How this bicycle manufacturer raised millions from top VC investors

Credit and Finance for MSMEs: Small manufacturers in India have never been able to crack venture capital (VC) investments. While exceptions could be there but India’s MSME manufacturing has hardly drawn the interest of angel or VC money. Small entities have historically relied on credit from banks other than their own savings or profit that they put back into the business. So, the transformational growth that startups achieve in a few years based on debatable future projections of their businesses backed by PEs and VCs has almost never been on the horizon for good old MSME manufacturers.

“If you are a manufacturing firm, no investor will ever be going to fund you. You would continue to rely on bank credit unless you become a ‘product’ company instead of a manufacturing company. Investors will never be interested in a simple manufacturing firm. Manufacturers need to create differentiation in their manufacturing to attract investors,” Sachin Chopra, Co-founder, Ninety One told Financial Express Online.

Ninety One makes bicycles that Chopra said are “engineered”. He explained what that means and how that got him around $30 million investment from Avaana Capital, Titan Capital, A91 Partners and Fireside Ventures recently. Importantly, Chopra has been an investment veteran himself playing key roles in General Atlantic, Warburg Pincus, and Everstone Capital before launching Ninety One in 2015. The experience has earned him the ability to understand what tick investors’ boxes when it comes to pure-play manufacturing businesses. 

“Manufacturing has to be much more than just assembling parts and packing it differently. There has to be product differentiation. For instance, in our industry, most brands assemble bikes, they really don’t manufacture them. When you do that, you outsource half of your product and never get the product moat that differentiates you,” said Chopra.

“We manufacture everything in-house that requires hardcore engineering skills. Once you have the product moat, you build the manufacturing moat followed by the distribution moat and the branding moat. This is what we do. It is actually reverse to what manufacturing businesses usually do and that is building the brand then distribution and product, and then there is almost no manufacturing that they themselves do. Anybody can replicate that but doing product engineering then manufacturing, building distribution, and then branding is very difficult to replicate. This is what investors love,” Chopra explained.

Also read: NBFCs seek ‘flexibility’ in MSME loans, refinancing facility for onward lending to small businesses

Ninety One is already profitable with a presence in 500 cities across over 1,000 retail points while the online channel is only about 15 per cent of the company’s annual sales which is already north of Rs 25 crore. The company has manufacturing facilities in Gujarat. The amount raised will also be deployed towards its electric cycles portfolio and expansion into global markets. Following the capital injection, Ninety One was valued at around $135 million.

“We focus on making the best bearings and package the product well with a lightweight body so that the bike ride is great unlike other brands,” said Chopra. Apart from everything that a young entrepreneur would think of what matters to investors such as the idea, team, market size, cost involved, sourcing, near future targets, among others, what investors prefer to understand is how difficult it is for new or old competitors in the space to enter the market and replicate the success of the business. If there are no barriers to entry, investors wouldn’t often touch that business.

“We have kept our manufacturing cost low; nobody can catch us. We are not an original equipment manufacturer who makes it for someone else, we build bikes for our own brand. Also, it is very important to learn the basics of managing working capital. When one puts all that together right from product to branding, that creates barriers to entry for others and that’s what investors liked in our business otherwise anyone can spend money and build a similar brand,” said Chopra. 

Subscribe to Financial Express SME newsletter now: Your weekly dose of news, views, and updates from the world of micro, small, and medium enterprises  

Ninety One sells products omnichannel. India’s bicycle industry is likely to see decadal-high demand growth of 20 per cent this fiscal, with sales likely to touch 1.45 crore units compared with 1.2 crore units last fiscal, Crisil had said in a statement in May last year. The growth was expected on the back of improving fitness consciousness and leisure requirements among people due to the pandemic. India is the second-largest manufacturer of bicycles in the world. As per industry estimates, the global bicycle industry is over $60 billion.

“Any growth less than 100 per cent would mean that we are losers. Covid has made people realise that they have to have options to stay fit. Also, people have been missing outdoors due to Covid. We should be a billion-dollar company with footprints across the globe in five years,” said Chopra.