Digital first consumer brands present major investment opportunity

India’s consumption-led economy to lead future growth

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Published: Sun 8 Oct 2023, 10:12 PM

Digital first consumer brands/companies/start ups (D2C ) is a massive opportunity in India today. India is a consumption led economy with over 200 million online shoppers and over 700 million smartphone users. With a young population and a median age of a consumer being 28 years, Indian consumers are looking for innovative products and services across food, beverages, beauty, health products and solutions, lifestyle, home and fashion.

“New age Digital first start ups are able to identify these white spaces, being digital native, they are able to capture consumer insights and data on consumer choices and launch products. These are therefore fast growing companies and are great investing opportunities,” Dipanjan Basu, Cofounder and Partner, Fireside Ventures, told Khaleej Times in an interview.

“We have invested over 40 such companies over the last 6 years and are early backers of successful and large brands like Mamaearth ( Beauty and Personal care), boAt ( Audio and Wearables), The Ayurveda Experience ( Online Ayurveda based BPC for the world), The Sleep Company ( Innovation led Sleep tech brand), Traya ( Tech led Hair growth solution), Pilgrim ( Global beauty regimes focused personal care brand) and many more,” Basu added.

Excerpts from the interview

What are the key areas that one should focus on in D2C investing?

At Fireside Ventures, our experience in investing 40+ of such disruptive companies is that the Founders who identify white spaces and gaps in the market and use deep consumer insight to build a brand are very successful. While they build the same, they continuously innovate in marketing and channels to make sure they reach a large number of consumers. So a combination of a strong brand with deep consumer insight along with channel disruption is a key to scale.

For instance, with Mamaearth, the key white space was natural and organic personal care products for babies and their mothers. India lacked a good clean label personal care brand. The channel of being online first was also disruptive as they could harness consumer insights better. Mamaearth built its strength by understanding online scaling playbook working with Facebook, Google, Amazon, Flipkart, BigBasket game and created an amazing brand with products that consumers love. They have one of the highest repeat customers in the Industry and their product launch cycles based on Consumer insights are best in class.

Dipanjan Basu, Cofounder and Partner, Fireside Ventures

Similarly, when you look at Gynoveda, a women health and hygiene brand, their insight came from women who were looking for solutions online for their period and reproductive health. The TAM for women who searched for general menstrual advice was huge, but there is a subsegment of women who needed specific solutions on their menstruation, period and related problems. It allowed Gynoveda to have a very sharp focus. Some key learnings in D2C investing is to keep a track of evolving customer needs, it is necessary to keep innovating to find the right product-market fit. Entrepreneurs have to adapt to the changing preferences of consumers, who are increasingly judging brands by their environmental and social impact. The demand for responsible consumption will only grow faster in the future

What is the outlook for the sector?

The Consumer opportunity in India is big. With a GDP of ~$5-6Trillion in the next 5 years and with over 500M+ online shoppers, it will be one of the largest consumer markets in the world.

Digital retail infrastructure continues to expand with focus on building strong UPI based payment infrastructure. India does more than $10Bn of monthly digital financial transactions, the highest in the world. With the onset of ONDC, an online digital retail infrastructure, many new companies will find their market fit faster. We are seeing new consumption class like the GenZs emerging on one hand and mega trends like health and wellness continue to get bigger. Focus conscious consumption and environment friendly brands will feature a lot in consumer choices. Virtual living is also becoming more mainstream and sectors like gaming and entertainment are fast emerging.

India is a market of markets. India has 3 distinct markets. India 1 is the top 25-30 cities with a population of over a million, potentially the top metros and the larger state capitals and cities. The maturity of the online shoppers have gone up. There are a lot of offline malls and offline expansion happening. It is about experience and innovation. India 2 are the next 150-200 cities with less than a million population. These are the places which have very high aspirations, but the access is constrained. There are different vertically focused online businesses being built. India 3 is more rural, where infrastructure is getting built.In the next 10 years, India’s consumer story will play out in deepening in these three modes and that’s where we are focused. Besides millennials, now a large part of consumption is also driven by Gen Z’s, which is 18 to 24 year olds. For example, the whole focus on sustainability and conscious consumption is actually driven by young Indians who are looking for those good-for-you propositions.

What are the company’s next funding plans?

The Funding environment for such companies have matured over the years. We have raised 3 funds and have a total of $400M to invest in such digital first disruptive companies. Most of these companies are also capital efficient and profitable by nature. As early stage investors we come in at Pre-series A/Series A stage and continue to double down and back these companies till Series B/C. We also co-invest with our LPs and have built an ecosystem of top tier late stage Investors so that Funding to these companies continue till late stage. We have ambitious plans to continue with our focused strategy and will be raising more funds in the future to be able to back the large Consumption economy of India.

Will you be entering the Middle East market? If so, any details?

Several of our Companies see the Middle East as a focussed market for their expansion. Most of the brands provide solutions to problems which are common globally. Brands such as Mamearth, Slurrp Farm and Kapiva have already started their journey in the Middle east. We have seen brands such as ID fresh becoming a large business in the region including setting up manufacturing facilities. As these companies chart their next phase of growth, Middle East will become a meaningful part of their strategy.