Barely two months after launching a Rs 200 crore ($28 million) maiden fund, Sumit Keshan, managing partner at Wipro Consumer Care Ventures, is already expecting a second and larger fund to follow within two years. Going by the inbound interest from startups in the consumer brands focused fund, Keshan believes that the corpus will be invested in 18-24 months.
Launched as the corporate venture capital arm of Wipro Consumer Care and Lighting, the FMCG business owned by Bengaluru headquartered Wipro Enterprises, the firm has a mandate to invest in startups based in India and Southeast Asia, focusing on disruptive consumer brands, consumer technology startups and innovative distribution technologies and solutions. It has already made an investment in Delhi-based lifestyle products maker Happily Unmarried Marketing.
While Wipro Consumer Care Ventures is Keshan’s first outing in the early stage investing space, he brings over two decades of experience in India’s private equity and corporate finance market to the table.
He started his career as general manager of mergers and acquisitions at Bengaluru based information technology services firm Wipro in the early nineties. He later also played a key role in the turnaround of Gokaldas Exports as part of the management team nominated by private equity firm Blackstone. Between 2015 and 2018, he led consumer sector investments for UK development finance institution CDC Group and even founded a fintech startup just prior to his latest assignment.
Keshan will also be part of the expert panel of venture capitalists at the Startup Showcase at TechCircle Live coming up in Delhi on November 6.
In a conversation with TechCircle, Keshan spoke about the gaps that the newly launched fund wants to plug in the startup ecosystem, its investment and exit gameplan, and how it can bring value to the table beyond capital.
What were the key factors that led to the launch of a consumer brands focused venture capital firm?
What we see as a trend over the last many years in the consumer goods segment is that new age companies are creating innovative ways of addressing consumer needs. This industry was working in a very traditional way in terms of reaching consumers, understanding and measuring consumer behaviour. Most FMCG companies have been following a business-to-business-to-consumer (B2B2C) model, but always wanting to master a truly B2C model.
Today, a lot of that has changed because of technology. We have many new age companies successfully doing online only business in the FMCG sector. They are able to identify their right consumers without going to the mass market. These companies are using various disruptive technologies effectively and we wanted to be part of that wave.
Also, very importantly, we felt it is one of the best ways to support the startup system. We have many strengths and we feel that there are gaps in many areas where we can come in and help them grow. One of the ways is to do that is through a fund. We want to invest in these companies, we want to take only minority stakes, help them grow as well as learn from them.
Is Wipro a bit of a late entrant in India’s startup investment ecosystem?
No time is late. Every time is right. We could have entered a few years ago, but the market was not mature enough. The expectations of promoters and valuations were sky-high. Today it is much more down to earth. People have realized that it’s not just about valuation. What they see in us is clearly someone who can help them in multiple areas. The market has matured and a lot of startups are now coming into this space, so we feel it’s the right time.
Tell us more about the fund’s strategy and focus.
Wipro Enterprises’ startup deals were mostly mergers and acquisitions (M&A) where we bought firms outright. We have not been doing partial stakes. This is our first attempt to do investments structurally through a corporate fund. We are a financial returns oriented fund with a strategic focus. We will only do minority, not majority. We probably will exit within a certain time frame. At the same time, we believe we can offer our portfolio companies very key strategic inputs from our experience and expertise.
We are starting with Rs 200 crore fund. I would like to invest that in the next 18-24 months or even earlier because the number of deals coming our way are quite high. We are looking at average ticket sizes of anywhere between Rs 10 crore and Rs 40 crore. We will take minority stakes in our startups, going up to a maximum 30% stake in a company.
We are looking at companies with proven products with a certain degree of market and consumer acceptance and some early revenues. We are not looking for very early stage or concept stage companies. From a geography perspective, we are in India and Southeast Asia and so we will focus startups in these regions.
Looking at the opportunities, I think we should be able to do a second fund soon. The second fund will be a larger one.
What are the key startup segments you are looking at for investments?
What we would like to focus on are disruptive consumer brands, consumer tech startups and innovative distribution channels. In the consumer brands space, we are looking at personal care, skin care, home care and consumer lighting. One of our key interests is to identify products that caters to untouched categories. For example, the whole hygiene category has not really taken off in India.
In the distribution space, we are looking at emerging tech-enabled distribution models. Traditionally, our FMCG distribution is offline, through various channels where the reach gets very restricted. Now with technology, you can reach consumers online very fast. Lot of startups are now starting online and go on to establish a mix of online-offline business.
There are startups helping to break the many layers in the process of getting a product from a manufacturer to a consumer with technology. They are offering huge assistance in margin management, product development, inventory management, go-to-market strategy and easier and faster ways of doing business. uch distribution channels are being created in the startup space which people like us would like to use.
From a consumer tech perspective, we are trying to see how people are leveraging technology. It’s happening through analytics, innovative distribution models, product research and customisation and more.
How is the deal pipeline looking like at this stage?
We are surprised by the quality of deals coming our way. Multiple new categories are emerging including men’s grooming, feminine hygiene, new innovations around fragrances, personalisation of consumer and beauty products and analytics. We are currently evaluating 4-5 companies across categories, but closures are some time away. We are getting a lot of inbound applications now and we are also working with other venture capital firms for co-investments.
Being a corporate VC, what would be the nature of your relationship with your portfolio companies?
We do not want to behave like the big brother. We understand that their rhythm and pace is different. We have to enable, not throttle it. We are extremely conscious of that. So we want to stay away and let them run their startups.
What are the areas where Wipro would like to offer expertise to its portfolio?
Wipro is strong in specific categories in each of our markets, which also gives us a lot of knowledge. We have a very strong R&D wing. That gives us a lot of confidence in assessing new startups. We are open to helping them out in sourcing, pan-India and international expansions, O2O or omni-channel strategy, R&D inputs, branding, agency connects, sourcing and more.
We are part of their strategy and are more than willing to help them. But we wouldn’t want to get involved in their operations. They are innovative startups trying to solve a consumer problem, so we would like to pitch in when requested to help.
Tell us about the firm’s’ exit philosophy.
Typically, we are looking at a 5-6 years life for the first fund. We would like to look at some exits in the fifth or sixth year. On investments that require extension, we would go beyond this timeframe. We are commercially focused like any other venture capital firm out there, so we would also target those exit multiples that the market seeks.
With every other consumer brand going omni-channel, what would be the firm’s advice to its portfolio startups?
It all boils down to your objective. Is it to create brand salience or is it to increase volume? Offline brands go online to create brand salience, to create the feel that they are present everywhere. Another model is that you are primarily online, and you feel saturated beyond a point. Then you go offline. Omni-channel is a journey for every brand. In the future, brands which are strong offline, continue to remain offline predominantly with minimal online presence while online-first brands will increasingly become equally ambitious offline as well.
For our startups, both methods are measures or channels to reach their ideal customers and startups should embrace what suits them best.