This panel at the India Fashion Forum delved into the intricate landscape of fashion business investment, where the pursuit of greatness intertwines with the imperative of risk mitigation. To make fashion business investment truly great, the discussion underscored the importance of strategic focus, emphasizing the need to maximize returns while navigating the delicate balance between achieving scale and ensuring sustainability or viability.
On the panel of experts were:
Chandrasekhar Venugopal, Principal, Matrix Partners
Pankaj Jaju, Founder & CEO, Metta Capital Advisors
Prashanth Aluru – Co-Founder & CEO – TMRW House of Brands
Shucni Pandya, Principal, Fireside Ventures
Rahul Chandra, MD, Arkam Ventures
Abhishek Ganguly, Co-founder & CEO, Agilitas Sports moderated the session.
He commenced the session with an inquiry directed towards Pankaj Jaju, probing into the allure of the fashion business for institutional investors. Inquiring about notable transactions from the past decade, encompassing private equity, strategic acquisitions, and venture capital, he sought insights into the factors pivotal to their success.
Jaju articulated the complexities of the fashion business, likening its elusive rewards to the proverbial pot of gold at the end of the rainbow. He emphasized the importance of certainty and simplicity for investors, noting that successful fashion ventures exhibit sustained growth, predictability in operations, and prudent management of working capital. In his words, “Businesses which have done well in fashion from an investor’s perspective and made money are those which have had reasonably high growth, predictability in the way they’ve done the business, and have kept working capital low.” Jaju cited examples such as Manyavar, Go Colour, Keval Kiran, and Page Industries (Jockey) as exemplars of success in the last decade, highlighting their conservative approach to inventory management and emphasis on maintaining reasonable prices and a tight supply chain. He underscored the importance of converting profits into cash flow rather than chasing future profitability based on scale alone, emphasizing the significance of consistency and fiscal prudence in sustaining success in the fashion industry.
Ganguly directed a probing inquiry towards Shucni Pandya, delving into the essence of successful fashion ventures characterized by conservative fiscal strategies, efficient capital deployment, competitive pricing, and robust supply chain management. This approach, he suggested, may seemingly diverge from the typical mindset of venture businesses. Ganguly questioned Pandya about Fireside Ventures’ perspective, considering their notable investments in the fashion sector. He pondered whether this conservative ethos conflicts with the company’s investment philosophy and how Pandya envisions the trajectory of fashion investments over the next decade.
Shucni offered a comprehensive response, emphasizing the evolving landscape of venture capital investments in the fashion industry. “I think there’s no question of,” she began, underlining the shifting priorities among venture capitalists. She highlighted the traditional focus on large Total Addressable Markets (TAMs) and the historical preference for tech-driven, digital-first brands. However, she noted a paradigm shift as VC’s grapple with the nuances of investing in offline, non-digital fashion businesses. “The truth is a lot of the brands that Pankaj mentioned have largely been non-digital and offline first,” Shucni remarked, underscoring the importance of understanding the offline retail environment in fashion.
Shucni acknowledged that while private equity firms have already adapted to this model, venture capitalists are still in the learning phase. He elucidated Fireside’s approach, which recognizes the significance of offline retail in fashion. “For us at Fireside, we have looked at businesses and very early on understood that offline is where the game is in fashion,” she affirmed. She cited successful examples like Zudio and Style Union to illustrate the prevalence of offline retail models among flourishing fashion ventures.
Shucni concluded by emphasizing the critical factors Fireside considers before investing, including supply chain efficiency, data-driven inventory management, and strategic real estate planning. “Understanding what that means from a supply chain perspective, from how you use data effectively to manage inventory across stores, how you think about your team building, real estate planning, all of that is something that we look at very early,” Shucni stated, highlighting the meticulous approach Fireside Ventures adopts in assessing potential fashion investments.
Ganguly turned to Chandrasekhar Venugopal with a pointed question, inquiring, “How important do you consider offline retail, and what is your outlook on the fashion investment thesis is for the next 5-10 years?”
Venugopal echoed the sentiment of a burgeoning interest in the fashion and lifestyle sector among venture capitalists. “The way that I’d look at it is if you were a founder and you wanted to start up in fashion & lifestyle, it is a great time,” he affirmed, urging potential entrepreneurs to seize the opportunity and articulate their differentiation strategy. He emphasized the long-term potential of the industry, contextualizing it within India’s economic growth trajectory. “At some point when we crossed $4,000 GDP per capita… the way that the additional discretionary income was spent was completely different,” Venugopal elaborated, highlighting the shift towards lifestyle spending. He emphasized the macroeconomic tailwinds supporting the fashion industry’s growth and underscored the importance of believing in India’s future trajectory.
Moreover, Venugopal discussed the infrastructural advancements facilitating business scalability, such as digital payments and streamlined inventory management. He emphasized the importance of avoiding a solely tech-focused growth mindset, advocating for brand-building and prudent inventory management. “Not everything needs to be VC back-able, but there are enough VC backable ideas,” Venugopal concluded, expressing optimism for the diverse range of opportunities within the fashion industry.
Ganguly delved into Rahul Chandra’s consumer investment thesis since the inception of the fund, seeking clarity on the absence of fashion investments thus far and exploring any intentions to venture into the fashion sector in the future.
Chandra responded with a detailed exploration of his investment strategy and the evolving landscape of the fashion industry in India. “No. Haven’t opened the account yet,” he began, acknowledging his current focus beyond fashion investments. Reflecting on past ventures, Chandra delved into his early investments in online fashion platforms during the nascent stages of influencer marketing. He highlighted the potential of online fashion commerce due to its lucrative margins, focusing on distribution and adoption dynamics.
Chandra’s insightful reflection concluded with a profound statement encapsulating his investment philosophy: “Our approach extends beyond the surface; it delves into the core fundamentals of the fashion ecosystem.” This remark underscored his commitment to thorough research and strategic foresight in identifying investment opportunities.
Furthermore, Chandra emphasized the transformative potential of supply chain innovations, stating, “Formalizing supply chains is not just a necessity; it’s an opportunity to reshape the entire industry landscape.” This perspective highlighted his forward-thinking approach towards addressing industry challenges and driving sustainable growth.
In conclusion, Chandra reiterated his dedication to leveraging emerging technologies to revolutionize India’s fashion-sourcing practices. He remarked, “By embracing deep tech solutions, we’re not just adapting to change; we’re pioneering it.” This statement exemplified his visionary outlook and determination to lead the fashion industry into a new era of innovation and efficiency.
Ganguly’s next inquiry was directed towards Prashanth Aluru, framed with precision and relevance: “How much capital did you raise to get started and how much was your first capital raise?” This question aimed to elicit insights into the initial financial requirements and fundraising strategies employed by Aluru in launching his ventures.
Aluru disclosed, “Our first capital tranche was a hundred million,” highlighting the significant backing from the Aditya Birla fashion group. He emphasized their mission, stating, “We are here to build long-term brands which own categories and get a leadership position.” Aluru emphasized their target demographic, stating, “70% of the consumers we solve for are either millennial or Gen Z,” showcasing their strategic alignment with evolving market trends.
Building upon Aluru’s insights, Ganguly delved deeper into the strategic rationale behind the House of Brands thesis, querying, “Why the thesis of House of brands, what capabilities are you building at the group level and what capabilities at the brand level?” This question seamlessly extended the discussion, probing into the operational framework and organizational strategy underlying Aluru’s venture.
Aluru outlined the House of Brands strategy with four key pillars:
- Technology and Data Integration: Emphasizing the role of technology and data science across brand operations for trend spotting, demand sensing, and inventory optimization.
- Dynamic Marketing Strategies: Adapting to evolving consumer research methodologies, particularly leveraging platforms like Instagram, alongside optimizing performance marketing initiatives across diverse channels.
- Category-Specific Capabilities: Developing agile and nimble supply chains tailored to specific product categories, fostering collaboration within the ecosystem to enhance operational efficiency.
- Channel Expansion and Partnerships: Establishing partnerships across various channels, including D2C platforms and offline retail, to expand brand presence and scale operations effectively.
“So you’re giving wings to all these founders who independently will find it difficult or very expensive too,” remarks Ganguly.
“That’s right. I get back to the VC question,” Aluru began, he emphasized on the strategic approach they’ve taken with their brands. “I think most of our brands are either bootstrapped or VC funded in their journey from 0 to 100 to 100 to 200.” He highlighted the critical stages of growth. “And we believe what is needed to go from 200 to 1000 is very different from what it took you to get here.”
Aluru continued, he delved into their investment strategy: “Hence, we are investing horizontally in these areas. But our brand founders are with us over the next four, five, six years to build distinctive brands which are differentiated but equally horizontally.” He stressed the importance of long-term collaboration and support. “They don’t have to worry about plumbing to capabilities that matter.”
Ganguly asked Jaju about the future of fashion investments, considering the conservative strategies of the past decade. “Looking ahead five years, what trends do you anticipate? What advice would you offer to funds regarding potential investments in fashion companies?”
Jaju underscored the necessity of backing founders committed to long-term business growth over short-term valuation pursuits. He emphasized, “You need to bet on a founder or a team that understands that you have to create business for the long run and not somebody who’s going to do something to build a valuation.” Highlighting the complexity of the fashion industry, he noted the challenges posed by fluctuating market conditions and the need for teams to remain agile in response. “Fashion as a business is extremely complicated,” he remarked, “because you’re dealing with a plethora of SKUs and so many nuances.” Jaju also emphasized the importance of identifying a large target audience and ensuring sound unit economics. “Ultimately what will create value?” he questioned, “Is the target opportunity large? Is the unit economics of the business, thought through and sensible?”
Reflecting on India’s burgeoning consumption trends, Jaju envisioned a landscape ripe for the emergence of numerous successful brands. “There was a presentation which spoke about consumption going to more than double in the next ten years,” he stated, “And that’s the opportunity. There will be multiple brands which will be created.” He highlighted the current trend towards value fashion brands like Zudio while also identifying potential in the premium segment. “There will be an opportunity for premium brands as well,” he asserted, “And that’s probably struggling today. And that may be the opportunity to look at saying; these are the people who are creating something premium.” Jaju concluded by underlining the potential for growth and innovation in India’s fashion industry, urging investors to recognize and seize upon emerging opportunities.
Ganguly’s next question delved into the long-term perspective of investments in fashion, emphasizing the critical role of the founding team and their problem-solving capabilities. He sought insights into the specific capabilities investors like Shucni were seeking in the fashion space, querying whether their focus extended beyond the front end to include backend operations and adjacent sectors. Acknowledging the burgeoning consumption trends and the rise of the middle class in India, Ganguly aimed to understand how these factors influenced Shucni’s investment thesis in fashion.
In their investment approach, Shucni delineated the criteria based on whether it’s an India one or India two story. She explained, “For India one, we prioritize premium brands with a brand-first approach, robust supply chains, and tailored GTM strategies. Conversely, India two demands tech-savvy founders focused on value-for-money offerings and adept at leveraging data for offline-centric businesses. The key is differentiation in both segments to justify pricing and capture market share.”
“Given Fireside’s brand-centric approach, aside from sports, what’s your strongest category thesis in fashion?” Ganguly followed up with Shuchni.
“The strongest is menswear,” she answered.
“If you were presented with a pitch at this moment that made you want to forward it to your investment committee or write a check immediately, what specifically in the fashion business would that pitch entail?” Ganguly questioned Chandra and Venugopal.
Venugopal emphasized the importance of a founder with a fashion industry background. “But we want to see some experience in that team. I think some of the reimagination can only happen if you can see the problem firsthand. So we believe that’s an important descriptor of the team.”
Continuing, he delved into the significance of focusing on profit pools rather than just the total addressable market (TAM). “I’d love to see a pitch where the pitch isn’t just talking about the TAM, but also the profit pool,” he emphasized. “By that, what I mean is there is something that is going to change the total amount of profit, profit that you can make in a certain space or an idea.”
Venugopal underscored the need for innovation that drives profit growth. “But if you don’t see that, and the pitch is simply, ‘I will do these three things 10% better,’ it might not be VC investable in our point of view,” he added, stressing the importance of identifying profit-enhancing strategies.
Chandra added to Venugopal’s response, he highlighted the potential of aspirational categories in middle India, envisioning a market where well-crafted products at compelling price points could reach millions of consumers. He emphasized the transformative impact of offering high-quality goods at significantly lower prices, stating, “It’s not 20% cheaper, but it’s one-tenth of that price.” Chandra expressed enthusiasm for the prospect of creating a vast consumer market through such a combination.
Conclusion
As the panel drew to a close, Ganguly reflected on the insightful discussions and diverse perspectives shared. He encapsulated the essence of the session, stating, “Today’s discourse has illuminated the multifaceted landscape of fashion investments, revealing the intricate interplay between innovation, consumer dynamics, and entrepreneurial vision.” Drawing from the panelists’ insights, Ganguly emphasized the importance of understanding long-term market shifts, the significance of founder expertise, and the necessity of identifying transformative profit pools. He concluded with a forward-looking sentiment, “In navigating the evolving contours of the fashion industry, the path to sustainable success lies in the fusion of visionary leadership, market acumen, and a relentless pursuit of excellence.”
