Funding the not-so-tech startups

Chitra Narayanan | Updated on May 04, 2018

Scouting for promising prospects (L-R) Kannan Sitaram, Vinay Singh, Kanwaljit Singh

Fireside Ventures is investing in enterprises catering to the young consumer’s hunger for clean products


The world of startups in India has been quite focused on tech – from pure tech to health tech to fintech and travel tech to deep tech (AI). But a new emerging trend is entrepreneurs foraying into consumer packaged goods (CPG). Not surprisingly, incubators and funds focused purely on CPG are emerging. Early-stage venture fund Fireside Ventures, which recently closed its first fund with a corpus of ₹340 crore, for instance, is only looking at consumer brands. With three former Hindustan Unilever executives – Kanwaljit Singh, VS Kannan Sitaram and Vinay Singh – helming the fund, the focus on consumer brands is understandable. Its investors include Unilever Ventures, Mariwala family office, RP-Sanjiv Goenka group, Emami Ltd and Premji Invest. The fund aims to invest in about 25-30 brands, and already has a robust portfolio of 12 CPG startups. Incidentally, the twelfth one, boAt, was announced yesterday. Fireside Ventures has pumped in ₹6 crore into boAt, a lifestyle electronics brand with products such as earphones, headphones, speakers and travel chargers. Till now, the fund has invested in Yoga Bar, Samosa Singh, Goodness Beverages, Design Café, Bombay Shaving Company, Mama Earth, Vahdam Teas, Kwik 24, Magic Crate, Pipa Bella and Frog Bikes.

Edited excerpts from a freewheeling conversation with the three partners:

Why specifically a separate fund for CPG? Do you think the market is ready?

Kanwaljit Singh: In my previous role at Helion Ventures (as co-founder and senior managing director) we backed a few FMCG ventures too but discovered it was not the right investing model. The DNA of a consumer company and the way it is built is so different from a tech firm that it requires a different matrix. ((As an individual investor Kanwaljit Singh has earlier invested in Hector Beverages (Paper Boat) and Hokey Pokey among other consumer brands.)

As to the timing – the three or four building blocks needed to create new consumer brands are all there now. First is the new consuming class. Millennials are ready to embrace new niches. Their aspirations and needs are different – creating gaps the big brands are not addressing. Not because they don’t want to or have got blind-sided. But their growth priorities and strategies are quite different. Besides, they can always acquire a brand in a new category.

Starting a brand and taking it from zero to ₹100 crore is tough. The big players are good at taking it from ₹100 crore to ₹500 crore and more. Of course, you need nimbleness also to launch brands in white spaces or boutique areas. Take Greek yoghurt. Globally it is a beautifully established category. Most big players here have a product internationally but it took an Epigamia to grab this space.

Second, infrastructure is now amenable to young brands. E-commerce and self-service supermarket formats make it easier for young brands to get access to their consumers. Third is the unitisation of media on digital – social media has opened up space for young brands to communicate directly with consumers.

A combination of all these factors led us to believe it’s the perfect time now. That was the genesis of the fund.

Can you give a sense of the activity in the CPG space? How many startups are pitching to you?

Vinay Singh: We have seen more than 550 companies in the CPG space across categories such as home and furnishing, apparel, food and beverage, and personal care. There are a whole range of interesting startups in women’s accessories. Kids and education is emerging as a large sub-category.

Sitaram: A large trend we are seeing is entrepreneurs trying to meet the demand for a clean label. Consumers want safe, natural products. The sensibility of entrepreneurs and consumers today is that they are more aware and worry about side-effects. Take Mama Earth in our portfolio. One of their successful products is a mosquito repellent for babies. It’s a blindingly obvious product when you think of it. People want safe applications for their babies. Mama Earth’s sprays are all certified globally.

How have you picked your portfolio? Any themes?

Vinay Singh: As Kannan said, clean labels is an emerging theme. Healthy, organic, natural are the buzzwords. Yoga Bar and Goodness Beverages and Mama Earth all fit there. Kids and education is another category that is buzzing. Frog Bikes and Mama Earth are in that.

The other set of investments are in pure indulgence brands. With more income, millennials have higher discretionary spends and tend to indulge themselves more. Pipa Bella, Samosa Singh (it offers 18 different types of samosas) are such brands.

Is there an undue focus on millennials?

Kanwaljit: Millennials are a fairly established category. Their numbers are large. And their willingness to experiment is exciting. But we are not boxing it into one frame. Pipa Bella will appeal to even 40-year-olds. However, as a target segment, millennials will be our core focus.

Sitaram: Capital chases entrepreneurs. Right now we are getting entrepreneurs who are a little older than millennials and are looking at making products for the millennials. That equation may change. My estimate is that currently millennials and Gen Z are two per cent of India’s population. But they will soon be 6 per cent. What’s a 25 million audience today will be a 100 million in a few years. So it’s huge.

What’s your entrepreneur profile?

Kannan: At least 50 per cent of our entrepreneurs are women. Even when we look at our pipeline there are a lot of women setting up consumer brands. (Mama Earth, Design Café, Samosa Singh and Goodness Beverages are led by couples, while Yoga Bar and Pipa Bella have only women founders.)

Kanwaljit: There is a certain logic to it. When we were in Levers, we used to have this phrase – “Kavita from Kanpur, middle-class woman, two kids, is our target”.

In almost all the categories we deal with, women are big influencers of shopping decisions.

So, women entrepreneurs getting into these categories is not that surprising. They have a unique intuition about what consumers want. Our confidence in backing them also comes from that.

Vinay Singh: Many of these girls are getting consumer insights from their own life experiences. How they have seen things happening around them.

That insight leads to long-term differentiation.

Why did you choose to invest early stage? Is exiting easier?

Kanwaljit: We actually are a multi-stage investor, I would say, though mostly in the early part of the venture’s life cycle. We could look for companies that want as low as ₹1 crore, and are just getting off the ground, or need a larger growth capital. Our belief is we can help them at the growth stage, and our strategy is not to write big fat cheques.

Regarding exits – it's not the stage that matters. But exiting consumer brands is an easier proposition for two important reasons. First, large corporates are looking for these kinds of acquisitions. Second, private equity is a very big investor in consumer space. If you look at TPG, Premji Invest, they are always looking for large ownerships. As these startups are not looking for large capital to manage their burn there is opportunity for other investors to sell out to private equity. We can easily exit in three or four years, but there are also situations where we don’t want to exit. Our fund life is ten years.

Published on May 03, 2018

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