Lightspeed’s Investment in Globalbees

A question that we always answer for our investments is “Why now?” Why should this opportunity exist today?

The India e-comm story is exciting ($120B+ by 2025–30% annual growth) but it has several layers to it.

First, the erstwhile ‘sleepy categories’ are growing rapidly. Electronics and apparel have traditionally dominated GMV, however COVID-19 has given a fillip to categories like home and kitchen, health — among others — which are growing 2–3x of overall growth rate of the e-comm industry. 4,000+ sellers are doing revenues of INR 1cr+. While that funnel narrows rapidly as you move up the revenue scale, a few sub-segments are doubling YoY which will increase this pool over the next few years.

Second, there is a rapid growth of brands in a traditionally brand starved market. This phenomenon has played out across both marketplaces and direct consumer channels. Quality products fashioned either after global trends or addressing unique Indian customer pain points have taken off. Customers, in turn, have shown a willingness to pay a premium as e-comm captures a greater share of their wallet. As a result, new age ‘digital-first’ brands hit scale revenues much faster today by leveraging multiple channels of online distribution. Many of these businesses have strong unit economics. However, they reach a growth plateau as marketing and working capital needs increase, and operations get more complex.

Third, professional entrepreneurs are on the rise in this segment. The strong macro tailwinds and maturing of the D2C sector is attracting professional founders (as opposed to family-owned businesses or SMEs) to start and scale their brands.

The confluence of these three factors offers a perfect recipe for a house of brands to come into play. Currently, founders must navigate endemic scale challenges and fragmentation of the digital commerce landscape spread across multiple dominant marketplaces. We believe that Globalbees will add value to these founders by letting them participate in the upside as the platform optimizes operations, and turbocharges growth through the omnichannel distribution expertise that it brings.

The term ‘Thrasio for India’ has been used as a shorthand to refer to companies in this space. We think that this overlooks deep complexities that are inherent to operating in the Indian context.

Take distribution for example, Amazon has 40%+ share of the US e-comm market and is 6x the size of the next competitor. In India, regulations and the private funding landscape has created an even field. The top two platforms are almost equal in terms of market share while other marketplaces dominate vertical categories like beauty, apparel, baby care etc. A ‘Thrasio for India’ then has its task cut out to optimize not just for a single marketplace but to demonstrate leadership across multiple ones.

Next, take the structure of businesses themselves. 40% of the top sellers on Amazon are based in China, while other potential targets have contract manufacturing in China. On the other hand, India, with a fledgling marketplace ecosystem and government push for indigenization, sees a proliferation of SME led production, local contract manufacturing or family firms becoming 1st gen online brands. Given this reality, the team needs to bring deep local sourcing expertise.

Apart from that, acquisitions that have a clear upfront + earnout template in the West become more complex and need that human touch with deeper involvement of brand founders. As Nitin said, “Some brands will be acquired in a span of three years or so”.

Lastly, there is a question of acquisition targets and subsequent brand strategy itself. Thrasio has acquired 100+ private brands and operates a catalog of 15,000+ products. Private labels in India have not developed that level of depth, dealing with this requires innovation by incubating adjacent product lines for acquired brands and seeding new categories which are not only targeted towards the local market but can potentially scale internationally as well.

In Nitin and Supam, we found the right team with the tenacity and the experience to go after this complex but large opportunity. Their powerful insight was that ‘each customer is unique’ and commoditized distribution will create a new set of microbrands that deeply resonate with a sub-segment of customers. Our multiple interactions convinced us that Nitin and Supam — with deep experience in building and scaling brands, product lines, marketplaces, supply chains, and omnichannel distribution — brought the right skills to bring the vision of a house of microbrands to life. At Lightspeed, we love a good hustle and were absolutely blown away by the pace of their execution. We could not be more convinced that Nitin and Supam are onto something special here. They are the right founders to shape this opportunity.

The age of microbrands is here and we are extremely excited to go on this journey with Nitin, Supam and the team at Globalbees.