Top investors like Sequoia Capital India, Verlinvest and Elevation Capital are doubling down on their bets on direct-to-consumer (D2C) brands. These are products that are first launched through e-commerce channels, leveraging social media and technology, and later their distribution is built offline as they scale.
The rising investor interest in the space comes as D2C brands across sectors like fashion, beauty & personal care, food & beverages and electronics are expected to become a $100-billion business in India by 2025, according to a recent report by Avendus Capital. Elevation Capital, which was till recently known as SAIF Partners, is in talks to back cosmetics brand Sugar with a cheque of $10-15 million. Additionally, it is also finalising a $14-million investment in Country Delight, a milk products brand, said three sources briefed on the matter.
At the same time, Sequoia is increasing its stake in two of its companies — home products maker Wakefit, and skincare brand Mamaearth, added the sources. It is in talks to lead a round of $30-40 million in Wakefit, which started with mattresses and now has products across home furniture category, after first backing it in late 2018. Wakefit’s valuation is expected to jump over 10 times in two years to over $300 million, said a source briefed on the discussions.
Mamaearth, which counts actor Shilpa Shetty as a shareholder and brand ambassador, is talking with angel investors and employees to buy their shares in a transaction pegged at $20 million. Sequoia had invested in the company in January at a $100-million valuation. But the value being discussed for the new round is about $270 million, the sources said mentioned earlier. Verlinvest, the holding company of owners of global beverages giant Anheuser-Busch InBev, is also in talks to pick up shares in Mamaearth, said another source familiar with the discussions.
What is driving investor interest is that these brands have continued to scale up despite the lockdown. For instance, Mamaearth was at a Rs 100-crore annualised revenue run rate (ARR) in January, which now stands at over Rs 360 crore, said two sources familiar with the details.
“We closed the year FY20 at around Rs 200 crore and have taken up a target of Rs 450-500 crore for FY21. Our monthly revenue run rate is 100% more than pre-Covid numbers as customers realise the benefits of e-commerce beyond discounts,” said Wakefit founder Chaitanya Ramalingegowda in reply to TOI’s queries. He confirmed that the five-year-old startup is raising capital, but declined to comment on the investor or valuation.
Sugar Cosmetic’s co-founder & CEO Vineeta Singh confirmed that the startup is raising a $20-million series-C round, but declined to comment on specific details. The startup announced $2-million debt-funding from Stride Ventures as part of the new round on Wednesday. Queries sent to Country Delight and Elevation Capital did not elicit a response till the time of going to the press, while Mamaearth and Sequoia Capital declined to comment.
D2C brands have been able to scale up faster. For instance, while Revlon and Lotus Herbals took 20 and 19 years, respectively, to scale to Rs 100 crore in revenues, players like Mamaearth and Sugar have reached the number in three and four years, respectively, according to the report from Avendus.
“D2C brands are characterised by their agile DNA, innovative marketing, efficient operational processes and effective use of technology. With access to customer data, D2C brands leverage consumption insights, work on a feedback-led model and rapidly develop products to ensure that the evolving customer needs are addressed,” said the report.