In this interview, Nikhil Vora is the Founder and CEO of Sixth Sense Ventures Advisors LLP takes us through an interesting journey with his company.
Q. Brief us about the Company journey of rich experience – origin, inception, early issues, success stories, and major milestones, to name a few.
Sixth Sense Ventures is India’s first domestic, consumer-focused venture fund that is investing in the Consumer of Tomorrow…Today!
Sixth Sense Ventures backs first generation entrepreneurs and invests in the consumer of tomorrow. Most importantly, Sixth Sense has become the preferred partner for consumer-focused businesses.
The core of Sixth Sense lies in the belief that the next big wave of dysfunctional growth will be led by players who are going to be driven by completely different skill sets / capabilities and not necessarily capital. Three pillars defined the founding of Sixth Sense: (a) leverage our knowledge of the consumer centric spaces to help first generation entrepreneurs in disrupting traditional categories (b) bring our entire ecosystem onto an organized platform which in turn
would help our investees (c) extend the validation achieved in the angel portfolio, to identify the right founders who are building products/services for the consumer of tomorrow.
Sixth Sense was launched in Feb 2014 as India’s first consumer venture fund, with a single objective to be the most credible venture fund in India, investing in the Consumer of Tomorrow…Today! Seven years on, and it’s been an incredible journey. As we look back, it’s very humbling to reminisce our interestingly 7 milestones:
1. First venture fund to return capital back within 2.5 years
2. Youngest fund to raise capital from Ministry of Commerce
3. First fund to offer a 0% management fee option
4. Best Fundraiser of 2018 – raised over 2X the target corpus
5. Highest VC Exit by IRR 2019
6. Best Early-Stage VC 2020 and Most Outstanding VC Fund 2021
7. One of the best performing AIFs in India – SSIO I outperformed peers by 3X, and SSIO II outperformed peers by 4X (CRISIL)
Q. Brief us about the CEO/Founder of the Company.
Nikhil Vora is a Consumer & Finance industry veteran with over 28 years of experience. Nikhil is the Founder and CEO of Sixth Sense Ventures Advisors LLP – India’s first domestic consumer venture fund. Sixth Sense backs first generation entrepreneurs and invests in the consumer of tomorrow…today! Most importantly, Sixth Sense has become the preferred partner for consumer-focused businesses, as Nikhil and Sixth Sense would want its DNA to be that of founders-first (and how they would run their business), and less as investors.
Nikhil was earlier the Managing Director & Head of Research at IDFC Securities and has been regarded as one of the strongest analytical minds in the country. Nikhil has been invited by Nestle Global, Unilever, Aditya Birla Group, Marico, Godrej etc. to evolve a strategic roadmap for their businesses. He excels in identifying emerging consumer trends and his research has been accredited by some of the largest global funds like Capital, Fidelity, Alliance Bernstein, Putnam, Schroder’s etc. Some of his work includes differentiated presentations on Food
Security, Changing DNA (of organizations) and If I Were (based on strategies consumer companies should adopt).
In the Asia Money polls 2012, Nikhil was voted as India’s No.1 analyst. He also has the rare distinction of being voted Asia’s Best Analyst by the Wall Street Journal in the same year.
A post-graduate in Management, Nikhil is an alumni Future Leaders Program at the Saïd Business School, University of Oxford, London. He was also bestowed with the ‘Thought Leadership’ award by IDFC Ltd.
Along with advising clients, he also has been an angel investor and on the board of a few of his investee companies. Some of the Venture Investments made by Nikhil includes – One97 (Paytm), Vini Cosmetics (Fogg), Parag Milk Foods (Go), Kangaroo Kids, BVG, Techfront, Purplle, InCred, Bewakoof, Saucery, ENpower, Pariksha, Expertrons, Lido, and Fintso.
Q. Kindly talk about the exclusive products or services offered by the Company, How does it distinguish you from your competitors?
The first fund, Sixth Sense India Opportunities I (SSIO I), a 2016 vintage, invested the entire corpus of Rs.118Cr. in 10 companies across the consumer value chain. SSIO I is already at 2.5X, and Sixth Sense has achieved a rare feat of possibly being the first VC fund in India to return capital back to its investors within 2.5 years of closing the fund, that too from just 4 exits (7 exits total).
SSIO II, our second fund closed at Rs.515Cr., more than double our target corpus of Rs.250Cr. on the back of enthusiastic investor interest. Sixth Sense achieved this feat in a record
9 months, despite the volatility in the markets. SSIO II, a Dec 2018 vintage, has invested in 14 companies, out of which 10 have raised the next round.
Q. What is the vision and mission of the Company?
Vision:
Be the first call for founders disrupting the consumer landscape, and partner with them to build the future together.
Mission”
Sixth Sense Ventures was founded on the back of a single core belief – to create the most credible consumer fund in the country. Credibility has to percolate in everything that we do – be it our investment philosophy, our business model or our investments. Anywhere in the world, if a business doesn’t deliver, it doesn’t make money – but fund management is the only business where you make money even if you do a mediocre job. To break this norm, we launched, for the first time in India, a 0% management fee fund, in an industry where the 2-20 structure has been a norm for decades. You only pay for performance – hopefully, that’s how the next-generation of funds will operate. Also, in fund management, a 25-30% is an acceptable hit ratio but not for us, our target is almost 100%.
Q. What is the present scenario of the financial sector? How are you contributing to making it better?
The listed space is either dying or will be dead soon, those companies will probably not create value.
That’s pretty ironic, I (Nikhil Vora) keep thinking about this. I have spent almost 90% of my working life in listed market, was 25 years in listed market and yet when I look at the market, I feel that India is at the zone where listed businesses are pretty much businesses which are mature and lived their life cycle. The ability to innovate and disrupt existing businesses is found to be
wanting. I don’t see them playing the disruptor role, which is so critical in a market like India, where disruption is seen as an apt thing to do. I keep reflecting this, if I look at Fortune 500 and I have talked about this often. I see 90 percent of them die or become irrelevant over a period of time. I see listed market in India pretty much symbolic of Fortune 500 companies. They die or become irrelevant over a decade in cycle.
The market behavior that one has seen over the last three to four years, while it pains all of us, our investors also, but it doesn’t really surprise me so much. This is something which was just waiting to happen. It happened faster than what one should have envisaged, but I don’t see that changing drastically. I am not implying market momentum, but I think businesses slowly will erode unless and until they change and disrupt. I don’t see the ability to disrupt existing leadership to be of a very high order or it’s in a very few spaces, but I see that happening at a galloping space in private companies, private entrepreneurs, first generation entrepreneurs who are really taking this opportunity to disrupt market leaders. That’s the reason why Sixth Sense was formed. We thought we will invest in disruptors in consumer space. Existing players, existing listed companies even if they are leaders, their ability to maintain leadership and sustain value that leadership is going to be extremely challenging. You will have exceptions, but I believe exceptions don’t make the rule.
It may well be that the current set of examples that we are seeing in the listed space are not doing so because being listed is not a pre- requisite to not be disruptive. At some point of time over next 2-4 years even large listed companies could probably throw out a niche or two could be disruptive and change the model. There will be exceptions. But when I look at broader businesses in our country right now, look at banking. You have a dominant leader in State Bank of India or HDFC Bank, but the disruption in financial services is not being led by an SBI and HDFC It is being led by players outside that context. It’s being led by a new age consumer finance company let’s say Bajaj, which has evolved in last 7- 8 years, or Paytm in some form or lot of other fintech companies as we look at it. Disruption in financial services, which should ideally have been led by existing leaders is not being done by them.
Disruption in consumer businesses, which is close to my heart, is not being led by Unilevers of the world or ITCs or the Colgates of the world, its being led by new age businesses who are doing it in spaces which they are very comfortable in, but the more they get comfortable in particular niche, the ability to do scale becomes more apparent. So, a Unilever is not disrupting the space or ITC is not doing it. You see newer players, a Veeba is doing it in some form. You start to see it in Bira for instance, I am being biased because we own stakes in these companies. Bira is doing it in alcoholic liquor space and Parag is doing it in milk and so on. These are all relatively new age businesses which have evolved, and you will see lot many develop.
My fear and this true in a lot of industries, look at print for example, I have looked at that space not a single print player and we are talking about large existing players like the Bennett Group, Times. Look at HT for example, Jagran, so the top 3-4 players and not a single player and I am being critical of them. Not a single player has innovated and disrupted how print should be in India for the next 10 years, how Indian consumers will consume print over next 10 years. They are not going to consume print by reading a newspaper any more or that is becoming slightly irrelevant over a period of time. You have seen players evolve in that category. So, Inshorts has evolved whereas the leaders have not really done the development.
Look at auto, very interesting example. In world where top 3 auto companies actually lose money, the GMs, the Fords and the Chryslers of the world actually lose money. You have it in India where the largest players the Tata’s, Mahindra, Maruti for instance have done practically zero innovation or zero disruption in the category. Auto is a space which is getting disrupted almost completely with the advent of the Olas and the Ubers of the world. Ironically, I remember, Mr. Mahindra at some stage talking about the fact that they will have consumption issues because the sharing capability of Ola and Uber will increase and thereby people will not own cars. I fail to understand why a forward looking corporate like Mahindra could have not created an Ola in India.
The Great Indian Consumption Story is crystallising rapidly and in India, consumption has been outperforming all other sectors. While all other firms are either sector-agnostic or technology-focused, Sixth Sense has stayed true to its cause of being a consumer fund, not getting swayed by trends. Thus, giving us an unfair advantage over trend investing.
Depth in the Indian consumer market was missing for the last 5-6 decades. The market has been symbolized by a duopoly, even though there is no IP attached. This has happened because of the fear of taking on the distribution of FMCG giants. Not anymore, with ecommerce, innovations in distribution, and digitization – new brands are now able to take on leaders. Leaders of tomorrow are getting born today. As buying habits and brand preferences change – a great measure will be to foresee changes in consumer behavior patterns over the next 5-10 years. Businesses will need to evolve to become relevant for the consumer of tomorrow, today.
There are large consumer categories that already exist and thus offer a strong opportunity. Leaders of yesterday will NOT be the leaders of tomorrow. We believe challengers will shake the leaders in these spaces to carve out market share. Our intent is to identify and partner with such disruptors, operating in the largest and most sticky consumer categories in India.
Today, brand awareness is at the highest while brand loyalty is at the lowest in our country. Moreover, India is the most over-retailed yet the most under-penetrated brand market in the world. Disruption in modes of distribution and marketing, the two core pillars of brand- building, is further supplementing this. The result – businesses are being able to walk a longer mile with a far more efficient use of capital. Consumer brands are clearly in a sweet-spot!
Sixth Sense invests in first-generation entrepreneurs who are disrupting large, sticky consumer categories and carving a niche for themselves. There are two types of businesses – innovators and disruptors. Innovation in India is a challenging task as the environment is not very conducive. We like to invest in disruption – there is a market that has already been created and an opportunity that already exists – all one has to do is shake the leaders. We may not participate in businesses just because we might get a great value – values are very transient. We want to invest in founders with whom we can create great value with!
Business lifecycles are turning shorter – successful business cycles have reduced from 30 years to 15 years. Hence, we want to invest in businesses that have a longer lifecycle of their own. What we invest in today, will not be the same 3-5 years down the line. Hence, it is extremely important to invest in the right founders, who are just 6-12 months ahead of the curve. If we get that line of sight, we’re on the right track.
Q. What are the marketing strategies adopted by Company?
SSIO-II, our second fund closed at Rs.515Cr., more than double our target corpus of Rs.250Cr. on the back of enthusiastic investor interest. Furthermore, while other funds struggled to raise capital, Sixth Sense achieved this feat in a record 9 months, despite the volatility in the markets. This demonstrates the pressing need in the market for an alternative investment product with a unique approach.
While it took almost 10 years for the first 4 unicorns to get created in India, the next 20 unicorns have been created in less than 5 years! The venture space is clearly coming-of-age and our ethos of “investing in the consumers of tomorrow” is helping us lead the charge in the consumption space through a focussed approach. This has resulted in the Ministry of Commerce (through its investing arm, SIDBI) investing in Sixth Sense. It was heartening to see The Ministry of Commerce come in as an anchor investor, furthermore for a young fund such as ours. They had invested in the first fund, and on the back of Sixth Sense’s exemplary performance, they invested 5X in the second fund. Furthermore, leading family offices, top corporate leaders and eminent personalities in the country have invested in the fund, along with HNIs.
Q. How do you portray the future of the Company in the next decade?
The most preferred partner for consumer startups and companies and India’s best performing fund.
Q. With respect to your distinctive products and services, how have you helped bring positive developments in the Finance industry?
Sixth Sense invests in first-generation entrepreneurs who are disrupting large, sticky consumer categories and carving a niche for themselves. There are two types of businesses – innovators and disruptors. Innovation in India is a challenging task as the environment is not very conducive. We like to invest in disruption – there is a market that has already been created and an opportunity that already exists – all one has to do is shake the leaders. We may not participate in businesses just because we might get a great value – values are very transient. We want to invest in founders with whom we can create great value with!
Q. What advice would you give to the upcoming entrepreneurs and professionals?
Businesses struggle when they don’t have demand, here, ironically, we have all leaders who are struggling because they could not cope with the relevant supply that the consumer was wanting. They have demand. A banking channel has demand that’s why you are talking about unbanked bank, microfinance and tertiary banking and so on. Auto has it, Ola and Uber are proving that. Incumbents have not gone where the consumers are going. Even if it means pure tech or significantly tech enabled, there is no reason why leaders could not do that, and you had startups doing that role. I think the failure in India as of now is about leaders’ inability to take the risk of disrupting their own existing businesses and the fear of disrupting their own business and thereby losing where they are at today, to the obvious risk of actually losing the entire business tomorrow. I think that I very ominous to them and I frankly hope, but I don’t have too much belief while I hope of that, but I don’t have too much of belief that leaders have ability to change. It is very tough; it requires someone to take that ownership. Professionals very rarely will take that ownership, it must be the entrepreneurs, the promoters who must take that call and hope some of them do.
In the listed space, the only pocket where valuations are still held out despite trends starting to come off is consumers. India has never or very rarely let me say that has been a value market. India has been a growth market. All of us somewhere get trapped in believing that value is what we want to protect, and we are good at capturing the value. Our failure is when we don’t catch growth along with that value and to me Indian market is symbolic of that form. We think that because markets have collapsed the values are becoming very enticing. I think that is not really the case. It’s about saying whether the values are falling, the growth is still sustaining. We don’t have that happening right now.
If I look at consumer businesses or frankly any business for that matter, while everything around us has possibly collapsed by 50 percent if not more over the last 3 years, we have invested in two listed companies in the same period. We have made 7 times and 10 times the money in two listed companies in the same period. Not saying we did something earth shattering, but the fact is that there are pockets of businesses and sponsors which we think are playing the disruptions which the leaders are not able to do, and they can’t participate in that disruption. So, for instance we invested in contracting, that was a big thing because consumer contracting has become very large.
We believe that the leaders will struggle to grow beyond where they are. They will not grow meaningfully. If they don’t grow meaningfully then they have to let go of what is tertiary to them because they have to grow and keep sustaining their brands and so on. They will protect their 60 percent ROI business which is brands and let great opportunity we thought will happen. We have invested in company called Hindustan Foods which has now become possibly the largest consumer contracting company in India in 3 years. We have invested in JHS, we sold that at 7 times, but we have invested in it which is largest oral care manufacturing company in India. They control 15 percent of oral care. I think it was about opportunity in businesses. Whereas the largest players in the businesses will get disrupted or are not changing too much for their own good, we thought there is still an opportunity.
So, I think what investors, all of us need to really look at which is while there can mayhem in listed space, there is opportunity which is getting created because of mayhem. And in every point in time, someone’s loss is someone’s gain. I think there is opportunity in crises, there is crises in listed market, but there is opportunity in listed may be rare, may be few. But there is significant opportunity in guys who are disrupting the listed guys which are which is in private.
Companies should fan out all the alternative brands and invest in new age category because that’s where the Indian consumer space is growing, and we are not capturing that. It takes me a decade back – if you remember when the HUL started talking about the master brand, super brand strategy getting only 30 brands in the portfolio instead of 110 that they had, and they literally course corrected in three years to get that done. May be the time is right to actually say that 30 is not good for India. What makes any consumer company think that 30 is great for India? India is a 130 crore population market, it’s a market where the consumers are experimenting, where consumer have a choice and want a choice.
Disruption is happening in distribution, so it’s no longer the funnel which is becoming critical. It’s no longer the HUL stranglehold, for example. HUL, ITC or Colgate, I think they control the distribution and thereby they thought that the product that they have put through the distribution funnel was all that the consumer wanted. That’s not true. The distribution was only an enabler, they didn’t push the brand, they didn’t push product categories, they did not innovate. Because it’s tough to innovate when you do well for yourself, you can’t disrupt yourself. I think that is changing as distribution channels change you will see lot more evolution of brands happens and there by the costumer choice.
Look at what Nykaa and Purplle have done in the beauty space. Unheard of. They were not brands, they were selling HUL, P&G and L’Oréal brands, they were selling products created by the leaders. Today their platform has become the brand. So, Nykaa is the brand which sells let’s say Rs 2,000 crore of produce. A Purplle is a brand which sells Rs 500 crore of produce. They have become the brand and they will get value because the platform has become the brand. I can’t believe why a Lakme could not have done the same, or why L’Oréal should not have done it. You are killing your own brand by still targeting traditional ways of consumption and distribution because the consumer is no longer traditional. He has changed, and I think brands have not.
