Disruptive Startups Challenging Legacy Giants

A decade ago, no new standalone founder could outshout a giant FMCG company simply because there was no shelf space for anyone to make it happen. These businesses were operating in physical and offline retail model. The drastic transformation has been brought in by massive digital adoption. Ecommerce as a framework has offered the ability to new players to evolve and outshout leaders in any particular geographical market and create their own world. 

Over the last 4-5 decades, every category morphed and evolved. Consumers have been possibly the only category that has seen no disruption in the last few decades but consumer behaviour has surely changed. Every category has duopolies, around 80 per cent of the market share of every category is being controlled by two big players in India.  

Comparing the market trends and current evolution of the D2C segment, Nikhil Vora, Founder and CEO, Sixth Sense Ventures states, “We observed a trend worldwide as the duopoly was being created not because of traditional giant brands but because of distribution. Our firm belief was that the distribution in India will evolve over the next decade. It will lead to witness the birth of a plethora of new brands and new players in the market challenging the legacy companies. We saw that there will be a lot more challenges, disruptors will fundamentally enable into the market and potentially become a market leader.”

The D2C Surge: Push And Pull Backs

Due to technology-driven transformation in the market setup, a number of D2C (direct to consumer) brands evolved and thereby become highly relevant over a period of time. The evolution of new brands across various categories such as beauty products, apparel and more have been dynamic.

 Initially, Nykaa or Purplle started selling products of leading giants such as Lakme and L’Oreal with around a 20 per cent gross margin business for around a million consumers coming to their portals. But eventually, they figured out the humungous opportunity to introduce their private labels where they can make around 80 per cent gross margin and can create their own brand value. Where Gillette, Nike, Lakme should have been the brands to go digital faster and better but this did not happen. 

This clearly shows that next-gen entrepreneurs have more hunger, belief, and there's a lot more ability to disrupt legacy and traditional leaders. “I see that happening a lot more in D2C because that was a vacuum where they've created their own consumer base and established their own market,” Nikhil Vora, Founder and CEO, Sixth Sense Ventures foresees. 

“Where brands like Maggi, Gillette, Nike should evolve, brands such as mamaearth, SUGAR, Veeba, Bombay Shaving Company, Neeman’s are breaking the glass ceiling. I believe digital is clearly a key enabler for these brands, multiple opportunities are being created,” Nikhil Vora believes.

The Depth In Investment World For Bharat 

“In 2014, when we started our journey, around 90 per cent of our investments from the first fund were highly Bombay - Delhi centric. Whereas, the current composition, almost 60 per cent of the investments are from tier two and tier three cities,” Nikhil Vora, Founder and CEO, Sixth Sense Ventures shares while speaking about the rise in the number of startups emerging from non-metro cities.

The current culture of entrepreneurship in the entire country is encouraging. The investors and industry captains are acknowledging the active participation of founders coming from Tier II and Tier III cities. Small city entrepreneurs honing their capability to be able to crack the legacy in extraordinary form. The divide between India and Bharat is getting narrower and the markets are converging. For investors, what is more important is not to focus on the current market state but to be able to foresee the market five years down the line. 

“I can’t see a lot of legacy players addressing the current dynamic needs of the market at scale because it will require to give up on what they are doing right now which has always been a pain,” Nikhil Vora, Sixth Sense Ventures shares.

Over a period of time, a variety of categories would evolve and would not confine to the right or wrong market or performance but stand as good to have businesses. 

Strategy To Recognise The Potential

Investment at any stage for a startup is a requisite need for its optimum growth. In order to see the potential and uniqueness of a business idea, investors can use multiple different ways to do so. Sixth Sense Ventures’ Nikhil Vora shares his personal experience and explains three major areas of concern that can drive an investor’s decision. 

1. All About The Founder: It’s very critical to like the founder. The entrepreneur should be six months ahead of the curve to be able to morph the business faster amongst many variables.
2. Market Opportunity and Its Size: Founder and CEO, Sixth Sense Ventures is a big believer of disruption and not innovation. He is betting high as he observes that consumers are changing their expectations which pushes brands to experiment and evolve constantly.
3. Differentiated Product: There is no compulsion for a product should associate with a USP. The attribute of the product becomes important as its meaning can differ from consumer to consumer.

At The Time of Market Right-Sizing

Is the market witnessing correction or heading towards a crisis? As the sectors are progressing, the period of investment cycles is reducing where sharp upcycles and short downcycles can be seen. The rightsizing or correction can be a green signal for a potential reset. 

“Valuations may be a bubble, but businesses are not. These are real businesses getting created. If tomorrow Ola is off, or dies, I think there is a pain for the consumer. For me, it means that the right businesses are being created. One can debate valuation which keeps changing. But the fact is that valuations are overburdened, but businesses are not,” Nikhil Vora asserts. 

Leading investors agree on the same point that there are a lot more challenges in a bull market rather than in a bear market. It is easier to get excited, be easily driven by a trend and make potential mistakes. For Nikhil Vora, a tough environment is interesting times as it ensures no bubble creation and leads to fair and pragmatic investor expectations. “A tougher market is great and I'm pretty comfortable with a weak market environment,” Founder and CEO, Sixth Sense Ventures, claims.

Balance The Boat: Mentor Not Intrude

An investor can be a critique but enabling the businesses to do better and grow faster is a space that a founder expects. To understand the path for the next 7-8 years, both are required to prosper in a healthy long-term relationship that can surely witness a clash of opinions but in a healthy manner. There is a very thin yet thick line between being a mentor and intruding into the business in some form. 

Nikhil Vora opens up and said, “Fundamentally, being an investor you bet on founders’ capability to run the business and deliver. If at any point in time we overindulge operating aspects of the business, we are losing faith in the founder.”

Exciting Times Ahead

The entire consumer business in India is almost $200 billion in size. The total capital raised by all consumer funds put together is less than a billion-dollar, there is a huge void which is still going to be filled up over a period of time. 

The Indian investors are looking at nurturing young disruptive startups and how the legacy businesses are reacting. The MNCs and domestic giants are evaluating the volatile times and are agile to witness the change in the environment taking place.

Sixth Sense Ventures will broadly focus on investing in brands, products, services and distributions. A venture which will address the needs and demands of a conscious consumer is their space to back them. In India, the category penetration has a long way to go. Sixth Sense Ventures has invested in categories such as third-party distributors, EVs,  sustainability-focused ventures and aims to support ventures which are relevant for the next ten years.