity in the space, he launched an exclusive consumer-focused fund in 2016, months after stepping down from a firm he co-founded, Helion Venture Partners.
“Over the years, particularly after 2010, I realized that there was a seminal shift happening in the market, which was being driven by both macro and infrastructural factors led by a dynamic digital ecosystem. And I realized that consumer segment could be an interesting area to pursue from the perspective of a standalone fund,” Singh said in an interview.
Interestingly, for the first Fireside fund that had a corpus of Rs 340 crore, Singh had garnered capital from a slew of investors such as Westbridge Capital, besides a bouquet of family offices including those of Marico chairman Harsh Mariwala and RP-Sanjiv Goenka, and corporates such as Emami, Hero Enterprise Investment Office and ITC. “They all bought into the story that there is something happening at the ground level and they wanted to be a part of it,” added Singh.
Going forward, it is understood that Fireside Ventures is looking to raise capital from both domestic and international investors while a part of the capital could also be pumped in by its existing investors. Recently, the firm made headlines when it raised an ‘undisclosed amount’ from French cosmetics giant L’Oréal for its upcoming fund.
The firm has so far invested in 18 early-stage businesses across the consumer wallet. “As much as 80 per cent of the investible corpus of fund 1 has being deployed … the rest 20 per cent we have reserved for follow-ons,” said Singh.
Edited excerpts of the interview:-
You launched Fireside Ventures in 2016 almost a year after you quit Helion Ventures Partners, to ramp up investments in early-stage startups in the consumer space that innovate for today’s millennial. Could you take us through your journey so far?
I spent my formative years in Unilever. So, somewhere that love for the consumer sector and the understanding of it stayed with me. Over the years, particularly post 2010, I realized that there was a seminal shift happening in the market, which was being driven by both macro and infrastructural factors led by a dynamic digital ecosystem. And I realized that it could be an interesting area to pursue from the perspective of a standalone fund. These were my initial thoughts and I did try to weave in some of those even during my Helion days. It was an interesting era when a few companies set the tone for what was to come. That’s when I realized that the DNA of the consumer brand business is quite different from that of a tech fund or even a tech investment. That drove me to move out of Helion and pursue investments in this segment exclusively.
Interestingly, when I left Helion, I did not set up the fund immediately. I had actually set up a small family office and all through 2015 and 2016, I invested my personal money in the same early-stage millennial consumer segment to demonstrate and convince myself if this is indeed a legitimate sector to invest in.
Given that the consumer segment is directly linked to the economy, how do you see the sector panning out, going forward? The World Bank recently slashed the GDP forecast for India to 6 per cent in FY2020. Do you see that leading to a slowdown in the consumer segment as well?
Well, there are two-three ways to answer this question. The simpler answer is that we are not seeing any impact. That could also be because the brands that we have invested in are still small, targeting affluent, premium consumers. At the basic level, they are all witnessing growth. However, at a deeper level, I must say that consumption is getting disrupted from one-shoe-fits-all to different consumers having different consumption patterns and equally different expectations.
Take Yogabar (that sells protein and energy bars), for instance. It operates in a category that didn’t exist earlier. Today, more and more people are having the urge to get healthier. There is no question on that. Similarly, Mamaearth (babycare products brand) is a company that focuses on a particular consumer segment.
After investing in a slew of startups, I realized that all of them share a common theme – they all cater to the new age millennial consumer. As long as they cater to the particular segment they are targeting, they will continue to grow. This is the phenomenon that describes today’s urban India.
You raised Rs 340 crore in February 2018. How much of that corpus has been invested? Any exits that you have made?
We have assessed over 2,000 companies and evaluated over 400 of them before making 18 investments. The deal pipeline is across the consumer wallet. About 80 per cent of the investible corpus of Fund 1 has been deployed, and the remaining 20 per cent we have reserved for follow-ons.
We have investments in diverse companies catering to the consumer segment such as boAt audio, Vahdam Teas, Design Café, Alpha Vector (Frog Bikes), besides the ones I mentioned earlier. There are many more as well – all of them have witnessed unprecedented growth in a short span of time. In terms of exits, one of Fireside’s early investments, Kwik 24, has been acquired by BigBasket in 2018.
Fireside is a multi-stage investor focused on consumer brands across early growth stages. We invest in pre-Series A and then follow up in Series A. We typically invest about $4-5 million in each portfolio company across pre-series A and Series A levels.
It is understood that you are on the verge of raising another $100 million. L’Oréal recently announced an investment in Fireside Fund II. When is the close likely to happen and who are the LPs that you are talking to?
Yes, we are in the process but I cannot divulge further details with you at the moment.
Currently, your fund has participation from a lot of consumer segment honchos. These include names such as Marico chairman Harsh Mariwala’s family office, Emami, Hero Enterprise Investment Office, ITC, and the RP-Sanjiv Goenka Family Office, besides Westbridge Capital. Given that some of them have their own consumer businesses, is there a conflict of interest? Why would they want to pump in money in companies who could become potential threats for them?
Yes, Harsh Mariwala, Sanjiv Goenka, Emami, ITC and others have invested in our fund but we don’t see a conflict of interest. Marico, RPG Group, ITC, Emami, Hero are conglomerates with diverse interests. At the grassroots level, they view these new-age consumer brands as potential partners rather than competition. As I mentioned earlier, the consumer today is looking for different sensibilities and product choices from their brands which these startups are best suited to fulfill. Established players either take a stake or acquire these brands at the appropriate stages to offer a wider choice to their consumers. At the acquisition stage, they bring in their distribution muscle and decades of experience that helps these brands to grow and scale.
Colgate-Palmolive, for instance, last year bought a 14 per cent stake in Bombay Shaving Company, one of our portfolio companies, which is into men’s grooming products.
How important is the synergy between brick-and-mortar and digital in the consumer segment?
We are living in an age where lines have blurred between brick-and-mortar and digital – they are inevitable touchpoints. New age consumer brands do see digital as a first channel to establish proof of concept, and market fit as the millennial and Gen Z are perpetually digitally connected and have strong viewpoints before purchasing a product. Offline is often part of the next growth phase.
What do you think about the Indian startup ecosystem today? Is too much capital chasing fewer quality startups? Everybody is talking about inflated valuations. Do they bother you?
The Indian startup ecosystem today has evolved and is now inclusive and future-ready. We believe this is a great time to build new age, exciting brands catering to the changing consumer preferences. An investor’s role, too, has evolved over time and so are the evaluation and performance metrics. Venture capitalists are now closely monitoring the profitability metrics like unit economics. Typically, consumer brand startups get valued at 3-5 times their revenue multiples but due to increasing interest from large venture capital funds, there is a growing demand-supply gap in this space. This is leading to a capital overhang at the Series B and later stages, impacting valuations.
Since we are an early-stage investor, this is not a point of concern for us at this time but we are closely watching developments to avoid over capitalising our portfolio companies in subsequent rounds and causing irrational behaviour.