Deepak Shahdadpuri, managing director and founder of DSG Consumer Partners (DSGCP), is not your average venture capitalist. In a world obsessed with technology, he doesn’t care much for it. But that hasn’t stopped him from making successful investments in some of the biggest and most promising Indian tech startups including the likes of OYO, Zipdial (sold to Twitter), and Cleartrip.
As part of the Moneyball series, in which we talk to the top investors in the country to get their views and insights on the hot sectors in the Indian startup ecosystem, Inc42 caught up with Deepak Shahdadpuri this week.
His investment company, DSGCP, was launched in 2012 and is headquartered in Singapore. It has more than $100 Mn under management and 37 companies in its portfolio. Deepak has experience of successfully scaling brands like Sula — growing it from having a 2% share in the Indian wine market to a market leader with 60% dominance. He has more than 16 years of experience in private equity and has worked with the likes of Reuters Venture Capital, Bain & Company, and Ernst & Young.
Deepak just focuses on building consumer brands, he says. According to him, technology advancement has enabled companies to move away from traditional modes of marketing through print and broadcast to devising customised and targeted marketing strategies based on consumer likes, dislikes, habits, consumption patterns, and other data.
He says that Millennials don’t know of a life minus technology — they have grown up with mobile phones and smartphones and the internet, and companies can’t sell generic products to them. They are also likely to ask why there is no specific product category for people like them. A lactose intolerant consumer who wants a non-dairy equivalent of milk is representative of this evolution in consumption behaviour.
Legacy players and big, established brands still haven’t gotten used to the new rules, says Deepak, adding that they will take a long time to get to a place where they can cater to such niche demands.
There are innumerable such small segments which have great market potential, but big players fail to recognise them. Their loss is startups’ gain. Startups are diving into these spaces and developing products to cater to niche consumer demands, often leapfrogging their larger incumbents.
He believes that both in niche categories where there is no local champion and in large categories with big players, entrepreneurs have the scope of making it big because they are more agile at meeting customised needs compared to big companies.
Here are some excerpts from this week’s Moneyball with Deepak Shahdadpuri:
Inc42: What is your investment thesis?
Deepak Shahdadpuri: Over the next couple of decades, we will see the next generation of brands in the consumer packaged goods space (CPG), which will create categories that don’t exist in India today and will challenge the established brands. This is being driven by a number of trends that allow new brands to communicate with their target consumers more effectively and the consumers demand that products be more personalized. At DSGCP, we only invest in these consumer brands developing products, services, and ancillaries.
Inc42: One of the frequent complaints from the Indian startup ecosystem has been about the frequency and value of exits. Many believe this will change after the Walmart-Flipkart deal. What is your view?
Deepak Shahdadpuri: The problem with the media is that it is too focussed on unicorns, too focussed on tech, too focussed on the likes of SoftBank and Tencent, which to me is all noise.
Businesses are being disrupted across categories. I don’t do pure tech plays; tech might be an element but I do only consumer. When I started DSGCP in 2012, I put the word “consumer” in my firm’s name — there weren’t many who would do that because they felt it would have been boring.
I’ve had five exits and I could have had more, but I decided not to sell many positions. In the coming times, you will see a significant amount of M&A and other transactions like IPOs, but India is behind the curve. When compared to the likes of the US, China, and Europe, we are behind on every metrics by as much as 10 years, so there is still a long way to go.
Inc42: How do you approach your investments?
Deepak Shahdadpuri: I don’t spend even one second obsessing about the technology and I don’t focus on IP (intellectual property). What I do look at are consumer brands… brands that are a function of growth in India on discretionary spending, because our per capita GDP is going up in the time to come and that’s all I care about.
If you were an entrepreneur who wanted to get into the branded non-tech space, 10 years ago, there was no one (investor) you could go to. Going by my track record, I can’t think of many entrepreneurs in the consumer space who won’t take money from me over someone else, and this is a result of focusing on one area. Success breeds success.
At my firm, we have no list of what we do but we have a long list of what we don’t do.
Over the last five years, my biggest competetion has been Sequoia — they have a very competent non-tech team and we have done deals where we have co-invested with them. We have also co-invested with Saama Capital, with whom we have had eight deals over the last 10 years.
Some other players operating in this space today include Kanwaljit Singh at Fireside Ventures and Nikhil Vora at Sixth Sense, both of whom are consumer-dedicated investors, very much like me.
Inc42: Is there a trend that’s emerging among the companies you invest in?
Deepak Shahdadpuri: Within my segment, the very best founders are focused on solving a real consumer problem with a very targeted and personalised solution. Generic brands solving broad problems are not as relevant.
Inc42: Has there been a change over the years in how VCs are perceived?
Deepak Shahdadpuri: VCs are now starting to become more specialised and looking to invest where they can bring real value in addition to capital. This can be in many forms, including sector expertise, operational excellence, geographic specialisation, or some other tangible element that founders are looking for. The days of providing capital only are gone and the best founders are looking for VCs to be partners, and not just sources of capital. VCs who do not bring value addition will find it difficult to compete for the very best deals.
Inc42: What type of companies/sectors do you focus on?
Deepak Shahdadpuri: The consumer segment has a very broad definition and covers everything from CPG, food, beverages, personal care, healthcare, education, food production, clothing, electronics, etc. At DSGCP, we focus on companies that we believe can either create a category or can disrupt the existing players in the category.
Our mission is to invest in companies that can become number 1 or number 2 in their category or in a niche one.
Examples from my investments include Sula Wines, India’s No 1 wine brand, cold press juice company Raw Pressery, leading Greek yogurt brand Epigamia, condiments and food services company Veeba and leading chai food services brand Chai Point. Then there is Chope in Singapore and Eazydiner in India, both leading restaurant reservations businesses.
Inc42: How much stake do you look at taking and at what ticket size?
Deepak Shahdadpuri: We like investing early — often pre-product, pre-revenue, and even pre-incorporation. We work with the founders to assess the capital required to do the required new product development and then take it to market for a pilot to assess the product-market fit.
From past experience, our first investment ticket is between $250,000 to $ 2 Mn. We follow-on our best companies and can invest up to $5 Mn per company from our flagship fund. Anything above that would have to come from our opportunities fund.
Inc42: Have you finished with Fund 2?
Deepak Shahdadpuri: We have kept a large part of the fund in reserve which we utilise for follow-on investments. We raise a fund every three years and for each fund, we look at about 20 companies. Our fund size is relatively small because for seed and Series A, you can’t deploy much capital. We will raise Fund 3 atthe end of this year or next year.
Inc42: What books/authors/personalities do you follow, what would you recommend?
Deepak Shahdadpuri: I like books on entrepreneurship. Authors I would recommend are Peter Thiel, Ben Horowitz, and Tony Hsieh. These days, I read fewer books and more online on The Information, Medium, and other sites focused on entrepreneurship and consumer brands.
Inc42: What’s your advice for startups looking to pitch to you?
Deepak Shahdadpuri: Do what you’re really passionate about, pick a niche and be damn good at what you do. Many are too broad too early in their approach. In the context of the consumer world, a brand cannot be everything to everyone. Brands have to communicate something that is relevant to their target consumers.
This article is part of Inc42’s MoneyBall series in which we bring you up close and personal with the pioneers of the investment world. Dive in to find out about what excites them, their views on the latest technology and investment trends and what the future looks like from their viewpoint!