While technology companies in sectors like edtech, fintech, video games, and remote work have emerged as clear winners during the pandemic, direct-to-consumer (D2C) brands have seen a rise in demand as consumers flock to their websites and apps when many brick-and-mortar stores remain closed.
According to a report by investment banking firm Avendus Capital, Indian D2C brands will have a market size of USD 100 billion by 2025.
Seeing the growth in this space, alternate investment firm Roots Ventures, which was founded in 2018, has backed founders who are carving out their own niche in this sector. Currently, Roots Ventures is in the market to close its INR 200 crore (USD 27 million) maiden fund, which already has a few high profile backers, including Paytm founder Vijay Shekhar Sharma.
KrASIA spoke with Japan Vyas, co-founder of Roots Ventures to hear about his investment thesis.
The interview has been edited for clarity and brevity.
KrASIA (Kr): Before setting up Roots Ventures, you co-founded Sixth Sense Ventures. How is Roots different from Sixth Sense?
Japan Vyas (JV): Before starting my own fund, I was with IDFC for over a decade and raised USD 70 million during the infamous market crash of 2008. We raised another USD 65 million in 2011 and my claim to fame then was investing in Paytm.
However, in around 2014, I wanted to do something of my own. Three of us—Nikhil Vora, Swati Mehra, and I—moved out of IDFC and co-founded Sixth Sense Ventures. We did the first fund together. People we knew invested in us, including the government of India’s fund of funds, SIDBI.
While e-commerce was hot then, only 2% of our investment was in e-commerce. The rest was in consumer brands, contract manufacturing, and logistics. Within three years, we got 300% return and returned the entire capital to our investors.
By then, I was getting better clarity and I decided to build my business differently. I left Sixth Sense on good terms with my co-founders, and we all agreed that I will set up something else.
I set up Roots Venture at the end of 2018 with Ravinder Vashisht, who worked with me at IDFC for more than ten years.
Kr: What sectors does Roots invest in?
JV: We invest in early-stage to listed companies across sectors. Early on, we decided Roots Venture would never go after a sector. We have sector bias from time to time, but we do not make heavy bets in a single sector.
From our maiden fund, we are investing in consumer brands that are creating niches in different sectors. We think the wallet size of consumers is increasing as the disposable income has gone up. The nature of spending is also changing, which is giving rise to new segments. We want to have a portfolio of new consumer brands, consumer tech platforms, and intermediaries that enable consumption. These could be financial services, logistics, and contract manufacturing.
This means we will see a lot of consumer brands in niche segments. We have invested in a pet grooming company, healthy beverage brand, a startup that makes plant-based protein, among others.
Apart from consumer brands, we have also invested in Raaho, an online marketplace for truckers; Mind Your Fleet, a platform to manage cab bookings for corporates and travel aggregators; as well as other tech startups. Our portfolio has a bunch of emerging tech platforms and consumer brands.
We have made ten investments from this fund and are actively evaluating three or four more.
Kr: What changes have you have seen in the consumer brands space during the COVID-19 pandemic and after lockdown?
JV: When we started investing in early 2019 from our current fund, our core belief was that wellness is going to be a running theme for at least a decade. This includes healthy food, what consumers apply on their body like organic or ayurvedic products, products that are made while taking into account the environment—we classify all of these as wellness products. We think a big shift is happening from the consumers’ side. Hence, we have taken a bunch of bets around healthy beverages, food, and non-chemical beauty products.
During COIVD-19, growth in this segment accelerated. These companies were growing before the pandemic. After coming out of the lockdown, they accelerated and changed their growth curve.
Kr: What is the investment thesis of Roots Ventures?
JV: We have two-pronged investment ethos. One is we like to take the path less traveled. We don’t have any FOMO (fear of missing out). We will not invest in companies just because it falls in a sector that is hot and everyone is investing. We steered clear of fintech last year and edtech this year.
Secondly, we believe we identify trends early, be it emerging sectors or ones that will bounce back. Apart from the company and sector, people behind these companies matter a lot to us. We look for founders with whom we have alignment of thought and value systems. Our founders are across age groups. We are not looking for educational degrees in our founders, so we have backed entrepreneurs with a graduation degree as well as the ones who are from Ivy League schools. We also don’t limit ourselves to entrepreneurs from metro cities; we eagerly look for good businesses coming out of smaller cities.
Kr: How long do you stay invested in a company before you look for an exit?
JV: We would be there for four to five years. If we find an opportunistic exit, we can take that too. Our first check is usually in the seed stage, at around INR 3 crore (USD 400,000), then we might also participate in pre-Series A, at INR 5–6 crore. We maintain our stakes in these companies for at least one or two more rounds. If we see an opportunity, we might also come in for a late-stage investment as well.
Kr: You mentioned that you also back founders from smaller cities. What have you interactions with founders from non-metro cities been like?
JV: I am a mentor at an IIT-BHU (Indian Institute of Technology in Varanasi, a tier-2 city) entrepreneurship cell and actively interact with local founders, especially in the food and agriculture space. Personally, I have invested in a bunch of social impact startups that are doing good work with handloom products and are working with small farmers.
If we compare the current scenario with 15–20 years ago, the big change I see is entrepreneurship is accepted. Previously, family elders would ask their children to get a job; starting a business was only meant for business families. I come from a lower-middle class background, so I can relate to them.
Now, I see families encouraging their children to get into entrepreneurship. They might not have money to give them to start with, but they are morally supported. That’s a huge change.
What entrepreneurs in non-metro cities lack right now is guidance and a support system. Entrepreneurs in Mumbai, Pune, Bangalore, and Delhi have access to people from the industry, which gives them a lot of insights. That is missing in smaller cities and I actively engage founders to help them in any way possible. There is no lack of strong ideas, and many of these entrepreneurs are subject matter experts, but they need help with business direction.
