Why are VCs investing in a cake company?

A cake business that makes ₹75 Cr

Compounding careers are driven by exponential outcomes, which in turn happens with an obsession over your CRAFT & problem statements. Exponential careers don’t just happen by chance but through focused effort & intent.

Over the last 3 weeks, 100+ GrowthX members spent their days & nights obsessing over building bar raiser revenue strategies. Coming Sunday the top two teams are all set to present their growth strategies to the whole world LIVE. If you want to nail revenue-led growth, this is the place to be.

---

Back to our story for the day.

67,385 babies are born in India every day. Most will celebrate 10+ birthdays in their lifetime. One thing that's common with birthdays - the "cakes". Here's a brand with ₹75 Cr in annual revenues selling "cakes"👇🏼

I'm talking about Bakingo, a 7-year-old cake startup based out of Gurgaon. With over 30 cities being served at the moment, the company recently received a $16 million cash infusion from Faering Capital.

But, is this whole cake market big enough?
Let's take a step back. The insight for Bakingo did not come from "let's launch a cake brand" but it came from the founder’s original business - FlowerAura, which is sort of a competition to Ferns & Petals - largely into gifting.

The insight?
More than 50% of FlowerAura's orders (& revenue) consist of a cake order in the gifting set. This made the Bakingo founders think about having their national brand for cakes considering FlowerAura makes ~ ₹60 Cr in annual revenues.

But, cakes & desserts are an extremely fragmented market all across Tier 1 India. Plus, they are easily perishable without the cold chain. This puts inventory losses and spillage at stake.

---

So, how did Bakingo become a VC investible business? 🤯

---

The opportunity 🎯

The global cakes market size is USD 90 Billion in 2022. If we look at India, it's around ₹4,000 Cr & growing at a healthy 9% year over year. Apart from Monjonis making ~₹150 Cr, Ferns & Petals making sub ₹500 Cr in 2023, there is room for growth.

The right to win 🥇

With the cloud kitchen model, the brand does not require prime real estate & hence doesn't need to compete with local bakeries. This reduces the majority cost to operate a location.

Plus, Bakingo has been online first approach through it's website & Swiggy/ Zomato's of the world. This means it needs to solve cost efficiency throughout supply chain optimisation & build an online first cake brand.

Building a brand is only by great consistent product quality & on point delivery experience - considering most of its orders are for special occasions. Bakingo’s kitchens and delivery piece is full managed, allowing it to control this piece.

---

The exit scenario 🎯

A comparable brand is Ferns & Petals with ~ ₹2,000 Cr valuation at a ₹500 Cr annual revenue rate. And Ferns & Petals is scaling internationally.

This means Bakingo will either become a really large business to beat FNP or get acquired by a larger player wanting to be in the cloud kitchen bakery business. One way or the other, it will be a large exit for early-stage VC bets.

Question(s) for you.

Have you seen a behavior change in where you order your desserts and cakes from? Are these purchases more last minute than planned ones now? What's your first point of search when it comes to cakes for special occasions?

There is a larger insight here that could open up other similar verticals inside the Swiggy/ Zomato marketplaces. All you need is a high ARPU, high intent product that drives gross margins than anything.

---

Thanks for supporting this newsletter

If you’ve enjoyed this piece, do consider referring our newsletter to a friend. For your first referral, we’ll send you our Infographics ebook, which has a collection of growth & business infographics that have generated 1 Million + impressions across our social channels.

---

Curated weekend reads.

Why are VCs betting on e-VISA startups?

How to think through cross/up-sell?

What's the real India opportunity?

---