Abhishek Goenka’s led RPSG Capital has seen its first exit from the health product company True Elements with 7X returns the fund announced.
In the past, RPSG Capital has invested in 12 companies with its first INR 100 cr fund RPSG Capital is now trying for INR 500 crore to fund its next one.
This second investment fund anticipated to have its first close in mid-2022, Goenka said adding that the main focus will be investing in brands moving beyond Tier 1 cities.
Ecommerce was the most prominent example of record-breaking financing for Indian companies in 2021. Of the $42 billion that was spent overall more than a fourth or $10.7 Billion was invested in Ecommerce-related startups. And when you look deeper, it’s evident that the increase has occurred due to the more substantial amount of investment within D2C. D2C sector. Some of the first investors who have backed those D2C stories are starting to see the possibility of exits and gains.
More than 60% of deals in ecommerce between 2021 and 2021 were consumer-focused retail companies as more innovative D2C brands came out and caught the investor attention of investors. The case of RPSG Capital, which saw its first withdrawal from the health food brand True Elements in the year 2021, it was the perfect opportunity to redouble its efforts on consumer and D2C brands. However, the D2C investments, that are quickly developing, started about five years earlier, as per the chief information officer and head of operations Abhishek Goenka.
The fund was established in 2018. RPSG Capital began as a corporate venture unit from RPSG Ventures (formerly CESC Ventures) and it’s only in the last two years that it has expanded its focus and has begun at bringing on limited partners. The fund’s original mission hasn’t changed much, namely backing digital-first consumer brands from the pre-series and Series A stages. However, the company is trying to bring on limited partners who are eager to contribute to the D2C growth.
The RPSG’s Maiden Exit And Next Fund
Although 2020 and 2021 could have definitely become years of D2C times within India, Goenka claims that RPSG identified an opportunity in the year 2017 when Flipkart, Nykaa and other local e-commerce platforms had exploded. We identified an opportunity in which at the very least, offline distribution could be disrupted through working with young companies. Combining capital and expertise to expand, the RPSG Capital CIO said.
In the course of this year, this fund celebrated its first exit from a portfolio firm. FMCG giant Marico bought the 53.98 percent part in a round of funding to True Elements that saw RPSG Capital quit the captable. True Elements clocked sales of INR 54.3 Cr in FY22, an increase by INR 36.3 Cr during FY21. Its operations span 13 categories. “The decision to invest was taken about four years ago and we realised a 7x MOIC (multiple on capital invested) and 50 percent or more IRR (internal rate of return) from this deal,” Goenka said.
With made investments in twelve companiesthrough its initial INR 100 crore fund RPSG Capital is now planning for INR 500 crores in its second investment fund. More than 50percent of the capital received in the fund comes via external LPs rather than corporate funds. It has funded brands like ayurvedic skincare brand Vedix as well as personal beauty brand mCaffeine as well as Nutraceutical brands made of plants like Plix and the fashion market The Souled Store among others.
The Indian D2C expansion is because of the tailwinds that come from the wider ecosystem surrounding online commerce such as logistics, payment and customer service — as well as due to the growing maturity of the way startups approach developing the online retailers of tomorrow. It’s also the reason investors are finding more appealing investment opportunities.
Expanding Investments in The Financial Winter
In the midst of a winter of funding in 2022, it appears that the Indian startup funding situation is bleak and a lot of the 2021 highs are largely lost. Despite the fact that the six-month funding data from the halfway point (H1 2022) (H1 2022) is a huge jump in funding for startups compared to the prior 6 months of funding, the quarter over decrease in the quarter is quite obvious and alarming.
With $7.3 Billion in Q2 2022 as of data as of 25 June, the quarter-long funding is the lowest of the past one year. The figures for July 2022 are even more bleak looking at. However, there are some investors trying to break the trend and find worthwhile deals in this market There’s also the impression the D2C and retail products startups have overcome the unit economics issues however, consumer tech services like Zomato and Swiggy remain battling the issue. RPSG definitely feels confident about D2C brands that are continuing to expand.
Based on the expertise that it has gained by its investments, RPSG plans to grow with a new INR 500 crore fund. The fund will boost the size of its cheques to as high as $3 million per investment deal through the second fund. RPSG Capital typically acquires 10%-20 percentage stakes in the companies it invests in, and this won’t change regardless of the size of the cheque is growing. The first fund is estimated to have an IRR of 70% or more, Goenka claimed.
This second one is anticipated to have its first closing by the middle of 2022, Goenka added, but did not disclose how much money has been raised to date.
The RPSG Capital’s Next Big Fund
The initial idea was to create an investment vehicle that was large in size like other large corporations which have made similar investments. The second fund would consist of domestic LPs, including family offices as well as domestic institutions as well as Ultra HNIs. We have seen a lot of interest within the local LPs for funds that are similar to ours.
However, it’s not just growth-stage bets that will increase to the size of RPSG and it has invested in the early stages of investments through the launch of a BaseCamp accelerator. For Goenka it’s the most natural next step after the last four years have provided many lessons that the company can use to improve its fund.
The maturation of D2C players makes it much easier for investors to take an informed decision about whether a brand or product is able to scale up and what are the routes to market and the type of support it’s going to need from a marketing standpoint. There’s an almost playbook of strategies that companies can follow according to Goenka in her role as an investor. our job is to help the brands take lessons from the players within the portfolio.
In addition, the emergence of international e-commerce roll-ups and house of models from brands like Thrasio, Mensa Brands, GOAT Brand Labs, Upscalio, EvenFlow, GlobalBees and others have also altered the way that new brands are portrayed. The such as Mensa as well as GlobalBees have become unicorns, and they have the capacity to buy smaller companies.
Goenka believes that both logically also mathematically is sensible for businesses to increase their size and seek synergies. This increases the amount of money a customer can put in their wallet, but it can’t be achieved with a blazing-fast strategy like Thrasio across the US.
In India the consumer segments of India can differ in each category , and also from region to regions, which is why brands have to identify their specialization before they are able to be attractive acquisition targets. Despite the exponential growth in this D2C method in recent times the industry has faced a myriad of problems. The report from HDFC Securities states that a reduction in funding, a lack of liquidity in the market, high inflation, and high costs for customer acquisition are hampering prospects.
As it seeks to invest in companies from earlier stages, RPSG launched the Base Camp accelerator program in December 2021. It has chosen seven companies that will be qualified for an investment of 1.5 Cr. The first batch includes ready-to-cook brand CurryIt along with personal and home care firm Born Good, veg protein companies Eat With Better and Plow.
Goenka believes that in the early stages there’ll be some slowdown. D2C startups have a tendency to dilute equity and that’s one reason for which Base Camp was created in the first place, he explained to us. Traditional VCs require a larger portion of equity, and the brand is left trying to justify its worth.
This results in sub-optimal results for the growth stage VCs. The concept to create Base Camp is to identify the uniqueness of products and position them to prevent over-dilution.
A few of these companies might also be eligible to receive additional funds from the main fund if and when they expand. However, Goenka said that it is not an opportunity for the wider RPSG group of companies . He also claimed that the acquisition of the group isn’t an essential factor for the fund to invest.
It (RPSG Capital) is at the same distance as the operations of every another VC fund. There are obviously many synergies that occur between our portfolio and the rest of the group, but this is more of a distribution synergy or the expertise that our assets have. However, in terms of operation, we function just like every VC investment fund.
With the launch of its new fund RPSG is planning to invest in D2C companies that have discovered the bigger Indian market and are expanding into areas beyond 1 as well as metros. The fund, in particular, is optimistic about the health and wellness sector and food as the topics that could break through the market for the first time. This is where the next spurt of growth is expected to come from.