The Glorious Exit
In 2008, terms like ‘Omnichannel’, ‘UPI’, ‘D2C’, and ‘e-commerce’ were entirely foreign concepts when Mithun Sacheti and his co-founder Srinivasa Gopalan ventured into the world of online jewelry retail. Their journey embodies the tale of ambition, aiming to establish one of India's most prominent jewelry brands. Remarkably, despite operating at a loss for an uninterrupted period of 12 years, Sacheti managed to capture the attention of the Tata group, leading to the complete acquisition of CaratLane by the the group’s jewelry and watches business, the Titan Company.
Stellar Exit
In an unusual event in the Indian startup ecosystem, the co-founder of CaratLane sold his existing 27.6 per cent stake for a whopping Rs 4,621 crore, making it one of the largest clean, cash exits. The Titan Company has progressively acquired stake in CaratLane since 2016 and CaratLane has been fairly profitable since FY2021.
“The beauty of these kinds of transactions is that they come out of nowhere,” says Sacheti. For Mithun Sacheti, the decision to sell his residual stake to the Tata group company was not a settlement done overnight. Asked why he had not opted for the initial public offering (IPO) route to offload his stake, Sacheti says, “I would have loved to do an IPO but Tata did not see any route, did not see any value addition. If I had a chance to change anything in this whole journey, any point which would have made an IPO mandatory, we could have done it.”
How did this start? What led to this deal? Sacheti recalls, “At some point in 2020, Titan felt that they wanted to own this entire business. Many discussions and meetings took place since then.” He goes on to say, “My role was to try and see if I could convince them otherwise, I think they would have been really happy if I ran the business but didn't own the business.”
Sacheti recalls how he and Rakesh (Jhunjhunwala) used to talk about it. Sacheti sees his relationship with Rakesh Jhunjhunwala as a Guru-Shishya (teacher-disciple) relationship. “In a short time in my life, nobody made an impact the way he (Jhunjhunwala) did,” he muses. Jhunjhunwala passed away in August 2022.
Sacheti alludes the position of an entrepreneur in a business in which he has no equity to that of a tiger without his teeth or claws. “One just becomes powerless and the decision-making comes to a halt. One cannot impact business when you don’t have equity in the business as an entrepreneur,” he says.
The Journey
Mithun Sacheti's journey to establish CaratLane was fraught with hurdles. Sacheti acknowledges that, at the time, jewelry retail was not approached innovatively, giving CaratLane a first-mover advantage. In the initial years, the Chennai-based company's growth fell short of expectations. The team worked diligently on building infrastructure and seeking capital, although investment remained elusive. Nevertheless, Sacheti persevered, driven by a clear problem statement and faith in the internet's problem-solving capabilities.
Sacheti's decision to leave the family jewelry business, Jaipur Gems, in 2007, and his cash exit from his initial startup didn't align with his original aspirations. Reflecting on those early days, he admits that his ignorance of the challenges ahead was a valuable asset.
Despite the vastly different consumer landscape, Sacheti's unwavering belief in the future relevance of the internet led to success. He remembered those early times as a continuous struggle, marked by a lack of essential infrastructure, such as payment gateways for high-value transactions and a reliable supply chain. It felt like navigating a minefield every step of the way.
The Silver Lining
The company struggled to gain momentum, primarily because venturing into the online diamond jewelry market was entirely novel, and scepticism loomed large. Within four years, Sacheti's efforts resulted in a business that consistently operated at a loss. Then, in 2011, a surprising turn of events occurred when Lee Fixel of Tiger Global reached out to Sacheti with an offer to provide much-needed capital and support for the company. This unexpected opportunity was a remarkable contrast to the rejections Sacheti had faced from numerous other venture capitalists.
Ultimately, Sacheti sealed the deal with Fixel, securing Rs 27 crore for a 33 per cent stake, marking CaratLane's first round of funding. Tiger Global, a US -based hedge fund, emerged as the sole venture capital investor in CaratLane, committing to multiple investment phases to fuel the company's growth and expansion over the years. Sacheti explained the unique challenges of the jewelry industry, where foot traffic into physical stores is limited, making online discovery a critical hurdle to overcome.
Tiger Global’s Exit
As India's online consumer base expanded, CaratLane gained prominence and a leading corporate house like the Tata group, showed interest in acquiring the controlling stakes in the company. Sacheti stressed that exits often result from misalignment rather than financial concerns. The core disparity lay in Sacheti envisioning CaratLane as an omnichannel business, while Tiger Global leaned toward a more tech-oriented approach. This divergence led to a challenging conversation when Tiger Global sold its stake to Titan.
When asked if he still maintains contact with Tiger Global's Lee Fixel, Sacheti confirms their past communication but mentions that no recent interactions had occurred. He acknowledges the firm's timelines and constraints, understanding that CaratLane might not have met their expected returns within their specified timeframe. Nevertheless, he expresses confidence that Fixel would be pleased with their progress.
In 2016 Titan acquired a 62 per cent stake from Tiger Global in CaratLane for about Rs 357 crore at a valuation of Rs 563 crore. “This deal for Titan would not have happened if there was more than one Tiger Global over there. They are passengers in your train and you have to find an exit for them,” explains Sacheti. He sees many successful outcomes in Titan’s partnership. “In India, there is no better name than the Tatas,” he emphasises.
CaratLane aimed to revolutionise traditional retail, opening its inaugural store in Delhi's Greater Kailash area in 2011. The company CEO Sacheti reflects on their cautious approach, acknowledging initial setbacks with the first two stores before achieving success with the third. From 2016 to 2020, CaratLane expanded its store count tenfold, propelling its high-margin diamond jewelry business. This growth trajectory has remained steadfast, positioning CaratLane as a formidable competitor alongside Bluestone and Melorra. The company maintains its commitment to capturing a significant market share and aims to become one of India's most beloved brands, underlining its enduring determination and success.
Business Formula
Unwavering fundamentals are the bedrock of building large-scale, impact-making, revenue-generating, sustainable startups. Sharing his thoughts on the evolution of businesses Sacheti says, “If the industry doesn't have a high rate of change, you don't find capital coming very easily. The access to capital has been multiplying with every passing generation in India.”
Building a profitable business should be the focus for which he has devised a formula which says that the marketing expenses should be two-quarters ahead but the operating expenses should be one-quarter behind. “When you work with that ratio in your mind, building a profitable or meaningful business becomes far easier. It's just the discipline you need to have to build a business,” Sacheti reiterates. Not EBITDA (Earning Before Interest, Taxes, Depreciation and Amortisation) but Profit Before Tax (PBT) is the cornerstone of profitability for Sacheti.
Shining Sector
Gold has long held a revered status as a symbol of wealth and luxury, serving as a benchmark of financial stability. However, the emergence of fine jewelry, silver and diamonds, has introduced a fascinating counterpart to this age-old narrative.
Sacheti being passionate about intricate and beautiful jewelry designs was foreseeing a societal transformation. With his legacy, diamonds once reserved for the elite, have undergone a democratisation process where exclusivity is giving way to inclusivity.
In India, plain old gold could be seen mostly in the wedding space or available for exchange and sufficient utility of that jewelry could not be traced. Sacheti is happy to see this evolution but he is equally concerned about whether it will remain a sunrise sector or was going to witness a slowdown in future.
According to Sacheti, most brands tend to advertise to the same micro audience again and again. If you see all the jewelry advertisements of whichever brand, there is a sense of similarity in all of them. They are attracting the same kind of customers and the same kind of wealth profile and nobody is going after the consumption class of the next five to ten crore people. “Maybe I am mistaken but that is how I look at it,” he says.
In the everyday jewelry segment, the number of new buyers is increasing at a much faster pace because of the smaller size price point. The disposable income amongst the youth is increasing. “Largely, they need not consult with their parents for these decisions. This is the sunrise part of the jewelry segment,” says Sacheti. He remains bullish and optimistic of the growth and success of this segment.
