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How a handful of consumer brands startups turned into investor magnets

In the last five years, brands like iD, Chai Point, Bira91, Paper Boat, Epigamia and Go Colors have been central to the startup culture in India.

Feb 12, 2019 by Avanish Tiwary
How a handful of consumer brands startups turned into investor magnets

In 2005, PC Musthafa and his cousins started selling packaged idli and dosa (South Indian staples) batter to retail outlets.

“We thought it would take six months to sell 100 packets per day. For the first nine months 90 packets would come back unsold. People were not willing to buy packaged batter. But once we were able to sell 100 packets a day it gave us the confidence to expand,” said PC Musthafa, co-founder, iD Fresh Food.

Today, iD sells one million packets of idli and dosa batter a day, claimed Musthafa. The brand has become a household name in South India with 10 different products. Musthafa said the company’s revenue projections for this fiscal year is Rs 220 crore while next year, iD is looking at an 80 crore leap.

In the last five years, brands like iD, Chai Point, Bira91, Paper Boat, Epigamia, Wildcraft and Go Colors have been central to the startup culture in India.

Indian consumers are indeed gravitating towards forward-looking brands over established names like Dabur, ITC, Café Coffee Day, Kingfisher, etc. The breakout success of Bengaluru-based Paper Boat selling traditional Indian beverages including aam panna (tangy raw mango juice), chilli guava, rose tamarind, etc. forced Dabur, Pepsi and ITC to toe the line.

Harish Bijoor, brand consultant and analyst, believes the likes of Dabur and HUL are slightly threatened by the up and comers.

“It is a David vs Goliath play and we see this kind of war every 20-30 years. Right now we are seeing the Goliath market to be picking up, which is why Davids are pushing their game. You have Dabur launching a traditional drinks line, Colgate Palmolive rolling out ayurvedic toothpaste and HUL replicating Patanjali’s offerings,” Bijoor said.

Health is wealth

Industry experts who The Passage spoke to think the Indian consumers have developed a taste for “healthy food and pro-environment revolution” in the last decade. People now prefer organic milk over regular milk and would pick craft beer over the mass-produced, bottled up beer any day. Organic and ecofriendly products with a tinge of nostalgia and habit-forming effects seem the recipe of success for the times.

When iD started out, ready to cook batter for idli and dosa was practically unheard of. But with time, the preferences have changed. Musthafa said people are now more health conscious and at the same time, seek convenience and variety.

“There are two types of currency - money and time. High disposable income also meant people don’t have enough time. Now, everyone is after products that can save time, energy, water etc. Innovative products in these spaces are primed for growth,” Bijoor said.

According to Musthafa, the emerging consumption patterns have contributed to iD’s growth. This year, the company is set to launch three idli versions made of multigrain, wheat and oats.

“As people are getting more health conscious, selling idlis have become easier. This is the most nutritious food in the world as recommended by World Health Organisation,” Musthafa said.

Chai Point founder Amuleek Singh chalks up the triumph of his company to the changing sensibility of its target audience—white collar employees.

“We kept our nose to the ground and figured out early in our journey that consumer sensibility is changing quickly. We noticed people are now less compromising on hygiene and prefer things that are Indian and not western products,” Singh said.

According to him, brands such as Fab India, Paper Boat, etc owe their success to this trend.

“The customer will choose you on the basis of quality and consistency. Of course, you have to innovate regularly, but without consistent quality building a consumer brand will be tough,” said the founder of India’s largest tea retail chain.

Paradigm shift

In 2011, Musthafa was having sleepless nights as he was unable to pay his employees. No one wanted to invest in iD.

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“Ours was not a fancy business. No one was willing to fund it and people didn’t understand the value consumer brands could create in those days. I started approaching VCs around 2010-11 and it took me around four years to convince them. They told me this is not the business they want to get into as it’s not scalable and we can’t make a profitable business out of this model,” Musthafa said.

Later, iD raised USD 5 million (Rs 35 crore) from Helion Ventures in Series A round in 2014 and subsequently USD 25 million from Premji Invest in 2017.

Singh of Chai Point said he is happy he picked up a category with a pan-Indian appeal.

“At that point of time everybody was still focused on technology and tea selling wasn’t fashionable. No VC would look at us. Everyone was focused on mobile, e-commerce, logistics, etc,” Singh said.

He said he was lucky to have found a few angels who believed in Chai Point. In 2015, Chai Point had raised the first and second round of institutional money from Eight Road Ventures, Saama Capital among others.

In 2018, Chai Point raised fund from Paragon Partners and existing investors—Saama Capital, DSG Consumer Partners and Eight Roads Ventures in a Series C round.

“Since then, at least, from capital stand point, the challenges are less tough,” Singh said.

An investor who put money in brands such as Bira 91 and organic meat delivery brand Licious told The Passage that although consumer brands is a massive and interesting space, they are nowhere close to what consumer internet is today.

“I am learning about this space now and waiting for companies that could do massively well and create significant value for investors. I don’t think they are there yet, but there are enough signs to prove they will soon,” the investor said, on condition of anonymity.

Industry insiders think consumer brands are safe investments as the consumer internet space is maturing. VC funds have traditionally poured money into B2C, B2B, SaaS, logistics. Now consumer brands is the new black.

Musthafa said the investors mindset have changed on account of tech space getting saturated and the success companies like iD, Epigamia and Paperboat.

“Back in the days, I was having sleepless nights as I wasn’t able to pay salaries. Now I am having sleepless nights because all VCs are behind me,” he said.

Avanish Tiwary

Avanish Tiwary is a Bangalore-based tech journalist. He focuses on emerging Indian startups and unicorns. He can be reached at avanish.tiwary@thepassage.cc.

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