Category selection is core to what we do at Prath Ventures: Co-founders Harmanpreet Singh & Piyush Goenka

Co-founders of Prath Ventures shed light on their investment strategy, evolving consumer brand trends and key considerations before investing in a brand…

New Delhi: Founders of Mumbai-based Venture Capital firm Prath Ventures Piyush Goenka and Harmanpreet Singh believe in the India consumption story and they as investors put their money where their mouth is, investing primarily in brands in the consumer space with promise. The early-stage venture capital has closed commitments of Rs 135 crore and is approaching the final close of its Rs 225 crore maiden funds.

In the last couple of months, the company has invested in three companies including Jimmy Cocktails and Hustle Energy Drink, a Gurugram-based beverages company ($3 million pre-Series A round); Gurugram-based Assembly, a travel goods brand ($2.1 million) and Aukera Grown Diamond Jewellery (amount not disclosed).

In an exclusive interaction with IndiaRetailing, the cofounders shed light on their investment strategy, evolving consumer brand trends, the key considerations before investment and more…

Do you bet on the entrepreneur or the business?

Singh: In sectors with significant challenges like unfavourable regulations, strong competition, or large incumbents, the entrepreneur’s ability to succeed may be limited. Here, it is more about assessing the sector’s potential rather than the entrepreneur’s capabilities. If uncontrollable factors drive value creation, the sector’s characteristics are more decisive.

However, when looking at the total addressable market (TAM), a highly skilled entrepreneur, or an Alpha founder, can potentially expand the market, making their role crucial. A top-tier founder can navigate challenges and grow the business beyond initial expectations. But in sectors with high regulatory risks and uncontrollable factors, even the best entrepreneurs may struggle. In these scenarios, the sector’s characteristics take precedence.

Ultimately, the decision varies by sector. In some cases, backing a talented entrepreneur is key, while in others, the sector’s dynamics are more important. Balancing these factors is crucial for informed investment decisions.

How important is category selection before investing?

Goenka: Category selection is core to what we do, alongside founder selection. Several factors are important in this process. First, we analyse if the market is large or if it is a small market expected to grow. We also consider the strength of existing players, the profit pool, the competitive landscape, and how nimble legacy players are in responding to new trends.

Taking luggage as an example—since we have already invested in a luggage brand—the category has shifted from being merely functional to lifestyle. Consumers now care more about how their luggage looks and the purchase frequency has improved from seven or eight years to about three to four years. Additionally, the once-unorganised market has become more organized, especially in the premium segment. This premiumization trend is attractive, with the overall luggage and backpack market exceeding $3 billion. Although the backpack market continues to remain largely unorganized. The premium segment, valued at around half a billion dollars, is where brands can offer differentiated products and capture market share.

How do you help brands compete with legacy brands?

Goenka: Legacy brands have traditionally capitalized on strong distribution networks, which were crucial for reaching consumers across the country. Most legacy brands were built around this distribution moat and focused on value for money and functional product features.

New-age brands, however, benefit from the e-commerce era, which levels the playing field by making distribution less of a barrier. They can be available nationwide from day one through D2C or marketplace models. These brands focus on appealing to consumers’ emotional needs and resonating with specific demographics, like Gen Z, by offering products that meet their unique preferences.

Legacy brands face the challenge of updating their image without alienating existing customers. As a result, many large companies are either launching new brands or acquiring new-age brands to better cater to younger audiences and maintain market relevance.

Singh: Legacy brands have significant advantages, such as strong brand awareness and efficient advertising spending. However, new brands also have key advantages in areas like adapting to new channels, innovating products, and leading in new categories, allowing them to compete effectively with legacy brands.

How important is the brand’s approach to selling channels?

Goenka: Most brands can create large businesses online. While the percentage of online business varies by category—ranging from 5%-15%, with electronics being higher—many new-age brands start digital-first to cater to consumers already online. If your target consumer is primarily online, you can build a meaningful scale there. However, if you are targeting a market segment less engaged online, you will need to go offline earlier in your journey.

The decision to go offline depends on factors like category, price point, and customer fit. Once offline, new-age brands must provide an omnichannel experience, which is challenging but expected by modern consumers. New brands, setting up their systems with omnichannel in mind, can meet consumer expectations more effectively, ensuring a seamless experience regardless of the purchase channel.

What is a significant challenge D2C brands you’ve invested in face?

Singh: Returns are a significant challenge in online retail, especially in fashion. To manage this, it is crucial to map out the consumer journey and develop better retention strategies and analytics. For instance, you might avoid shipping to certain pin codes prone to returns or not offer cash-on-delivery (COD) options to customers with a history of returns. Marketplaces like Myntra are already implementing such strategies.

Platforms like Gokwik can help, but there is no magic bullet for returns—they are an inherent part of online businesses and must be factored into your unit economics. Offline presence can build trust, which is particularly important in categories like furniture. Customers can see, touch, and feel products before purchasing, leading to lower returns and greater brand trust. Ultimately, managing returns involves integrating online and offline experiences to build customer trust and reduce return rates over time.

How do you analyse consumer behaviour?

Goenka: We focus on predicting where brands will stand in five to seven years rather than their current status. This involves conducting a thorough market and trend analysis, comparing how trends have played out in more advanced markets such as the US and Korea to anticipate their trajectory in India. Given that Indian consumer behaviour often mirrors trends observed in these markets with a slight lag, this comparative analysis is instrumental in our strategy.

Singh: Understanding consumer behaviour is pivotal in consumer investing. In categories like skincare, where consumers eagerly adopt new products and brands, inducing trials is key. Conversely, in categories like women’s hygiene, building loyalty post-trial is crucial due to high repeat purchases. Price sensitivity is another critical aspect; while premiumization trends exist, value for money remains paramount for Indian consumers. Analyzing marketplaces like Myntra provides insights into product segmentation and brand competitiveness across price points, aiding strategic decisions. Our approach involves engaging with a consumer panel to delve into past behaviours rather than superficial preferences, refining our understanding of consumer personas and optimizing investment strategies accordingly.

How do you guide brands on technology factors?

Singh: Our approach remains cautious yet open to opportunities that can meaningfully impact our brand strategies. While technology can enhance processes and customer experiences, we believe it should align closely with a brand’s core value proposition rather than being adopted for its own sake. At this early stage, our focus remains on refining product offerings, optimizing supply chains, understanding consumer behaviours, and enhancing retail strategies. While we explore emerging technologies through third-party solutions, integrating them into our business model is secondary to foundational business priorities. Exceptions exist where technology itself forms the core product, such as in educational tech, but for physical consumer products, technological integration is still in its nascent stages.

How have the brands you invested in performed?

The investment in lab-grown diamonds with Aukera has been promising. Initially, we acquired a single high-digit stake in the company at an early stage when they operated just one store in Bengaluru. Post-investment, they opened another store in Jayanagar, both of which have shown strong performance in terms of unit economics and store EBITDA.

What other categories in consumer brands excite you?

There is a lot of excitement and strategic thinking around various consumer categories. Accessories, particularly as people are dressing up more, seem to be gaining traction, mirroring trends seen in developed markets. Premiumization across categories is another significant trend, driven by macroeconomic factors, which you foresee continuing into the next decade. Health and wellness is emerging as a compelling sector, fuelled by increased focus on fitness and sports.

As investors, we are continuously evaluating where consumer spending will trend in the next five to 10 years, exploring various sectors and conducting in-depth category analysis to identify promising investment opportunities.

What are some future investment prospects?

Singh: We have signed term sheets with two companies, one is a multi-category fashion business and the other is a delivery enabler.

Goenka: We will make somewhere between 12 to 15 investments from the funds that we have, which will allow us to test out our initial hypotheses and our execution of the same through our investment strategy.

We are eyeing investments in four to five brands in the current fiscal. And we are considering another round of fundraising after almost two years.

We are currently totally focused on our current fund and deploying that well. So that is where our current year strategy emphasis is.