D2C startups got their break in the unicorn club in 2021, however, the sector falls behind others such as Fintech.
Despite the positive growth in the number of Direct-to-Customers (D2C) start-ups, so far only three have attained the unicorn badge.
Presently, there are more than 800 D2C startups in the country, out of which 507 start-ups were born in the last three years.
D2C stands for Direct to Consumers, which is a business model used by companies that produce/manufacture their products and sell them directly to customers. There’s no place for marketplaces, intermediaries, and affiliates.
“The reason behind this slow entry is that one can predict momentum in this sector unless you are doing something really innovative and pushing it in the market really hard,” said Vikas Panwar, a start-up analyst, EpVi India.
D2C companies constantly need to innovate and be pre-emptive to identify bugs in advance and have enough to change. Every day there is some new problem which needs to be solved or else you will lose the customer to some other brand, he added.
Ekalavya Singh, a business technology solution associate, ZS Associates said, “It is difficult to get innovative ideas and turn them into a business to which the public catches on.” Indian D2C start-ups are slow in entering the unicorn club simply because a huge part of the market is captured by companies like Amazon which control most of the supply chain and ecommerce traffic, he added.
In a D2C analysis report by Ink42, a start-up-focused media house, the market for D2C companies is estimated to grow at a compound annual growth rate (CAGR) of 25 per cent during 2020-2025, and the online shoppers are expected to grow at a CAGR of 28.5 per cent during 2020-2025.
A report by Praxis Global Alliance (PGA) Labs and Knowledge Capital in its 2021 mentions some challenges faced by the D2C brands. Factors that affect the growth of ‘internet first’ brands or D2Cs include competition from offline brands/ traditional brands. These are closing the gap and setting up deep online commerce teams.
“What exactly is essential for every D2C start-up is flexibility in terms of innovation, identifying the needs, solving them, and expansion, which is often missing,” said Vikas.
Started in 2017, Urbanmali, an emerging D2C startup, provides gardening services. It plans to raise funds from investors soon. However, it feels the pressure of not being a product-based company. “For us, the biggest challenge would be that we are a services company. Most investment goes into product-based start-ups because of the quick returns,” Vandhana Krishnamurthy, co-founder, Urbanmali said.
Ink42’s report shows that in 2021 the total funding in India in D2C start-ups was $290.7 million. Anirudh Damani, Managing Partner, Artha Venture Fund, in an interview, mentioned that they are targeting Direct-to-Consumer (D2C). D2C has great potential, especially in the post-pandemic world where the offline distribution has taken a backseat, he added.
According to Vikas, investors are positive about this sector because it focuses on the need of the consumers, and those needs are endless. So, if you can deliver in two hours, they need it in 30 minutes.
Covid, too, created a huge gap in the industry that was not visible earlier and this has given D2C startups an opportunity to fill the gap.
Globally, India has emerged as the third-largest ecosystem for start-ups. Till date, the Department for Promotion of Industry and Internal Trade (DPIIT) has recognized 63,100 start-ups, across 638 districts.
Invest India states that there are 88 unicorns with a total valuation of $295.99 billion. In 2021, 44 of them have generated a total value of $94.37 billion, and in 2022, seven of them are valued at $9.12 billion.
A unicorn company is a private company, valued at $1 billion or more, and is funded by venture capitalists. In India, most of the unicorns are from Fintech(14), SaaS (software as a service) (12) and, E-commerce (11).
Karnataka’s Startup Ecosystem
The state’s ecosystem houses 13952 start-ups, of which 2148 are certified, and 470 are funded.
Karnataka has been active in promoting the start-up culture in the state. In 2015, it implemented the Karnataka Start-up Policy. During the celebration of the first ‘National Start-up Day on January 16, 2022, the state government announced that 200 start-ups would receive seed funding of up to ₹50 lakh each.