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Descendants of business families have a good trajectory in the world of startups – SME News
Kiran Shah, founder and CEO of ice cream brand Go Zero, joined the family-owned company Apsara Ice Creams in 2014. Founded in 1971, Apsara had just a handful of stores in Mumbai until then. Shah grew the business to 100 stores by 2020. However, after the pandemic hit, growth stalled. Shah wanted to raise capital to grow faster, but the family wasn’t interested in it. Hence, he exited the family business in 2021 to build a new-age, healthy, and guilt-free ice cream brand.
The startup recently raised ₹12.3 crore as part of its ongoing pre-Series A funding round from its existing investors including DSG Consumer Partners, Saama, and V3 Ventures, with participation from Reckitt Benckiser’s Senior Vice President and Managing Director Arjun Purkayastha among others. The startup has so far raised ₹2.5 million and in the last one year, it claims to have grown 5X.
The advantage of these entrepreneurs is that venture capitalists (VC) and private equity (PE) firms often view them as safe investment bets. This also aligns with the general caution exercised by them since the funding winter.
“While early-stage investments inherently carry risks, entrepreneurs from family businesses mitigate these challenges with ingrained business acumen, first-hand experience in managing operational complexities, and a relentless focus on optimizing financial outcomes,” Pratekk Agarwaal, Founder and General Partner, GrowthCap Ventures told FE. In April this year, the early-stage venture capital firm invested in mobility startup Advance Mobility, founded by second-generation entrepreneur Mohit Jalan, whose family runs a raw materials company.
Some of the other notables beginners that are run by second and third generation entrepreneurs and have raised institutional funding in the last year include Farmley, Rare Rabbit, The Pant Project, Bella Vita, Clarks Hotels, Sustvest, Bimaplan, Daalchini, Finsall, among others.
For instance, in May this year, menswear and fashion brand Rare Rabbit closed its first round of institutional funding of ₹500 crore, led by A91 Partners, with participation from Ravi Modi, Chairman and Managing Director of Vedant Fashions and Nikhil Kamath, the co-founder of Zerodha. The startup, founded by Manish Poddar, who hails from the Radhamani group family, recorded a revenue of ₹600 crore in FY24 with an operating profit of ₹100 crore.
“In today’s competitive business cycle, when fundraising becomes a challenge, past experience comes in handy to run the show and take it to profitability, which is a plus,” Anil Joshi, Managing Partner, Unicorn India Ventures said. The firm has invested in three second-generation-led startups, including Daalchini, Probus and Finsall.
Entrepreneurs from business families, investors believe, have a proven track record and brand legacy, which reduces risk for investors. “They also have an established network with stakeholders in the industry and access to mentorship from their family members. Additionally, their deep industry experience gives them a competitive edge over first-time entrepreneurs, increasing the company’s growth potential,” said Shiv Parekh, founder and CEO of hBits.
This aligns well with the investor’s goals, he added. Parekh grew up in a family that has been involved in the real estate industry for over 35 years. He started hBits, a fractional ownership platform, in 2018. The startup has raised $3.32 million so far and is backed by InCred Capital, Jungle Ventures and others. Apart from hBits, Kapiva, NOTO and Runaya are some other startups launched by entrepreneurs from entrepreneurial families that have raised funding in the past.
Market opportunity, value proposition and quality of founders are some of the criteria that early stage investors look at. And founders of business families probably score 10 out of 10 on the last criterion. “Although our main requirement is the technology understanding, innovative business models and knowledge of what they are doing, coming from a business family can bring an added business advantage,” said Manoj Agarwal, co-founder and managing partner at Seafund.
We are seeing a rise in founders coming from entrepreneurial families and especially with experience, that is an added advantage for us, he said. Finsall, Zippee, Eobin George are some of such second/third generation led startups that the firm has invested in. VCs believe that such founders are also more likely to understand the nuances of corporate governance. “It’s a case of ‘horses for courses’. They may be better positioned to execute these businesses and understand the governance factor required to build a more scalable outcome with external capital,” said Deepak Gupta, general partner at WEH Ventures.
“While there is no 100% guarantee that the companies these founders build will be successful, the chances are definitely higher than those of a first-time founder with no track record in the industry,” Shah said.