Kiran Shah, founder and CEO of ice cream brand, Go Zero, joined his family business Apsara Ice Creams in 2014. Established in 1971, Apsara had only a handful of stores in Mumbai till then. Shah scaled the business to 100 stores by 2020. However, after the pandemic hit, the growth flattened. Shah wanted to raise capital to grow faster, but the family wasn’t keen on it. Hence, he exited his family business in 2021 to build a new-age, healthy and guilt-free ice cream brand.
Recently, the startup 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.
Like Shah, many second and third-generation entrepreneurs who have branched out from their family businesses to start their own ventures are having a good run at it and are increasingly grabbing investor interest.
The advantage with these entrepreneurs is that venture capitalists (VCs) and private equity (PE) firms generally view them as safe investment bets. This also aligns with the overall caution exercised by them since the funding winter.
“While early-stage investments inherently carry risks, entrepreneurs from business families mitigate these challenges with ingrained business acumen, firsthand experience in managing operational complexities, and a steadfast focus on optimising the bottom line,” Pratekk Agarwaal, founder and general partner, GrowthCap Ventures told FE. In April this year, the early-stage VC firm invested in mobility startup Advance Mobility founded by second-generation entrepreneur Mohit Jalan, whose family runs a commodities business.
Some of the other notable startups that are run by second and third-generation entrepreneurs and have raised institutional funding in the last one year include Farmley, Rare Rabbit, The Pant Project, Bella Vita, Clarks Hotels, Sustvest, Bimaplan, Daalchini, Finsall, among others.
For instance, in May this year, men’s apparel and fashion brand Rare Rabbit closed its first-ever institutional funding round 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 family of the Radhamani group, posted a ₹600 crore revenue 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 in running the show and driving it to profitability, which is a plus point,” 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 lowers the risk for investors. “They also have an established network with the stakeholders in the industry and access to mentorship from their family members. Besides, their in-depth industry expertise gives them a competitive edge over first-time entrepreneurs, enhancing the company’s growth potential,” Shiv Parekh, founder and CEO, hBits said.
This aligns well with the investor objectives, he added. Parekh grew up in a family involved in the real estate industry for over 35 years. He started hBits, a fractional ownership platform, in 2018. The startup has so far raised $3.32 million, and is backed by InCred Capital, Jungle Ventures, others. Besides hBits, Kapiva, NOTO and Runaya are few other startups launched by entrepreneurs from business families and have raised funding in the past.
Market opportunity, value proposition and quality of founders are some of the criteria early-stage investors look at. And, founders from business families most likely score a 10 on 10 on the last criteria. “While our primary requirement is the technology understanding, innovative business models and knowledge of what they are doing, coming from a business family may bring in the additional commercial edge,” Manoj Agarwal, co-founder and managing partner, Seafund said.
We do see a growth in founders coming from business families and especially with experience, that is an added advantage for us, he said. Finsall, Zippee, Eobin George are some such second/third generation-led startups the firm has invested in. VCs believe that these founders are also more likely to understand the nuances of corporate governance. “It is a matter of ‘horses for courses’. They may be the best placed to execute these businesses and understand the governance factor needed to build a more scaled outcome with outside capital,” Deepak Gupta, general partner, WEH Ventures said.
“While there isn’t a 100% guarantee that the companies these founders build will be successful, the chances are definitely higher than a first-time founder with no track record in the industry,” said Shah.