In Part I, we examined how India’s D2C ecosystem created one of the largest consumer brand creation cycles in its history. The next phase of the story is being shaped by a force largely outside the control of founders and consumers: the global cost of capital.
For more than a decade, near-zero interest rates across developed markets created abundant liquidity, compressed risk premiums, and encouraged investors to aggressively fund growth businesses. D2C brands across India, the US, and China were among the beneficiaries of this. As global interest rates moved sharply higher after 2022, the cost of capital rose materially, investor behaviour changed, and profitability once again became as important as growth. Much of what is unfolding across the D2C ecosystem today is ultimately a consequence of this shift.
The shift in capital markets is also forcing a rethink of customer acquisition.
During the early years of India’s D2C boom, performance marketing often appeared sufficient to drive scale. As long as digital advertising remained relatively inexpensive and venture funding remained plentiful, brands could grow rapidly through paid customer acquisition. That equation is changing. As digital ad channels become more crowded, the economics of buying growth have become less attractive. The brands growing profitably today are increasingly those where brand recognition performs part of the conversion work before the paid click even occurs.
Brand equity is therefore no longer something that follows scale. It is increasingly becoming a prerequisite for sustainable scale. For investors, the diligence question is gradually shifting from return-on-ad-spend metrics towards the share of organic traffic, direct traffic, and repeat customer behaviour.
The biggest challenge facing D2C brands is not consumer demand. It is capital.
Historically, every period of rising interest rates has altered investor behaviour. When risk-free rates rise, investors demand higher returns from risk assets. Valuation multiples compress, funding becomes more selective and capital flows toward businesses with stronger cash flows and clearer paths to profitability.
During 2020 and 2021, global liquidity was abundant and consumer brands benefited significantly. Today, the backdrop is very different. US interest rates remain materially above pre-pandemic levels, bond yields remain elevated, and investors increasingly expect capital to stay disciplined even if rates moderate from current levels.
Simultaneously, AI has emerged as the dominant destination for global venture capital. A significant portion of capital that previously flowed into consumer internet, e-commerce, and D2C businesses is increasingly being redirected towards AI infrastructure, foundation models, enterprise software, and agentic AI platforms. Consumer brands are thus competing for a smaller, more selective pool of growth capital.
Funding is becoming more disciplined. Investors are increasingly backing fewer brands, but with stronger economics, clearer differentiation and better capital efficiency. The next phase of India’s D2C ecosystem will also be defined by founder evolution.
The founders who succeed in the coming decade may look very different from those who thrived during the era of abundant venture capital. Building a consumer brand today increasingly requires capabilities beyond digital marketing and online customer acquisition. It requires managing offline retail networks, negotiating with distributors, optimising inventory and working capital, building supply chains, and hiring experienced leadership teams. In many ways, founders must evolve from growth hackers into company builders. As India’s D2C ecosystem matures, founder maturation may become just as important as business-model maturation.
The most important takeaway is that India’s D2C story remains intact. What’s changing is not the opportunity. What is changing is the discipline required to capture it.
(Series concluded).
Taurani is EVP, Elara Capital; Ganesh is promoter, Bigbasket, BlueStone, HomeLane, & Portea Medical.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.