Fireside Ventures: Stoking the retail surge

 
Like it was for Harland David Sanders, who founded Kentucky Fried Chicken at 61, or Bernie Marcus who took to entrepreneurship with The Home Depot at 51, age is just a number for Kanwaljit Singh, who started a ₹300-crore fund, Fireside Ventures, at 52. For a man with three decades of a professional career behind him—the first half as a marketer at Hindustan Lever (now Hindustan Unilever) and Intel Corp, and the next as an investor in early stage startups—Singh shows no signs of slowing down, at an age when many contemplate retirement.

If that was not enough, Singh, unlike most of his peers, is not chasing technology startups but is devoted to building consumer brands. “For every five large chains, there are 50 local retailers like [the Bengaluru-based supermarket chain] MK Retail,” says Singh, founder, Fireside Ventures. “The fact that a consumer can walk into an aisle and touch and feel a product is a huge positive for new brands waiting to be discovered.”

Singh’s focus on consumer brands is not misplaced: India’s retail industry is poised to grow by 12-14 percent annually to $1,150 billion by 2020, from $672 billion in 2016, says a June report by CARE Ratings.

Macroeconomic factors also hint at a similar surge. For instance, between FY12 and FY17, India’s per capita disposable income surged by 62 percent to ₹1,19,296.

Riding this wave are retailers such as Future Retail, Avenue Supermarts, Aditya Birla Retail and Reliance Retail, which are expanding their footprint (among them, the four companies operate 5,050 stores, says the CARE report). And local stores are adopting the supermarket model to hold fort against bigger players, resulting in a plethora of city-specific supermarket chains with five to 10 stores each. Adding to this are 100 million online shoppers (according to Assocham estimates), on an ever-expanding list of online retail platforms.

Singh first earned his stripes as an investor during a six-month stint in 2000 at the now defunct venture capital firm At India, founded by PepsiCo India veteran Ramesh Vangal, which invested in value-added services startup OnMobile and internet services company Purple Yogi. Next was a four-year stint between 2001 and 2005 at the venture capital arm of The Carlyle Group, where Singh backed LearningMate, Sharekhan and Educomp, among other ventures.

In 2005, he quit Carlyle when the management decided to shift it to private equity, foregoing early stage deals in favour of writing larger cheques. “It is not very well known that I had decided to raise an early stage fund after quitting Carlyle. I called it Sunrise Capital. The idea was to raise $25 million, but I would have started with even a smaller amount,” says Singh, laughing.

“I was simultaneously discussing a fund with Ashish [Gupta, former Amazon executive] and Sanjeev [Aggarwal, founder of Daksh, a BPO which he sold to IBM] and Rahul [Chandra, former Walden International executive], and eventually decided to work with them,” says Singh, recalling the beginning of Helion Venture Partners, which the quartet co-founded in 2005.

Around 2014, in the run-up to their fourth fund raising, the team at Helion wanted to focus on technology. Singh, however, wanted the focus to be as much on consumer product companies.

Singh quit his first venture Helion when it began to focus mostly on tech firms

“Honestly, at Helion, we could never really build an internal consensus around the consumer space, despite the work we were doing to build an investment thesis [around consumer brands]. When we started talking about the next fund, the general consensus was, ‘Let us not confuse our investors, and focus on pure technology play’,” says Singh.

The other partners, however, had their reasons to be bullish on technology startups. The ecommerce wave had hit Indian shores, and Helion’s portfolio featured MakeMyTrip and redBus, two early ventures that fetched handsome returns for investors, apart from promising ones likes TaxiForSure (later acquired by Ola), Babyoye (acquired by Mahindra retail), ngpay (sold to Flipkart), BigBasket and ShopClues.

These investments had outshone offline bets like restaurant chain Mast Kalandar or beauty chain YLG Salon. Singh says that between 2013 and 2014, Helion passed on investment opportunities in 50-odd consumer product companies, including outdoor equipment maker Wildcraft and dairy startup Milk Mantra, which operates the Milky Moo brand. Both these brands turned out to be successful ventures: Wildcraft currently has a revenue run-rate of about ₹500 crore, while Milk Mantra has raised more than $25 million in funding.

It had seemed that technology could do no wrong. “One of the reasons [why most VCs didn’t invest in consumer companies] was that their background was very technology-driven. A consumer company is a different animal and it requires a different skill set, not just to evaluate, but also to add value,” says Ash Lilani, managing partner at Saama Capital. “Secondly, there was a perception that technology companies will yield greater financial returns.” By the winter of 2014, Singh had convinced himself to part ways with Helion and left the firm next March.

Fireside Ventures, started in 2015, wasn’t meant to be a venture capital fund. “I did not have any desire to raise another fund. The whole idea was that Fireside would be my own money, you can call it family office or angel investing, and a one-man show,” explains Singh. “But I did not want to do this as my side job. I would work with startups as if I was running an institutional fund, which meant I would be actively engaged, take board seats, etc.”

Over the next 18 months, Singh invested between ₹25 lakh and ₹1 crore in early-stage funding of 20-odd startups, including protein bar manufacturer SproutLife Foods, lingerie startup Buttercups, Vahdam Teas, meat etailer Licious, rural ecommerce enabler Storeking and fashion startup FableStreet.

In 2015 and 2016, the rah-rah days of consumer internet were drawing to a close, with investors, wary of the lack of exits, tightening their purse strings. But this was also the time when some of Sequoia Capital’s and Matrix Partners’ early bets on consumer brands yielded good results: In 2016, Matrix scored a multi-bagger by selling its stake in TCNS Clothing, which owns womenswear brand W; Sequoia Capital hit a home run with Prataap Snacks, which listed on the bourses this September, and Genesis Colors, which owns the Satya Paul label, gearing up for a ₹650-crore IPO.

This apart, buyouts were picking up. For instance, in 2014, European dairy company Lactalis Group bought Hyderabad-based Tirumala Milk Products for about $300 million, and ITC picked up juice maker Balan Natural Foods for about $15 million, while in 2015 Emami Ltd spent $260 million on Kesh King, and HUL bought Indulekha for about $55 million. More recently, in 2017, Marico picked up a 45 percent stake in men’s grooming company Beardo.

These were reasons enough for some of the larger funds to reconsider investing in consumer products. As many as 321 consumer product companies were founded between 2015 and 2017, with investors pumping in about $609 million into the segment in the last three years, according to data from research firm Tracxn. While Sequoia Capital, Saama Capital, DSG Consumer Partners and Fireside Ventures are known to wear their love for the segment on their sleeves, technology-focussed fund Accel Partners was the latest to jump into the bandwagon, leading a $7 million round in Maverix Platforms, which owns the Fingerlix brand.

A buoyant market also prompted Singh to rethink his approach to investment. Angel investment had its own constraints. Singh would struggle to protect his stake in the company—where he would cut the first cheque—in subsequent funding rounds. Also, being a one-man army, he would stretch himself a little too thin to advise his investees. “The trigger to start a fund actually came from Rahul [Garg] at PremjiInvest. He kept telling me, ‘Why don’t you raise a fund?’ The logic was, there has to be an umbrella structure. To build an ecosystem, I would need a team and network,” says Singh. “The other person was William Bessel, [founder] of Fabindia. He kept telling me that India needs brand builders.”

Garg says a consumer-focussed fund was the need of the hour. “Consumer companies got stuck between angels and PE firms. There wasn’t anybody to fund them in between, for them to grow and become a lucrative proposition for PEs. The truth is, if a company survives for three years and clocks annual revenues of $2-3 million, there is enough money chasing them,” says Garg, partner at PremjiInvest. “There was a gap in the market for that kind of an investor and Kanwal [Singh] could fill in that void,” he adds.

But when, in early 2017, Singh formally hit the road to raise funds for Fireside, things initially did not go according to plan. “I had reached out to some of the investors in Helion, who were our global limited partners. Very quickly, I realised that the concept of early-stage consumer brands, the whole notion of non-technology in India, is still a little less understood in the global context,” he says.

But domestic investors, who dabbled in this segment, showed no such reservations. Today, Fireside Ventures is on the last leg of its fund raising. Limited partners feature PremjiInvest, Mariwala Family Office, WestBridge Capital, RP-Sanjiv Goenka Group and Emami.

Singh has his plan in place. Fireside aims to follow the ‘1-4-20’ strategy, where the fund will initially invest ₹1 crore in startups to help them scope the market, about ₹4 crore next to expand and subsequently participate in another follow-on round of about ₹20 crore to protect its stake in the company. So far, the fund has invested in eight companies, including Mamaearth and Bombay Shaving Company.

VS Kannan Sitaram, a former HUL and Dabur executive, has joined Fireside as venture partner. Harsh Mariwala, CMD of Marico Ltd, and Amit Agarwal, country manager at Amazon India and global senior vice president at Amazon Inc, have offered to mentor Fireside’s portfolios as an advisor.
With a sizeable corpus, and a four-member team in place, Singh is hopeful of unearthing gems such as Hector Beverages, makers of Paperboat drinks—it was his first personal investment in 2009, after Helion declined—or iD Fresh Food, his last investment at Helion later backed by PremjiInvest, which has seen its fortune soaring with its idli and dosa batters.

The contrarian investor that he is, Singh is not one to ponder over Excel  sheets and business projections, says Varun Alagh, founder of Mamaearth. “He just wants to see if your vision is right and if you want to build the brand without taking shortcuts. Even today, he doesn’t push for numbers and data update. The big thing that he realises, and very few investors do, is that building a consumer product and brand is not an overnight phenomenon.”

Neeraj Kakkar, co-founder and chief executive at Hector Beverages, agrees. Singh, to Kakkar, is the sounding board who has the right advice to navigate tough situations. He recalls a time when the company’s first manufacturing unit at Manesar was getting delayed; the plant had to start manufacturing by March 2010, but regulatory approvals were nowhere in sight. Kakkar was flustered, and he called Singh. “All he had to offer were comforting words. You aren’t afraid to tell him a bad story,” says Kakkar. “With him, the difference between an investor and co-founder is blurred.”

Singh is mindful of the challenges of building consumer companies, be it fragmented distribution and logistics networks, or the cost of marketing and advertisements. But his belief in the segment hasn’t wavered: “In India, most of the consumption is driven by unbranded products, hence the opportunity to build brands in white spaces is very large. Anything which is unbranded now, can be turned into a brand.”