India’s start-up boom has got a reality check with investors demanding to see profitable business models than the crazy blitzscaling approach till 2021. Amidst this funding winter, we have also seen the largest exit by a start-up entrepreneur after the Flipkart founders. Last month, India’s largest jewellery retailer Titan which had bought a 62% stake in Mithun Sacheti’s digital jewellery business CaratLane back in 2016, bought out the remaining 28% stake from the founder for Rs 4,000cr valuing the business at over $2bn. This piece in the Forbes takes us through this rare journey of a start up entrepreneur building a profitable franchise and exiting to a buyer with strategic interests in the business:
“…Sacheti who studied gemology in California, US; he came back to India in 2000 to join the family business of gems and jewellery in Mumbai, and after a month decided to move to Chennai to start operations in South India. In seven years, the business touched the Rs 80-crore mark, and had a Rs 10-crore profit. The family was impressed.”
But Sacheti wasn’t happy “… He was frustrated with the fact that it took him seven years to open the second store in Coimbatore in 2007.
“There was no pace. There was no scale. I wanted to expand,….I thought the internet is a great place as it can flip the problem of scale,”… “Please give me Rs 75 lakh and four years,” he made a passionate plea to his father. “If I don’t succeed, I will come back and join the family business,””
Like every entrepreneur, he had to go through his fair share of struggles:
““We made the website, but there was no sale for 15 days,” recalls Sacheti. Over the next few months, the business started trudging. But what made the journey exceedingly aggravating was loads of scepticism from a large tribe of cynics. “It’s a terrible idea. Band kar do [shut it down],” was how a top businessman in Chennai reacted. There were naysayers everywhere. During his frequent visits to Mumbai to attend trade events, Sacheti would shy away from introducing his company. “Hanste they sab mere upar, kaun khareedega online [Everyone laughed at me; who will buy online],” he recounts…. For two years, from 2009 to 2011, Sacheti tirelessly reached out to almost every VC fund in India. Everybody gave him a patient hearing. And everybody gave him the same reply: Nice progress. Come after a few months. “There were no takers,” he rues.”
But like every successful entrepreneur, Sacheti was lucky to find backers through his journey. First, Tiger Global the poster boy of the last boom in venture investing, might be going through its most horrendous phase currently. But its partner Lee Fixel spotted the opportunity way back in 2011, funded Sacheti and supported him through his toughest phase:
“…the founder pressed on the advertising and marketing pedal. “We went on TV and spent Rs 4-5 crore on the campaign in 2013,”… The move bombed. The web traffic shot up like a rocket for the first four days, and then it crashed. “Nothing moved. It was such a waste,” says the founder, who was feeling devastated. There was one more setback around the corner. CaratLane opened its first outlet at GK 1 market in New Delhi. First day, women thronged in hundreds, and declared it to be a flop show. Reason: There was no jewellery in the outlet. “We had built a digital showroom, and the women wanted to ‘touch and feel’ jewellery,”
Back in 2013, he had made a quick trip to the US to discuss his problems of lacklustre growth with Fixel. “I think you should hire a CEO to run the business,” he suggested to the investor. The venture, Sacheti underlines, is not panning out the way it should have. “It lacks pace, and I don’t know if I am the right guy to run it,” he argued. Fixel, for his part, knew that he had backed a rough diamond. “You are the right guy to run the show,” he explained. The self-doubts, he underlined, were due to a mismatch between input and output. “Don’t worry. Stick to your guns, the growth will happen one day,” he reassured the founder and put him at ease.”
Then came the Tatas:
“….in 2016, Tiger Global exited. From Rs 12 crore—when Tiger invested—the business grew to Rs 140 crore when Titan bought the 62 percent stake of Tiger and became the largest shareholder. More than just a new investor, CaratLane hit the jackpot. “Tata is a gold standard in trust,” says Sacheti, who was keen to have a tagline along the brand name of CaratLane: A Tata product. Bhaskar Bhat, who became managing director of Titan in 2002, proposed a better idea. “Tanishq is a gold standard in trusted jewellery,” he underlined. CaratLane, subsequently, started its journey as a ‘Tanishq partnership’.”
In addition to Tiger Global and Titan, Sacheti owes his success to the stock market investor Rakesh Jhunjhunwala, whose early bet on Titan’s shares played out like a legend in itself. It was Bhaskar Bhat who introduced Sacheti to the investor:
“Jhunjhunwala became his biggest mentor. “He taught me the power of compounding, the value of cash flow, and the importance of staying invested,” underlines Sacheti, adding how the legendary investor encouraged him to buy out the stake of his co-founder who wanted to exit. “Imagine, I went to discuss my blues and uncertainty, and he ended up making me borrow money and buy more,” smiles Sacheti. “Any big advice from the Big Bull that you remember,” I ask. The founder shares one of his favourites: Don’t ask for an unfair price, but stick to your price. “He taught me to be firm on one’s price,” he says.”
Sacheti attributes his exit valuation to that lesson. Titan’s last investment in CaratLane in 2019 had valued the firm at Rs 900cr compared to the Rs 17000cr exit valuation in 2023
“…Till FY20, CaratLane had been consistently posting losses. “They [Tatas] understand profitable businesses and not loss-making businesses,” says the founder. “I vowed not to ever take money from them, and turn the venture profitable,” he says.
Sacheti lived up to his promise. CaratLane has been profitable since FY21, it closed FY23 at a heady revenue of Rs 2,177 crore, and is now striking a run rate of over Rs 3,000 crore for FY24.”
Marcellus’ clients and employees own Titan across many of its portfolios.
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Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
