Live Markets »News & Advice»Market News»Market News Details
Market News Details
Back

VCs, PE firms bet big on packaged consumer goods, park $676 mn in 2018

Ranju Sarkar/New Delhi 15 May 19 | 07:41 PM

Venture capital firm A91 Partners, an offshoot of Sequoia Capital, is in talks to lead a $30 million funding in Hector Beverages, which sells Paper Boat brand of ethnic Indian drinks. The deal could value Hector at $200 million.

In the last few years, several private equity and venture capital (VC) firms have invested in consumer packaged goods (CPG) companies and brands such as Hector Beverages, Raw Pressery, Epigamia, Fingerlix, Nykaa, Bira 91, Veeba Foods, Kapiva Ayurveda, to name a few.

Related Stories

    No Related Stories Found
Widgets Magazine

In the last 16 months alone (starting January 2018), VCs and angel investors have backed over 80 CPG firms, pumping $360 million, reveals data compiled by Tracxn. Since 2015, VCs have pumped in over $1.18 billion across 323 deals — few start-ups have raised two or three rounds.

According to another estimate from Venture Intelligence, 2018 saw PE and VC firms investing $676 million in CPG firms across 38 deals, almost twice of what they invested in 2017. This includes investment by PE firms and other large investors and hence the estimates vary. 

What's driving investors into consumer space? "Many of these businesses have real revenues, lower risks and are less capital intensive as customer acquisition does not need to happen in millions," says Madhukar Sinha, partner, India Quotient, an early-stage VC firm. For others, like Ash Lilani, partner, Saama Capital, which has been investing in the consumer space since 2006, it is an opportunity to build a brand in an all-new category. 

Along with DSG Consumer Partners, Saama was an early investor in Sula Wines which created and leads the category in India. With globalisation, there’s greater awareness among consumers on global products, says Lilani. 

Kanwaljit Singh, managing partner at Fireside Ventures believes this is a unique point in history which will see the emergence of 100s of new brands in the Indian market. ‘‘Several macro trends are enabling this secular trend which will surely continue for several decades.''

The first and most important trend is the changing consumer profile. India is a country of young consumers. The millennials and GenZ have greater exposure to global trends, are digitally connected and have different aspirations from brands and products they consume. 

‘‘Traditionally India has been a very large consumption market but with very few brands. So we see white spaces for new brands across the spectrum of the consumer wallet spend,'' says Singh. 

Two, the rapid evolution of the infrastructure to build brands, especially the digital universe. The ability to access consumers through social media, bloggers and influencers etc and do a more targeted and personalised brand engagement is allowing new brands to sharply target and connect with consumers. Supermarket have made it easier for consumers to discover and trial of new brands. 

The consequent of these trends and the delayed success of brands such as Paper Boat, Fogg, Epigamia, Licious has led to a significant rise in entrepreneurship in the consumer brand space both in terms of quantity and quality. Fireside, for instance, has seen over 1500 investment opportunities in the last 2 years.  ‘‘We are seeing brands being built faster and with lesser capital than say a decade ago,'' says Singh, who earlier led deals in consumer space at Helion Ventures.

Finally, the exit-ability and market valuations of consumer brands is attracting a lot of investor interest. Large strategics interest to invest in / acquire young exciting brands is also becoming stronger in recent times (HUL acquired Indulekha, Emami acquired Kesh King, Marico acquired 45 per stake in Beardo). The stock markets have been very bullish on consumer brands — IPO of TCNS Clothing (brand W) was over-subscribed 5.25 times.

Investors need to have a long term approach. ‘‘You need to look at long term categories, and not short term revenues. Build a category over 20 years — good products, packaging, premium positioning,’’ says Lilani.  

Widgets Magazine

Sensex

Company Price Gain (%)
NTPC129.852.20
Coal India221.950.68
TCS2,076.950.55
O N G C144.100.42
Power Grid Corpn205.900.27

Poll

Currently No Poll Available.

Online Portfolio

You can create Online Portfolio here using the below button.

Widgets Magazine