The Busi­ness of Fashion for In­vestors: How Lu­cra­tive it is for the In­vestors to be in?

Business of Fashion - - Contents -

The panel at IFF 2018 dis­cussed sev­eral points on how lu­cra­tive it is for the in­vestors to be in the busi­ness of fashion.

The panel at IFF 2018 dis­cussed sev­eral points on how lu­cra­tive it is for the in­vestors to be in the busi­ness of fashion. They spoke on how in­vestors look at in­vest­ing in the ap­parel space and what the com­pa­nies seek from the in­vestors. How do they make the ma­trix right so that the in­vestors are more pos­i­tive about ap­proach­ing those in­dus­tries? How do they grow their busi­nesses to­gether? What is the col­lab­o­ra­tion be­tween the in­vestor and the com­pa­nies that they have in­vested in?

Ex­cerpts from the panel dis­cus­sion:

Mod­er­a­tor Baqar Iftikhar Naqvi:

We wish to know ICICI’s view on in­vest­ments in the ap­parel space. What view do the in­vestors have for the ap­parel sec­tor and are they re­ally look­ing for­ward to in­vest more and more in the phys­i­cal space?

Nikhil Mo­hta:

ICICI Ven­tures has al­ways liked and in­ter­acted with the ap­parel space. As an in­vestor, we have al­ways been very pos­i­tive about ap­parel and fashion seg­ment. We have re­cently in­vested in Go Col­ors. From a macro per­spec­tive, there are a lot of strong un­der­ly­ing trend spa­ces, be it the over­all growth story in terms of in­come lev­els go­ing up or per capita go­ing up, or brand dif­fer­en­ti­a­tion com­ing up on its own. We also be­lieve that from an In­dian point of view there are very few brands of size and scale and that is what we need to change in the next few years. As an in­vestor we are more than happy to play our part in pro­vid­ing cap­i­tal to the right en­tre­pre­neur who is play­ing that change. From an in­vestor per­spec­tive what we want to see is busi­nesses with a long-term sus­tain­able story and long-term fran­chise value. We are an old world pri­vate eq­uity house. We do not be­lieve that busi­ness can double or triple overnight. We are rather happy about the steady growth tra­jec­to­ries. We are happy to see busi­nesses build­ing from a long-term per­spec­tive and that is what makes it ex­cit­ing for us.


Is the busi­ness more top line driven or a bot­tom line driven?

Nikhil Mo­hta:

I think it is ei­ther. It has to be both. It is pure top line. We like to see busi­nesses, which are sus­tain­able and for sus­tain­abil­ity growth is a must. Sta­tus quo is not an op­tion in the coun­try as we stand to­day. But growth with­out bot­tom line or healthy growth is not some­thing that we are too ex­cited about.


Manyavar raised cap­i­tal most re­cently. What was the ma­trix that Kedara was look­ing at when they were in­vest­ing in Manyavar? What was the hy­poth­e­sis, the key el­e­ments of in­vest­ments from Kedara into Manyavar?

Sneha Jain Paul:

If the busi­ness has a vi­sion of where it in­tends to go and where do the stake hold­ers want to take the busi­ness to, it is the most im­por­tant thing. What is more im­por­tant is what are the things that are al­ready set in place. Fo­cus on sys­tems and pro­cesses is also very im­por­tant so that you know how your mer­chan­dise is mov­ing, how well do you know your cus­tomers – their tastes and pref­er­ences. If you get these ba­sics right, cus­tomers’ fo­cus and your cus­tomers cen­tric­ity right you are in a place where in­vestors can look at you to come on board and work with you. I think with Kedara, what is very im­por­tant for them is that how is their work unique, how do they look at in­vest­ments in a busi­ness – what are the things that they should change in a busi­ness. They have a list­ing sys­tem of what are the unique USP’s of the brand and what are the things that should not change, so that it goes from point A to point D. With Manyavar it was def­i­nitely the value sys­tem that we brought with us. We were very rooted to our In­dian val­ues. Bhar­tiy­ata is the ethos of our brand, which they did not want to change.


Post the in­vest­ment, how have the two of you worked to­gether with Kedara on one side and Manyavar on the other?

Sneha Jain Paul:

It has been re­ally ex­cit­ing. Ever since last one year when they have come on board, there has been a lot of learn­ing for us. We were and we still are a small com­pany based out of Kolkata with a `1,000 crores turnover. They come and they tell us how to do things bet­ter and it is an ex­cit­ing ex­pe­ri­ence for us be­cause there are so many new things that can be done. For in­stance, we had an in-house an­a­lyt­ics team who did a lot of an­a­lyt­ics but all in the mer­chan­dise field. They came and sug­gested that why don’t we put cus­tomer an­a­lyt­ics into play. We worked hard on it and re­al­ized that so much was hap­pen­ing in that space in the coun­try and it was so ex­cit­ing. There are var­i­ous other ex­am­ples of this sort where they have just been show­ing us new things and great things that are hap­pen­ing in the world, which we can im­ple­ment and that’s what is ex­cit­ing for us.


One of the things that we tell the clients is that in­vestors just

don’t typ­i­cally bring funds; they bring in a whole new eco-sys­tem, lot of best prac­tices, which are es­sen­tial for the over­all growth of the com­pany. What are the things that in­vestors bring in be­yond money?

Manu In­drayan:

Our story is more of start-up from a scratch so the part­ner­ship at that level with the in­vestors is from a dif­fer­ent per­spec­tive. It is es­sen­tially growth cap­i­tal to just help let the busi­ness grow. This whole con­cept of in­vestors and ap­parel busi­ness com­ing to­gether is ba­si­cally to cre­ate value and help busi­nesses to achieve their po­ten­tial. And in In­dia branded ap­parel busi­ness is at a very high growth rate and there is a lot of po­ten­tial for many brands and many spa­ces to cre­ate some­thing very big here. I think the in­vestors pri­mar­ily aim to cre­ate a value within a cer­tain spec­i­fied pe­riod of time, which is per­mit­ted by the man­date of their funds, etc.

So we need to un­der­stand at what stage is the busi­ness and what is the spe­cific re­quire­ment of the busi­ness for that stage. To do that, we could clas­sify the jour­ney of ap­parel branded busi­ness into three stages. The first stage is a thresh­old be­low `100 crores, where the busi­ness ac­tu­ally es­tab­lishes it­self, by es­tab­lish­ing the prod­uct line, con­sumer seg­ment and the pri­mary sell­ing chan­nel, which are es­sen­tial to help build up the whole brand and ap­parel busi­ness. The sec­ond stage is a `200 crores stage, the third stage is `300 to `1,000 crores and then the `1,000 crores stage. Manyavar has al­ready reached that stage and they are look­ing at it from a dif­fer­ent per­spec­tive.

Ini­tially when a busi­ness starts, you are in a 0-100 stage and you raise cap­i­tal. The main thing that the in­vestor brings in is a struc­ture to the busi­ness to help you re­main or­ga­nized to cre­ate a brand. They bring in a SKU based man­age­ment, etc., make sure you have your MIS sys­tem in place, strate­gise for you the right chan­nels to reach out to your end con­sumers. And see how you are defin­ing your role. So those are very for­ma­tive years and it is only in the sec­ond stage when the chal­lenges be­come dif­fer­ent, the in­vestors bring in some­thing dif­fer­ent. Once you have es­tab­lished your­self as a semi, rea­son­ably known ap­parel brand then comes growth and how do you man­age growth. I think there are dif­fer­ent stages that we need to un­der­stand.

San­jay Vakharia:

From Spykar’s per­spec­tive it is the sec­ond in­vestor we are work­ing with and I think it all goes back to very ba­sic tenets. The pri­mary dili­gence that one needs to do is on peo­ple vs. any­thing else. I feel if you don’t have the right set of peo­ple align­ing then how­ever good pro­cesses or how­ever great is the mar­ket, they are not go­ing to work for you. Whether you are on the in­vestor side or on the brand’s side, I think the pri­mary align­ment has to be on whether we are fine with each other or not. For an in­vestor it is very im­por­tant to know with whom he is work­ing with be­cause the kind of busi­ness that we are in is not bi­nary for sure. A lot of things are on gut, what­ever level of an­a­lyt­ics you may em­ploy. There are peo­ple who are try­ing to do fore­cast­ing. But I am a very strong be­liever in us­ing an­a­lyt­ics to get into fore­cast­ing or you will be just cre­at­ing clothes and this whole essence of fashion, cre­ativ­ity and unique­ness will not sur­vive. It will not give any brand an edge in the mar­ket. So, I gen­uinely feel that a set of peo­ple fi­nally is very crit­i­cal in this kind of space. Both the par­ties need to un­der­stand what the goal is. In fact it is more im­por­tant for the brand owner to un­der­stand the goal be­cause he is in the busi­ness for good. Whereas the in­vestor is into it for a def­i­nite pe­riod, only till he wants to be in the busi­ness. So if you do not align your goals and the speed, it can cre­ate is­sues be­tween the two. The in­vestor may want to move at a speed, which may al­low him to move out after five years. For in­stance in the last 3 to 4 years noth­ing has been con­stant – it has been re­ally dis­rup­tive. So from that per­spec­tive the pe­riod at which both are go­ing to be aligned needs to be very cer­tain.

Also, any brand owner needs to look at peo­ple who are go­ing to be there for long term in ad­vis­ing. I think those days are gone when a foray of peo­ple were re­quired to make tons and tons of eval­u­a­tions. So it is hard work out there and if you do it well, there is money to be made. But the money to be made is not in that quan­tum which peo­ple used to look at a few years ago. Tem­per­ing of ex­pec­ta­tions, tem­per­ing of how do you want to move ahead, all these things are very crit­i­cal for ei­ther par­ties be­cause as a brand you need to take pri­vate eq­uity money only when you are do­ing well. It’s a re­la­tion­ship of equals.

I feel it is the tim­ing, which mat­ters a lot. Also the over­all goals of both the par­ties mat­ter and even the con­nect that

you have with the peo­ple is im­por­tant. For me peo­ple are paramount, rest ev­ery­thing else can be set up. Cit­ing the ex­am­ple of Spykar, we still have the same set of peo­ple with two in­vestors. To­day we are among the top three in prof­itabil­ity. The pre­vi­ous in­vestor could not man­age any­thing but noth­ing has changed at our end as far as peo­ple and op­er­a­tions are con­cerned. It is prob­a­bly the align­ment of goals and am­bi­tions of the in­vestors, which were not right.


Please throw some light on the align­ment be­tween the in­vestor and the man­age­ment of the com­pany, be­cause that is very crit­i­cal to cre­ate wealth for both the stake­hold­ers.

Nikhil Mo­hta:

Fun­da­men­tally, some dis­align­ment will al­ways be there due to some ex­tent be­cause as an en­tre­pre­neur you are here for 20 to 30 years or in the In­dian con­text for a few gen­er­a­tions but as an in­vestor you are com­ing in for only a 4 to 5 years pe­riod. It is very im­por­tant to be clear what is doable and what is not. As an in­vestor it is very im­por­tant for me to know with whom am I part­ner­ing. It is not a busi­ness but it is the per­son I am part­ner­ing with and will I as an in­vestor be able to work with this per­son for the next 4-5-6 years or not.

When you are try­ing to grow 15 to 20 per­cent a year there will be cer­tain things that will go as per your plan and some not as per plans. Are you both able to un­der­stand and ac­knowl­edge that, have you both built in that mar­gin of er­ror, are you able to be­lieve and trust each other that both of you are do­ing the right things for the busi­ness? Full re­spect to­wards each other, work­ing styles that match well and com­pli­ment each other as well as trust in each other is very im­por­tant. As an in­vestor I won’t tell you what kind of prod­ucts to put in the store, where to source your prod­ucts from, what the de­signs pal­ette should look like, but at the same time in is­sues around fi­nanc­ing, gov­er­nance, strat­egy, etc. I pos­si­bly can add more value.

It is im­por­tant for both man­age­ment and the in­vestor to know what their roles gen­uinely are. As an in­vestor I am not in­ter­ested in be­ing a CEO of the com­pany. When you go down the path of rais­ing cap­i­tal it is al­ways bet­ter to do it when the busi­ness is look­ing good and things are look­ing up be­cause then you are in a pos­i­tive frame of ref­er­ence and you do a deal of equals. But at the same time you have to also recog­nise that the in­vestor is also there for mak­ing money out of this whole process and in­vari­ably it is not the in­vestor’s own money. He too has raised cap­i­tal from a va­ri­ety of in­sti­tu­tions across the world or from within In­dia. He also has a fidu­ciary re­spon­si­bil­ity to set up the whole busi­ness plan. When you set up the en­tire in­vest­ment con­ver­sa­tion as man­age­ment, you also need to have the same per­spec­tive what is real and what is un­real.

If I will put a higher val­u­a­tion to­day on the ba­sis of an un­real busi­ness plan that can lead to a break­down. The mo­ment you re­alise that the things are not go­ing as per the plan, de­spite things go­ing 15 per­cent a year, if I un­der­wrote a 25 per­cent growth story in val­u­a­tion and if it is a 20 per­cent growth story there will be a miss match.

I think the onus is on both the sides. As an in­vestor I take a man­age­ment busi­ness and be­lieve this is fine and un­der­write it then that’s my folly but even as man­age­ment if you agree that you push a busi­ness plan for the sake of to­day’s val­u­a­tion there is a chal­lenge.

As man­age­ment we need to take the per­spec­tive of value cre­ation from a longer term and there­fore build a busi­ness plan in a man­ner, which adds to the busi­ness from a 10 to 15 years per­spec­tive.

Most im­por­tant is the chem­istry be­tween the peo­ple on both the sides. They should have the right chem­istry, the right un­der­stand­ing and the right man­ner of work­ing with each other and trust and re­spect for each other.

If I am a mi­nor­ity in­vestor in a com­pany and I be­lieve that my ma­jor­ity part­ner is not do­ing things in the right in­ter­est of the com­pany, there will al­ways be a dis­pute. If I be­lieve that he is tak­ing de­ci­sions in the right in­ter­est of the com­pany, then though some de­ci­sions may go wrong but as long as both have un­der­stand­ing and com­fort, it works fine. The mo­ment as an in­vestor or as a man­age­ment I start believ­ing that my 80 per­cent has a dif­fer­ent value, that’s when the things break down.

Manu In­drayan:

I think it should be looked at some kind of a mar­riage and you need to live to­gether and be broadly in sync with how you want to lead your life. Other­wise it does not work. If you want to go on dif­fer­ent tan­gents, then that can be laid out in the be­gin­ning while draw­ing up the busi­ness plan, at the pre-in­vest­ment stage. It is not an overnight de­ci­sion that an in­vestor or a com­pany takes. It has to be a mu­tual de­ci­sion.

If some­one shows in­ter­est to in­vest in a com­pany, it is equally im­por­tant for the com­pany to ac­cess whether there could be a mu­tual fruit­ful part­ner­ship or not. Though money is pri­mary, but you also need to work to­gether and have com­mon goals, at least dur­ing the ten­ure of the fund and later it should also align to your long-term vi­sion. Maybe at that point of time, the founders or the com­pany own­ers should be flex­i­ble in hear­ing out and lis­ten­ing to ideas or strate­gies. Most of the time in­vestors with their kind of ex­pe­ri­ence and in­ter­ac­tions with other peo­ple in the in­dus­try can give you a lot of per­spec­tives. It is about tak­ing joint de­ci­sions as far as key strat­egy de­ci­sions are con­cerned. At that ex­tent you need to be very open and flex­i­ble and make your­self com­fort­able.

One of the in­vestors we were in­ter­act­ing with for the first round said if you feel com­fort­able pick­ing the phone at 10 o’clock at night and telling me some­thing which has gone wrong or right, we can be to­gether. One should have that kind of re­la­tion­ship with the in­vestors where you do not treat them as out­siders, but as part of your sys­tem. They are not there for your day-to-day man­age­ment or op­er­a­tions. Nor are they telling you to buy from X or Z. But then as a busi­ness even­tu­ally you are both in it to cre­ate a cer­tain value for the share­holder and to some ex­tent there has to be a cer­tain com­fort with each other.


A lot of funds that we meet also spec­ify that they want to in­vest only in a cer­tain size of the in­dus­try. Not very many com­pa­nies are be­yond `500 crores and very are few be­yond a `1,000 crores. Is that some­thing very crit­i­cal? How do you look at it?

Nikhil Mo­hta:

At ICICI Venture, we are very happy to work with com­pa­nies which have a busi­ness of `500 crores. There are dif­fer­ent in­vestors and dif­fer­ent stages of a busi­ness evo­lu­tion. When you are a startup and are grow­ing from a `100, `300 to `500 crores, you look for a dif­fer­ent kind of in­vestor and sup­port and be­yond that it be­comes a very dif­fer­ent ball game. I think the big­ger chal­lenge is the fact that a lot of cap­i­tal which came into the mar­ket, at least in the last few years is the cap­i­tal, which wants to see very rapid re­turns. Thanks to the e-com­merce story, peo­ple have got used to the 100 per­cent y-o-y growth, but un­for­tu­nately that does not hap­pen in the real world, and cer­tainly not in a sus­tain­able man­ner. As in­vestors and an in­vest­ment house we look at busi­nesses, which are sus­tain­able in the long run. We are not in­vestors who like to bag busi­nesses, which need 5 rounds of cap­i­tal raise to sur­vive. We are happy to write a larger cheque to­day and put more money in the busi­ness but only if you want to build a busi­ness plan in a man­ner that sus­tains.

At the end of the day in In­dia, most of us are back pro­mot­ers and man­age­ment teams. Most in­vest­ments in this space and other­wise are still mi­nor­ity deals. You want the pro­moter or the man­age­ment teams to have enough skins in the game for a longer term pe­riod for him/her to be ex­cited about do­ing that busi­ness. You do not want him/her to be on the road ev­ery year try­ing to raise cap­i­tal. You want them to fo­cus on build­ing the busi­ness on a sus­tain­able man­ner. Then whether you are a `100, `300 or `500 crores busi­ness, there are dif­fer­ent in­vestors who look at dif­fer­ent ticket sizes. At ICICI Ven­tures we look at ticket sizes of 20 mil­lion dol­lar and more. If some­one is smaller in size and scale they look for in­vestors who do the `50 to `60 crore kind of deal and for busi­nesses which are much larger, there are ob­vi­ously much larger in­vestors as well. You should be clear as a com­pany why you should be rais­ing money and why are you get­ting an in­vestor. If it is only for the money then you should prob­a­bly take a bank debt from some­one who is sit­ting 10,000 miles away and comes twice a year and will not ask you too many ques­tions but hope­fully as an in­vestor we are able to bring some value to the busi­ness by be­ing col­lab­o­ra­tive and by be­ing part­ners.

Take a view and ask who is the right in­vestor for you both as an in­sti­tu­tion and as an in­di­vid­ual and then with that in­sti­tu­tion and in­di­vid­ual you ne­go­ti­ate hard and get the best of the terms you can. Chal­lenge should hap­pen in the cur­rent frame­work how deals get run. You should in­vite a bunch of bids and see whom you are most com­fort­able with, who you can pick up a phone and call in the night to give the bad news. Ac­cord­ingly deal and ne­go­ti­ate as hard as you can.


What is your sug­ges­tion to the del­e­gates here and to the larger in­dus­tries who are try­ing to raise funds. What should be the top two things one should look at and what should they ex­pect?

Manu In­drayan:

Set out a very re­al­is­tic busi­ness plan and set the level of ex­pec­ta­tions very clearly on the ta­ble. We nor­mally tend to cre­ate un­rea­son­able ex­pec­ta­tions from the busi­nesses when they start boomerang­ing back on you. A very hon­est as­sess­ment of the busi­ness plan, backed by real re­search and un­der­stand­ing at your end is nec­es­sary. Even­tu­ally the in­vestors buy into that busi­ness plan and make their own as­sess­ment. Be very sure and hon­est of what you are set­ting out to do.

Sneha Jain Paul:

Busi­nesses need to fo­cus on what they want to con­tinue do­ing them­selves and what the in­vestors ad­vise on. If they can cre­ate that di­vide I think they can best col­lab­o­rate. When they know their key strengths and they marry into an in­vest­ment firm, which comes with an­other set of key strengths, they can just com­ple­ment each other. If that anal­y­sis is made, it can be the best col­lab­o­ra­tion.

San­jay Vakharia:

I feel that the pro­mot­ers and the founders know the busi­ness much bet­ter than the in­vestors and that is the be­lief one should al­ways have. If that be­lief is shaken then every­body’s money will go down the drain. So if you want to get any money in­vestor in the com­pany, one has to have a sense of who is part­ner­ing with you. Who is go­ing to the board with you? Whether he has enough ex­pe­ri­ence on ground be­cause the busi­ness on ex­cel and on ground is very dif­fer­ent. Also it is very im­por­tant to have enough money in the busi­ness or it will crum­ble. So only a bril­liant idea, a bril­liant op­por­tu­nity and not enough money at the right time, are the is­sues that prob­a­bly will take the whole fun out of the busi­ness.

Panel Dis­cus­sion Sum­mary

The whole con­cept of in­vestors and ap­parel busi­ness com­ing to­gether cre­ates value to the busi­ness. Both the par­ties need to un­der­stand what the goal is. An in­vestor needs to know with whom he is part­ner­ing with. It is not the busi­ness but the per­son he part­ners with and needs to see that will he be able to work with that per­son for the next 4 to 6 years or not. Both should have the right chem­istry, the right un­der­stand­ing and the right man­ner of work­ing with each other and trust and re­spect for each other. In­vestors look at busi­nesses, which are sus­tain­able in the long run and try to bring in some value to the busi­ness by be­ing col­lab­o­ra­tive.

“If you don’t have the right set of peo­ple align­ing then how­ever good pro­cesses or how­ever great is the mar­ket, they are not go­ing to work

for you. Whether you are on the in­vestor side or on the brand’s side, I think the pri­mary align­ment has to be on whether we are fine with each

other or not.”

-San­jay Vakharia, Di­rec­tor & COO, Spykar

“In­vestors and an in­vest­ment houses look at busi­nesses, which are sus­tain­able in the long run. No

in­vestor like to bags busi­nesses, which need 5 rounds of cap­i­tal raise

to sur­vive.

-Nikhil Mo­hta, Di­rec­tor - PE, ICICI Ven­tures

-Baqar Iftikhar Naqvi, Busi­ness Di­rec­tor, Wazir Ad­vi­sors

“An in­vestor brings in a struc­ture to the busi­ness to help you re­main or­ga­nized to cre­ate a brand. They bring in SKU based man­age­ment, to en­sure that your MIS sys­tem in place, strate­gise for you the right chan­nels to reach out to your end con­sumers.”-Manu In­drayan, Co-Founder & CEO, 612 League

“When busi­nesses know their key strengths and they marry into an in­vest­ment firm, which comes with an­other set of key strengths, they can just com­ple­ment each other.”-Sneha Jain Paul, Gen­eral Man­ager - HR, Manyavar

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