When it comes to the Direct-to-Consumer (D2C) startups, the competition for funding has never been fiercer. At the recent IReCxD2C Summit in Bengaluru, industry leaders from top venture capital firms discussed what makes D2C startups stand out in the crowded funding space.

Moreover, in the world of D2C startups, securing funding is a strategic challenge- Amit Singhal, Founding Partner of Fluid Venture, Adithya Bharadwaj, Vice President of Anicut Capital, Harmanpreet Singh, Co-founder and Managing Partner of Prath Ventures, Shreya Bhatnagar, Principal at Anthill Ventures, and Divya Anand, Director of Stride Ventures share insights on the key strategies for navigating this dynamic landscape effectively. 

The Current D2C Funding Landscape

The D2C sector is booming, with numerous startups vying for a share of the consumer market. Fluid Venture, an early-stage fund focusing solely on D2C brands, has invested in notable companies like Master Chow and Koparo Cleans. Amit Singhal highlighted their approach, “We come in at Seed stage or pre-Series A, with typical cheque sizes between Rs 2.5 to 3 crore rupees. We look for strong gross margins and unique brand positioning.”

Anicut Capital, a multi-asset class manager, has backed brands such as Blue Tokai and SUGAR Cosmetics. Adithya Bharadwaj explained their criteria, “We look for perceptible product differences, organic growth, and bargaining power. A brand needs to stand out either through its design, formulation, or distribution efficiency.”

What Investors Look For

• Product Differentiation and Market Positioning

One of the key aspects investors focus on is product differentiation. Divya Anand from Stride Ventures emphasized the importance of a strong product differentiation, especially in crowded spaces like beauty and personal care. “We were among the first investors in SUGAR Cosmetics. The first thing we look for is product differentiation and a strong customer feedback loop,” she said.

Harmanpreet Singh of Prath Ventures introduced a unique framework for evaluating D2C startups: “We use the ‘fastest, first, cheapest, or best’ framework. It’s about being the first to market, being the fastest, or being the best in your category. For affluent India, it’s difficult to be the cheapest, so differentiation is key.”

• Vision and Scalability

Investors also look for founders with a clear vision and scalability plans. Shreya Bhatnagar from Anthill Ventures stressed the importance of a founder’s vision, “A clear vision on Total Addressable Market (TAM) and product scalability is crucial. We focus on customer acquisition and retention strategies, as well as the scalability of the product.”

Amit Singhal added that understanding the market and having a solid marketing strategy are vital. “Whenever I receive a pitch deck, I think as a customer. What is the brand’s edge over competitors? Gross margins and marketing strategy are critical factors for us,” he said.

• Financial Acumen

While product and vision are critical, financial understanding is equally important. Amit Singhal noted, “Numbers are extremely important. When pitching to investors, balance product details with team and finance information. Be sharp about your numbers – gross margins, pricing policy, and financial projections.”

Adithya Bharadwaj shared a compelling story: “We recently saw a brand already clocking Rs 70-80 crores, aiming to take on giants like Coke. Despite the competition, their clarity on scaling to a Rs 500-600 crore brand was striking. It shows that in a market like India, niche experimentation can lead to large results.”

Navigating a Saturated Market

• Tackling Overcrowded Sectors

In an overcrowded market, standing out is challenging but not impossible. Divya Anand pointed out, “Even in saturated spaces, if a product is unique or solves a gap, it can succeed. Customization and evidence-based products are trends we see gaining traction.”

Amit Singhal echoed this sentiment, advising startups to be clear about their market positioning and not to spread themselves too thin. “Don’t start with 50 SKUs. Focus on a few, learn, and then expand. Be clear about what makes your product unique,” he advised.

• Consumer-Centric Approach

A consumer-first approach is crucial for D2C success. Harmanpreet Singh shared an anecdote, “I read about the history of P&G’s first soap, which was a general-purpose product. Today, consumer needs are more sophisticated and segmented. Understanding and evolving with these needs is essential.”

Shreya Bhatnagar added, “Testing your product on initial customers and scaling in phases is vital. Focus on one target segment and scale efficiently.”

Advice for Aspiring D2C Startups

• Crafting a Winning Pitch

Crafting a compelling pitch is an art. Harmanpreet Singh shared an interesting pitch experience, “A women’s hygiene brand brought different sanitary pads to compare with their product during the pitch. It was an effective way to demonstrate product differentiation.”

Amit Singhal stressed the importance of covering all aspects during a pitch and added, “Spend time on the product, the team, and the finances. Know your numbers and be prepared to discuss them in detail.”

• Finding Your Niche

Adithya Bharadwaj emphasized the importance of solving a specific market issue, “Identify whether you’re solving a consumption gap or a price gap. Addressing one of these is crucial for organic growth.”

Divya Anand highlighted the potential in niche markets, “We’ve seen startups in feminine hygiene and dairy products carve out significant market shares by focusing on high quality and niche offerings.”

In a saturated market, D2C startups need to stand out through product differentiation, clear vision, and financial acumen. Investors look for unique products, strong market positioning, and scalable business models. With the right approach and understanding of market needs, D2C startups can navigate the crowded funding space and achieve significant growth.