How FreshToHome tightened its ship to woo investors in the funding winter

Shan Kadavil, Co-founder and CEO of FreshToHome Image: Nishant Ratnakar for Forbes India

Just as the saying “you fish only as much as you need”, Shan Kadavil was under the impression that a founder only raises the amount that is needed for the venture. “You don’t raise money when you don’t need it,” says the co-founder and CEO of FreshToHome, an ecommerce platform for fish, seafood and meat that he co-founded with seven others in 2015. For all his life—the software engineer was the India head of global social gaming company Zynga, had an eight-year stint at California-based company SupportSoft where he led the enterprise business unit, and a couple of other gigs since 1999—and a good part of his entrepreneurial stint at FreshToHome, Kadavil was always committed to the philosophy of ‘need and deed’.

Come 2022, and his philosophy turned out to be a rotten fish. He explains by taking us back to the pandemic year of 2020.

In October that year, FreshToHome raised $121 million in Series-C round of funding. In hindsight, the number looks low. Reason? “The market was too hot in 2020. It was buoyant, and dollars flowed freely,” he recalls. What this meant for the D2C player was a problem of plenty. It was wooed by many, it declined a lot from the pack, and remained selective in its approach.

Kadavil persisted with his orthodox approach in 2021, a year when the startup ecosystem was at the peak of funding glut.

It was also the year when rival Licious turned unicorn. Interestingly, its $1 billion-valuation round came just four months after Licious reportedly raised a staggering $192 million in Series-E round of funding and was furiously narrowing its gap with the leader in the space.   

With competition heating up, Kadavil was faced with some uncomfortable questions. The biggest: Why was FreshToHome not casting its net wide? Says Kadavil: “We were well capitalised because of the funding in 2020. So we never felt the need,” he says. A few months down the line, he rued the missed opportunities. “In hindsight, it (not raising money) was quite a bad decision,” he admits. “It was really a wrong move.”  

The regret was understandable. Kadavil got his timing horribly wrong when he stepped out to raise a new round of funding in the second half of last year. The growth money, which started to trickle from the ecosystem from the third quarter of 2022, almost vanished by the first quarter of 2023 as the funding environment slipped from bad to worse. Apart from a hostile funding environment, what also made things tough for Kadavil was a new set of lenses the venture capitalists (VCs) were using to judge startups. VCs wanted to see profit, and FreshToHome had nothing to show on this front. The losses ballooned from ₹98 crore in 2020 to ₹393 crore in 2021, according to financial data sourced from industry experts.  

Kadavil, though, was quick to explain why FreshToHome was running such huge losses. “The business machinery was well oiled for growth,” he says. Entrepreneurs, he reckons, can only do one of two things: They can either optimise for hyper growth, or they can plan for a steady growth with reasonable amount of profit. FreshToHome opted for the former.

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The gross revenue of the startup doubled from ₹528 crore in 2020 to ₹1,083 crore in 2022. But when things are put in the broader context, the numbers stand out. “We grew 10 times in the last four years running up to 2022,” he claims, adding that a founder can’t achieve hyper growth with hyper profitability.

The writing was on the wall. FreshToHome had to cut excess flab. The cushion of 18-20-month runway the fundraise in October 2020 provided was not going to last for long, and there was a pressing need to run a tight ship. Kadavil went back to the drawing board and decided to take a stab at cash-guzzling marketing expense. It was easier said than done, though. Reason? Around 99 percent of the revenue used to come from ecommerce, which was getting fuelled by high-customer acquisition cost backed by heavy marketing spends. “We took a complete pause as a company,” he recalls. The drastic step was supported by the existing investors and the board members. The sustainable way of growing, he underlines, was to find something that would bring down the high user acquisition cost.

Retail—going offline—seemed to be the silver bullet. Kadavil opened a grand store in Yelahanka, Bengaluru. In terms of aesthetics, interiors, appeal and look, it was nothing less than the Starbucks of fish and meat. The move, though, was a flop show. “We had no clue about retail because we were not coming from a retail DNA,” confesses Kadavil, who tried to find out what went wrong. The discovery was startling. Customers, revealed a user-survey undertaken by FreshToHome, perceived stores to be costly. “If a fish shop had an AC, consumers considered that to be pricey,” says the founder, who spent over a crore in building two stores, and decided to tone down the premiumness and branding to make the outlets more palatable to the consumers.

Apart from opening more stores—and this time they didn’t have ACs—there were more layers to the retail strategy. Kadavil tied up with supermarkets, explored shop-in-shop and started reaching out to the offline consumers. At the same time, he undertook a series of steps to bring about cost restructuring and recalibrated operations. “There was a huge set of experiments and pivots running up to one year to fundraise,” he says. The intent was to hit the road to profitability as soon as possible. Take, for instance, the move to start processing within the stores. The long tail items—which didn’t have higher uptick in the Indian market—started to be processed in the local store rather than factories.

Another interesting move was a reset in expectations. “We never optimised for a higher valuation,” says Kadavil, pointing out the flipside of riding the valuation rocket. “At the end of the day, the private investor market is a reflection of the IPO market,” he says. Bringing investors at high valuation would result in a hostile board whenever the honeymoon gets over eventually. “You don’t really want to be in that position,” he says. What also helped was having an empathetic board, which appreciated and assured of its support even if the startup failed to mop-up money from the market.



The efforts paid off. In February 2023—this was 28 months after the last funding—FreshtoHome raised $104 million in a Series-D round of funding, which was led by Amazon Smbhav Venture Fund. “It took us nine months to raise, which is the longest that I’ve taken for any funding,” says Kadavil. Apart from getting a set of new backers in Dubai-based E20 Investment, Bengaluru-based Mount Judi Ventures, and Jeddah-based Dallah Albaraka, the existing ones too chipped in. “Around 30-40 percent of the round came from the existing investors,” he says.  

Ask him the biggest learning from the extreme stress period of fundraising, and the fisherman goes back to his fundamental beliefs. “You can’t change the direction of the wind but you can adjust your sails,” he says. Having seven co-founders, he underlines, was a big blessing to sail through the torrid times. To get the prized catch, one has to fish together.