How IvyCap Ventures hit a ‘Purplle’ patch
Article authored by Ashish Wadhwani, Managing Partner, IvyCap Ventures Advisors Pvt Ltd
Purplle, which is one of India’s largest e-beauty destinations today, became IvyCap Ventures’s first dragon company. A dragon is a company that returns the entire fund during the life of its investment and is a more accurate measure of value creation than a simple measure of valuation for the company. Purplle recently entered the Unicorn club. Let’s dig deeper to understand their strategy that sets them apart from the competitors in the market.
Idea That Raised Questions:
Many years ago, when we were investing in Purplle at the very early stages of the company and even after that, we often got the question, why will Purplle succeed when larger platform players were selling the same personal products? This question was very relevant given the formidable competition Purplle faced from not only the marketplaces but also traditional FMCG brands and other emerging digital sales formats. This is a good time to reflect on why Purplle succeeded in its journey.
To start with, the size and development of the personal care market and the meteoric growth in the online sales of these products to consumers are one of the fundamental drivers. In addition, the Indian market also offered tech-driven incumbents whitespaces because of a limited range of products for a large number of consumers. Without the tailwinds of technology and sector growth and without the whitespaces, Purplle would have lesser wriggle room in innovating its business model.
Early Movers Advantage And Use Of Technology:
In addition, to positive market conditions, Purplle has built a competitive position based on a differentiated business model. Its success is largely because it has been a pioneer many times over in the e-commerce space in India. It was amongst the first to recognise the power of vertical plays in e-commerce. It was also one of the early movers who realised and successfully built a brand cheaply on the internet in the personal products space. While e-commerce became synonymous with deep discounts for consumers, Purplle harnessed technology and personalisation to provide consumers with a better value proposition for the same price, than offering them deep discounts and loose money. They sprang ahead of most e-commerce players in the use of data and were able to leverage data to build products and brands.
While traditional brand companies in the personal care space spend several quarters, even years in building new brands and SKUs, and with risky investment in inventory, Purplle accomplished this through the use of data. The underlying business model and the growth that was delivered were achieved without compromising on an eye on spending judiciously to achieve the growth. The decision to take the Capital efficient and judicious spending path to growth as opposed to buying its way to growth was a very important aspect of Purplle’s strategy. This has benefited all shareholders and founders.
Decoding The Success Strategy
At the heart of the success is the passionate, very capable founding team of Manish Taneja, Rahul Dash, and their absolute conviction that they could disrupt this space and become a significant player in this space. They have been obsessive about giving consumer value, using technology to innovate, and staying ahead of the competition. Lastly, their focus on capital efficiency and on governance has played a key role in driving returns for investors.
Going back to the initial idea of creating Dragons in the portfolio we have learnt a lot of lessons through our investment in Purplle.
Word Of Advice: Ownership Vs Membership
Choose sectors and opportunities that have a huge runway to grow and get disrupted. This is at the core of venture investing. The ability of an investment to return an entire fund is likely to happen when a fund takes a large stake at an early stage in the portfolio company. It implies that the fund takes a meaningful stake in the company and invests a significant amount as a proportion of the entire fund. We call it “ownership rather than membership” in our portfolio companies. Ownership is not in the sense of control but of significant investment in capital, bandwidth, and effort to make the company succeed. Without this, an investment can give good returns but has lower chances of creating dragons.
Linked to the idea of “ownership vs membership” is the idea of holding larger positions in more concentrated portfolios rather than smaller stakes (membership) in many more companies to play the probability game. This approach is slightly at odds with the perception that venture investing is all about “spray and pray”. It is not hard to imagine that if a fund invests a very small portion of its investment corpus (spray and pray) in a high-growth company that becomes a unicorn, the ability of this investment to return the entire fund is less likely than if the fund had invested a larger portion of its investment in the company.
Obviously, the company must grow very rapidly and hit scale and it must do so without diluting the initial investors beyond what is reasonable to account for the growth so that at the time of the exit the fund has a significant stake in the company. It is also clear that if the company burns less invested capital to reach its valuation, it is more likely to give the fund high returns than by burning more, assuming that the final valuation is more or less the same. There is a long-term dilution cost to heavy burn, hence founders and investors must be careful to use the capital raised judiciously. On the same note, differentiated business models go a long way in capital efficiency.
Finally, founding teams and their mindset matter in outcomes. At IvyCap we are excited about creating dragons and we are looking forward to more such outcomes in Fund 2 and Fund 3.
About IvyCap Ventures
IvyCap Ventures — an early stage Venture Capital firm that nurtures entrepreneurs and their ideas into sustainable businesses, leveraging our Global Alumni Ecosystem.
