As India’s venture capital (VC) landscape evolves, new trends are emerging that reflect the dynamic changes in consumer behavior, digital channels, and brand-building strategies. In an insightful conversation, Anand Shankar, Senior Vice President at Sharrp Ventures, delved into the key trends shaping the future of the VC sector. From consumer brand journeys to the rise of vertical marketplaces, here are six crucial takeaways for investors and entrepreneurs navigating the VC space.
1. Three Phases of Consumer Evolution
Shankar highlighted that consumer evolution in India has passed through three distinct phases. In the early days, domestic behemoths and multinational corporations (MNCs) dominated the market, largely due to their extensive distribution networks and mass-market price points. However, with the rise of digital channels, product discovery has become easier, empowering consumers to choose what, where, and how they buy.
“I believe we are today entering the third phase of consumer evolution where consumers are becoming more discerning and nuanced,” said Shankar. “In the next 5-7 years, I believe consumers will graduate even further from larger incumbent D2C brands to more hyper focused problem-solution oriented, digitally native brands especially as some use cases become deep enough verticals to service.”
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2. Rise of Vertical Marketplaces
One of the most significant trends Shankar foresees is the emergence of vertical marketplaces, particularly in categories like food and beverages. While the first wave of e-commerce was largely horizontal, verticals are now breaking out, as seen in the beauty and personal care space with success stories like Nykaa. There are many more high frequency and dense use cases which can become vertical marketplace break outs in the next few years.
“The next five years may see more examples of vertical plays in food and beverage- we are already seeing some traction with organic, farm to fork F&B marketplaces and can see more action as the supply chain stabilises.” However, he also pointed out that creating a successful vertical food marketplace will require addressing challenges related to regional preferences, assortment, and optimising for category AOV profiles.
One area of increasing interest for Sharrp is nutrition, health, wellness and sports. They are targeting this space because it offers opportunities to capture a higher AOV and improved gross margin profiles relative to certain mainstream pockets of F&B. The F&B sector, with its vast market and high consumer frequency, presents significant growth potential.
“We’ve already made a few seed-stage investments in nutrition, with one soon to be announced and another already public. This category presents a great potential for building large-scale businesses, especially if we can solve price points and distribution challenges,” he said.
VCs are particularly excited about companies that develop innovative formulations, many of which are clinically validated, and those employing unique go-to-market strategies, such as doctor-led approaches. As distribution challenges are addressed, this category has the potential to foster large-scale businesses, making it a prime focus area for early-stage investments.
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3. Targeting the Next 100 Million Consumers
The next wave of growth for D2C brands will come from the “next 100 million” consumers in India. This cohort, although outside the top 10 cities, has aspirations similar to their metro counterparts. As distribution becomes more efficient and discretionary spending power rises, these consumers will drive a broader play for emerging brands.
“I would like to think that there is a very similar brand preference and aspiration in T2/3 cities and towns relative to what their cousins in the metro cities are consuming as information about trends, new styles, and social influence gets democratised via digital channels” noted Shankar. This creates significant opportunities for brands that can tap into this growing market.
4. Offline Channels Are Still Key
While digital-first strategies are crucial for early traction, Shankar emphasized that brands must eventually scale across multiple channels, including offline. Despite the rise of Q-commerce and other digital innovations, 85-88% of consumer spending remains offline.
“As a venture investor, we need to be cognizant of what it takes for a brand to find its footing in offline channels,” he explained. “Brand building is a decadal journey, and patience is key.”
Shankar advises, “It takes 8-10 years to build a brand with strong network effects, but the potential for a INR 1,000 crore category is there for those who can persevere.”
5. Founder Grit and Innovation Drive Longevity
In an era of fast product discovery and rapidly changing consumer preferences, the longevity of brands depends on the founder’s grit and ability to innovate. Shankar stressed that successful founders must stay connected to their customers, continuously innovate, and maintain a strong value proposition.
“If founders can keep their innovation engine strong and stay connected to what their customer is buying and why, there is potential to build a sustainable brand,” Shankar said. “There is a good chance to build large brands if the founders are on their game of consumer insighting in a continuous loop.”
6. D2C as the Launchpad, but Omnichannel for Scale
Shankar underlined that D2C is often the intuitive first channel for new brands, offering a direct line to consumers and early proof of traction. However, for brands to achieve significant scale, they must embrace an omnichannel strategy that includes both online and offline channels.
“We need to be cognizant that online-only is not going to get you to 500 crore in revenue,” Shankar advised. “The tilt changes towards offline as you hit the 100 crore run rate.”
The VC sector in India is at an inflection point, with emerging trends reshaping how brands grow and scale. From the rise of vertical marketplaces to the importance of offline channels and targeting the next 100 million consumers, the landscape is becoming more nuanced. As Shankar aptly put it, “The best is ahead of us.” For investors and entrepreneurs alike, staying ahead of these trends will be crucial in building the next generation of successful Indian brands.
