Bengaluru-based Fireside Ventures is one of the few venture capital firms that focus solely on consumer brand startups in the world’s second most populous country. Founded in 2017, the early-stage VC has backed over 20 homegrown brands to date, writing checks to the tune of USD 1–2 million.
Fireside’s portfolio companies include skincare product firm MamaEarth, audio device maker Boat, online tea brand Vahdam Teas, food and beverage startup Samosa Singh, ayurvedic healthcare and wellness startup Kapiva, and kids-focused health food brand Slurrp Farm.
“We come in very early on in the life of a company. Our fund has a ten-year lifecycle, so we are happy to stay invested for a fairly long time,” VS Kannan Sitaram, venture partner at Fireside Ventures, told KrASIA in an interview. This fits well with the firm’s broader strategy as it expects high-income households in India to triple to 30 million by 2030.
Fireside Ventures’ first fund of nearly USD 50 million was backed by major family offices, including Premji Invest and Mariwala Family Office, as well as FMCG firms like Unilever Ventures, Emami, and ITC. Currently, the company is raising its second fund with a target corpus of USD 100–125 million.
Sitaram notes the broader investor community is much more interested in the consumer space now, with direct-to-consumer brands becoming mainstream. This year, Fireside is looking to invest in four to six new brands, aside from participating in the follow-on rounds of companies that are already in its portfolio.
This interview has been edited for brevity and clarity.
KrASIA (Kr): Why did you choose to focus entirely on consumer brands?
Kannan Sitaram (KS): All the partners in Fireside come from a strong consumer background. We have spent time in the consumer businesses, managing brands and running sales forces. We believe there is a huge opportunity, developing in the area of consumption in India on the back of the changing demographics.
Over the last decade, there has been a significant increase in the number of high-income households. These are the people at the top of the pyramid, but we are not talking about those who run big industrial empires. These are the households with an income of at least USD 40,000 per annum. In terms of purchase parity, it is like the American middle class. We think what is emerging in India now is the real American middle class.
Eight to ten years ago, India had roughly 1 million such households. Today, this has gone up to 9 million households. To put this number in perspective, 9 million households would typically mean 36–40 million people, which is the population of many significantly sized European countries.
There is a lot of consumption power building at the top of the pyramid. Our core focus is to invest in brands that solve issues for these top-tier consumers. We expect this segment to have about 30 million households over the next decade, with a higher propensity for consumption than other segments, and with needs that are not being met by the existing mass-market brands. This excites us because the segment will have a different kind of consumption behavior.
Kr: What are the major consumption themes that you are betting on?
KS: We are looking at categories that appeal to top-tier consumers. If you look at the consumption power and preferences of high-income households, these consumers actually want very different things than people in the middle-income group.
For instance, when it comes to food, they are not just looking for convenience, they are looking for clean labels and things that are good for their families. Eating consciously is very important for these consumers. For instance, they prefer brown rice over white rice. When they indulge, they spend money on the best products.
Similarly, in personal care, they prefer products that are safe to use and are free from potentially harmful chemicals. For them, personal care is not just about applying a lotion or a cream, but about products that they think are more natural, more organic, do not have preservatives, and are not likely to cause any allergies.
They are also very competitive when it comes to their children, so from very early days, they are willing to invest in their children to ensure that they go to the best universities in the world. Health is another important area. These consumers want to take care of themselves so that they remain fit and healthy.
We back startups that play in these areas and help them grow. These are the brands that engage with consumers through digital media and are e-commerce friendly. There is going to be a lot more startup activity in this space because the big companies are going after the mass market and not thinking about this consumer segment.
Kr: Most consumer brands were hit by COVID-19. How did the pandemic affect your portfolio companies?
KS: For us, the brands fell into three buckets. The first one includes companies that did very well and whose revenue increased multifold from pre-lockdown to post-lockdown. Another bucket was brands that, after the lockdown, picked up where they had left off and saw no serious upside or downside. The third bucket was of brands whose business models were challenged by COVID-19, and they had to change their business models or the products they were offering.
Some of our brands like MamaEarth and Yogabar have done really well after the lockdown was lifted. Yogabar is about healthy eating without giving up taste, and there is a big shift toward that. MamaEarth offers skincare products that are made safe to use. Similarly, AlphaVector, which makes recreational bicycles under the brand name Frog, is seeing its products fly off the shelves because people can’t go to gyms, and bicycles have really benefitted from that.
Then there were brands that had to change their offerings. For example, FableStreet is one of our brands which is in women’s workwear. Since everyone shifted to working from home, they changed their whole collection of clothes that women can wear at home while working. Now their business has started doing very well because they are catering to a new set of consumer requirements. Sarva, which operates yoga studios, moved to an online model and is now getting a lot of traction.
Kr: What is your outlook for consumer brand startups in 2021?
KS: There are macro concerns about GDP growth. Even if 2021 has a positive GDP growth, it is projected that it would take India to where it was in 2019, because of the negative growth in 2020. That is not really growth over the year ending March 2020.
Despite the larger picture, we are bullish about this space because we do not sell big-ticket items. Our companies are selling products which are for everyday consumption. While there is uncertainty regarding consumers, with a lot of people wondering whether they will have their jobs and income, we think there is money to be spared when it comes to everyday consumption.
Earlier, consumers spent money on vacations or eating out, or other similar things. But now people are not able to do all of that, so they want to spend a little bit more on looking after themselves. For instance, in food items, people are buying better quality food products. When they are eating at home, they want to eat something better. So there is a bit of indulgent behavior. Therefore, we think the surge in demand we saw post-lockdown is not going to go back to pre-COVID levels.