 "D2C start-up mCaffeine raises Rs 240 cr at a valuation of Rs 1,000 cr")
It is not often that a start-up raises six times of its total fundraise in the previous six years, and across multiple rounds, at one go. But that is exactly what has happened with D2C start-up mCaffeine which makes coffee-based beauty and personal care products.
Founded in 2016, the company had attracted a cumulative of Rs 60 crore through successive rounds of funding over the years. Now, it has raised Rs 240 crore at a valuation of Rs 1,000 crore in a round led by Paragon Partners, a Mumbai-based private equity firm. According to the company, Marico chairman Harsh Mariwala and former Reliance Capital executive Madhusudan Kela have also bet their money on the company in the Series C funding.
“We have grown to Rs 250 crore of annual revenue rate (ARR) in a very capital efficient manner, unlike many other D2C brands out there. Now, the goal is to hit Rs 1,000 crore in ARR in the next couple of years,” said Tarun Sharma, CEO and co-founder of mCaffeine.
The company has a plan with four pillars – adding up to 20 new products to its armoury of 55 products; aggressive expansion in 12 international markets like the US, UAE and parts of Europe; expanding the domestic footprint by doubling its presence in general trade and modern trade stores; and acquiring other D2C brands.
Investors say that a key drawback with many ‘D2C brands’ is that they are not ‘D2C’ enough – meaning, their sales mainly happen through channels like e-commerce marketplaces such as Amazon and Flipkart or shelves of offline stores.
Sharma contends that mCaffeine does not have such a problem – while 46 per cent of the sales happen on the mCaffeine website, 44 per cent is accounted for by e-commerce marketplaces and 10 per cent through offline stores.
“Although it is a good mix, it is not ideal as valuation gets impacted if an online brand is too dependent on third party distribution. Typically, the valuation matrix of D2C brands is this – 2X weightage on revenue from physical channels, 3X weightage on revenue from e-commerce marketplaces and 5X for pureplay D2C sales via website or app,” said a venture capital investor in consumer brands.
“In a sense, all of this boils down to capital efficiency of reaching the end consumer,” he added.
However, Sharma of mCaffeine still has his eye on the ball in terms of judicious utilisation of cash. “The reason we are not going ahead and launching our own retail stores is that such a thing requires a lot of hands and legs. We know that India has 50 lakh retail stores already, of which we are currently present in 5,000. There is a lot more we can expand before setting up our own brick and mortar storefronts,” he explained.
Backed up by gross margins of around 70 per cent, which is top of the bracket for the beauty and personal care segment, the company is on the path to profitability as it looks to prepare for a public listing in the next few years.
“We are immensely profitable at the unit economics level even as we invest in things like marketing and technology to grow at a faster pace,” said Sharma.
According to him, the metric that can make or break a D2C company is the revenue per product – and for mCaffeine the figure is Rs 7 crore -10 crore within a year of a product’s launch.
One of the factors that has helped mCaffeine is its singular focus on millennials and GenZs – and as such its products are generally priced in the range of Rs 199 - Rs 699, playing in the buffer zone between mass market and premium. While more than 51 per cent of its sales are from customers in the 18-25 years-old age bracket, around 26 per cent is accounted for by those in the 25-30 years age bracket.
“The thing about the younger crowd is you do not have to optimise for different geographies. Millennials have the same aspirations and tastes regardless of which city or state they reside in,” said Sharma.
– Total funding: Rs 300 crore
– Valuation: Rs 1,000 crore
– Annual revenue rate: Rs 250 crore
– Gross margin: Around 70 per cent
– Number of products: 55
– Price range: Rs 199- Rs 699
– Sales mix: 46 per cent from own website, 44 per cent from marketplaces, 10 per cent from general trade-modern trade outlets
– Offline presence: 5,000 stores
– Investors: Paragon Partners, Singularity Growth Opportunities Fund, Sharrp Ventures, Amicus Capital, RPSG Capital