Leading venture capital investors Accel Partners and Fireside Ventures have said they will no longer invest in online-only direct-to-consumer (D2C) brands in India, and instead back businesses that have a credible offline or omnichannel (offline and online) strategy.
This underlines a conclusive shift in how consumer brands are being built and evaluated by early-stage investors, they said, adding that only those that are willing to sell both online and offline will find takers.
“Investors are looking for teams today that have the ability and ambition to go beyond D2C,” said Prashanth Prakash, partner at Accel said in an interview to Mint. “Investors are looking to fund companies and entrepreneurs who are willing to be not only just digital D2C but omnichannel.”
There are currently about 10,000 D2C brands in India. Buying behaviour changed during covid, and in 2021 about 100 Indian D2C companies raised more than $2.1 billion dollars. But what founders and companies perceived to be the new normal did not play out, and in 2022 and 2023, investors were wary of backing these digital-first companies.
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The funding winter has made things harder for D2C brands, which now have to figure out not only how reach customers but also how to deliver a sticky brand experience that reduces their customer acquisition costs.
Changing tack
Stuck with investments that will take longer than expected to deliver returns, investors are following the more traditional approach of being where the customers are. To avoid being capital-intensive, startups are adopting the franchisee-owned, company-operated (FOCO) model, in which franchisees take on the risk while the company delivers the brand experience, Prakash explained.
Accel, Fireside and consulting firm Redseer published a report on Thursday titled ‘Decoding Omnichannel: Strategies for D2C Brands’. It said around 90% of the market will be delivered offline, though a significant portion of purchases are expected to be influenced online.
In 2023, India’s offline retail market was worth $1.1 trillion, while online retail stood at $65 billion. By 2030, offline retail is expected to grow to more than $2 trillion while online retail will grow to $150-200 billion, the report said.
Also read: Rise of tier-II online shoppers: Can they change Indian e-commerce?
“We believe all brands will eventually have an omnichannel presence. The real opportunity is to integrate the digital and offline channels into a seamless consumer journey,” said Kanwaljit Singh, founder and managing partner at Fireside Ventures.
This fusion of online and offline sales is distinctly Indian, reflecting the behaviours and preferences of Indian consumers. “It bridges trust and convenience barriers, accommodating a shopping journey characterised by a mix of traditional values and modern conveniences,” the report said.
Also read: Digital brands are coming hard and fast at consumer goods majors
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Published: 10 May 2024, 11:13 AM IST