Unicorn’s a Bad Word Now: FreshtoHome eyes listing in 3 years as CEO says IPO is final test of valuation

• Start-ups should shift focus from billion dollar valuations to becoming proficorns. FreshtoHome is one such proficorn that is talking about a public listing soon after its Series D fund raise of $104 mn.
  
• Entry valuations are now more about science and not art. Start-ups are getting valued on the basis of revenue or profit unlike the past two years.
  
• FreshtoHome believes that start-ups that are profitable should not feel the compulsion of raising capital time and again.
  

During the heydays of the unicorn boom in India (at the peak of the pandemic), start-ups spent more time talking about their sky-high valuations no sooner had they raised a fresh round of capital rather than their business. Blue-sky opportunity also meant unprecedented valuations back in the day, but a lot has changed since then. Start-ups are now antsy about valuations and their unicorn status even if they have raised a fresh round that would put them in the league. The preferred word now is ‘proficorns.’ Revenue and profitability are now key metrics that founders want to talk about.

Now that the pixie dust of crazy valuations has started settling down in a post-pandemic world, both start-ups and their investors are being forced to smell the coffee. Shan Kadavil, the co-founder and chief executive officer of FreshtoHome, a start-up that sells fresh meat and fish, refuses to talk about valuations even after raising $104 million in a Series D funding, led by Amazon Smbhav Venture Fund. Kadavil says: “Valuations cannot be the only North-star metric. Media has so far focused on unicorns. For the start-up community in India, we have to push for proficorns, which are tailored to be profitable.”

At the peak of the venture boom over 2020 and 2021, start-ups raised capital at crazy entry valuations. India birthed 40 unicorns in 2021 alone and experts say that the entry valuations of these are now beginning to look unsustainable. Then the sky looked blue and the opportunity seemed bottomless. Despite the exuberance, some players played it safe and did not raise capital at unrealistic valuations. Explains Kadavil: “We have been careful about entry valuations. Entry valuations have to be a multiple of revenues or profit. If you apply art to this science, then entry valuations will go sky-high like multiples of 10x, which makes exits very hard.”



Final destination for FreshtoHome is a public listing, not joining the Unicorn club

Consumers know of this fresh meat and fish seller but its founders believe that what is not talked about is its technology chops. It has always focused on profitability, which is why it is aiming to hit the bourses for a public listing.

FreshtoHome’s proposition is to give preservative- and antibiotic-free meats and fish. Kadavil, who has worked in the Silicon Valley and has taken a few companies public too, joined hands with other colleagues to start FreshToHome back in 2015. The target is to take this direct-to-consumer or D2C start-up public in the next three years. He says: “Our ultimate goal is public listing in 3 years and we want to now become PAT (profit after tax) profitable. It is too early to say the kind of capital we are looking to raise. It could be 10-20% of the total capital raised.”

The start-up has raised $254 million in total since inception. The latest round could well have created India’s next unicorn, but Kadavil refuses to spell it out due to confidentiality reasons. Instead he prefers to talk about the company’s revenue, which currently stands at ₹1,100 crore, making it the country’s largest organised player from a revenue perspective. With gross margins at 40%, the start-up has attained operational profitability. The next milestone is to become profitable at the net level.

On raising further rounds of capital, Kadavil says, “IPO (initial public offering) is the final destination for valuing the company. I would suggest companies to be operating-margin profitable and reduce the need for frequent fundraising.” FreshtoHome is operationally profitable unlike the ecosystem, he adds.

The company has positioned itself as a player that delivers fresh fish and meat that is devoid of chemicals and antibiotics. He says, “The work we have done with fishermen and farmers is what is not known. We use technology to source directly from the fishermen such that they get a 20% higher price than they get from the market.” FreshtoHome has patented its own technology platform called Commodities Exchange, which it uses to bring fishermen and farmers online so that they can sell their produce directly.

Building moats before a public listing

FreshtoHome’s top team has spent some time building the Commodities Exchange platform, which gives them an “unfair advantage” over competition. The way delivery works is based on a supply chain that is efficient. So when a consumer in Delhi orders online, the product is delivered within 24 hours from catch. Once orders are placed, produce is transported and processed in the local centres and then delivered.

“We are replicating the same model in GCC (Gulf Cooperation Council). We will go to countries that are accessible by air within 3-5 hours from India,” explains Kadavil.

The $104 million raised will be deployed in expanding the network of physical stores from 30 to 100. Physical stores help because India still prefers to buy fresh fish from wet markets. This has helped convert customers to online more easily.

Boats keep coming to harbours and fishermen sell their catch to the middlemen, who in turn, sell fish at auctions. It is not practical to set up a brick-and-mortar presence across 5,000 harbours, so FreshtoHome has an electronic exchange where it buys fish from fishermen. The exchange allows farmers to sell the fish online by taking a photo and uploading it and getting a better price. There is always a demand and supply mismatch at harbours, which helps organised players use technology to get best prices.

He says that the category is riddled with middlemen. The middlemen are also money lenders to the smaller fishermen. FreshtoHome goes to harbours and auctions directly to buy fresh fish, which accounts for 43% of sales. “We built our moat on these lines,” explains Kadavil.

Market opportunity for meat and fish retailers like FreshtoHome and Licious

India consumes 10 million metric tonnes of fish valued at $50 billion. Fresh catch from India is not just sold in India’s wet markets, but is also exported to the GCC (Gulf countries) region. A large part of the GCC region’s fish imports are from India – fish alone accounted for $5 billion in exports from India to the GCC region. FreshtoHome believes that they have a scalable business with unit economics that are profitable. The company is present in 160 cities and its scale is large. The company aims to further fortify its business case before hitting the public markets.

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