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D2C brands are essentially brands launched natively on a direct (digital) customer interface. These brands have become a play around 2010 and since then have been gaining a lot of traction. There are a lot of quintessential brands in India which are now marking up to nearly 4000 crores in sales, now playing at the global stage compared to the International original DTC brands. The speed to scale of D2C brands has accelerated over the years- with many brands hitting the 100cr ARR mark in 4 years and a few crossing the 1000 cr mark and becoming unicorns. As per the tracxn data, D2C have raised $5.9bn since 2015 with robust investments in 2022 and 2023, despite the overall funding winter.

So, what has led to the success and scaling of D2C brands?

Smartphones: The rise in smartphones user base with exposure to latest trends in social media has led to the scaling of D2C brand. Today everything can be done with single click and everyone’s buying everything online and the comfort of buying online has also given rise to D2C brands.

Clean-slating of brand preferences: This is wherein the GenZs are significantly influenced by their peer group and the social media influencers, and they may actively reject decadal old brands used by their parents (who largely had limited access/purchasing power for branded products.)
Startup ingenuity – Startups can swiftly adapt and are capable of experimenting. Startup ingenuity is rapidly executing to capture and define new white spaces versus relatively slow-moving large incumbents who have not been inclined to experiment with the same intensity.
Rise in consumer class: The Rising awareness and aspiration among the consuming class (estimated to be among the top 6 cr population) has different demands but with limited brands to cater to these. This leads to rise in D2C brands catering to different necessities of the market.

Supportive ecosystem: Enabling eco-systems in warehousing, logistics, third party channels such as Quick commerce- all ensuring reliable and quick product availability.

Why are D2C brands Interesting to VCs?

India’s GDP is highly weighted towards private consumption which represents a spend of $2 trillion, nearly 60% of GDP. Over time, more and more of this consumption has been moving from basic necessities to discretionary spending. Playing this theme has resulted in the creation of many valuable companies- in fact the top 10 listed FMC companies in India each have a market cap of more than 50,000 crores.

India has a growing demographic which has the propensity to pay for its increasing aspirations- and it’s still underserved in many respects. From a venture perspective, relative to many other sectors- the consumer goods sector has been a fertile ground for sizable acquisitions with incumbent large companies actively seeking targets to build out their offerings in white spaces and with digital distributions. Many of the large companies are seeing their organic growth rates barely cross nominal GDP, and the new age brands which successfully tap into the urban affluent are a great boost to them. The playbook for a D2C brand is relatively well defined- and as they hit category leadership with strong economics, they are candidates for acquisitions.

What’s next for D2C brands?

As more and more VCs have begun investing in brands, there is a possibility of saturation and over-valuation, which can lead to poorer returns from the sector down the road. At the same time- the demand vectors continue to evolve and provide medium-term opportunities. Some key vectors of interest include:
As consumer aspirations climb, demand for services alongside products will surge. Brands will either integrate services as a core offering or create combo packages. This under-penetrated space holds immense potential. There are newer ventures like in sports facilities and consultative haircare which are gaining traction, paving the way for more such innovations.

Going beyond India

There have already been success stories of brands selling well beyond India. At a certain scale, it may be an imperative to hit that higher tam and drive valuation. It’s probably going to happen more as founders become more confident of taking on international markets earlier in their journeys, while larger brands will leverage their scale and valuation to acquire international footholds through acquisitions.

The author is the General Partner at WEH Ventures. Views are personal