Case 089Company pitchCore
Explain a company the fund should invest in: Tavorin Naturals, a direct-to-consumer personal care brand with revenue of Rs 160 crore, gross margin 68%, marketing at 38% of revenue and 41% of revenue from repeat customers, raising Rs 80 crore at Rs 640 crore post. Is 4x revenue earned?
1The situation
Tavorin Naturals sells shampoos, face washes and body care made with plant-based ingredients. It sells 55% of its revenue through its own website and marketplaces and 45% through modern retail. Revenue last year was Rs 160 crore with a 68% gross margin. Marketing, mostly paid social media and influencer spend to win new customers, was 38% of revenue. Customers who had bought before supplied 41% of revenue.
Tavorin is raising Rs 80 crore at a Rs 640 crore post-money valuation, 4x trailing revenue. You have been asked to explain to the partners why the fund should invest, or why not.
2Your task
Build the case on contribution after marketing, split new and repeat customers, and decide whether 4x revenue is earned.
Quick check
What is Tavorin's contribution after marketing, as a share of revenue?
Worked solution
Try it on paper, then open one step at a time.
30-second answerThe answer to give first
Tavorin earns 30% contribution after marketing, Rs 48 crore, and almost all of it comes from repeat customers. New customers' Rs 94.4 crore of revenue leaves Rs 3.4 crore after the Rs 60.8 crore spent to win them; repeat customers' Rs 65.6 crore leaves Rs 44.6 crore. 4x revenue is about 13.3x contribution and is earned only if repeat share holds near 41% as the brand grows.
Step 1What makes a consumer brand worth a revenue multiple at all?
A neighbourhood bakery that has to hand out flyers to get every customer in the door struggles, but one whose regulars return every week without flyers makes money. A direct-to-consumer brand is the same bakery at scale: marketing buys the first purchase, and repeat purchases are where the profit lives. So the pitch for Tavorin has to show contribution after marketing, and then show how much of it depends on customers coming back. A revenue multiple is only a shorthand for that.
Step 2What does Tavorin keep after marketing?
Revenue of Rs 160 crore at a 68% gross margin is Rs 108.8 crore of gross profit. Marketing at 38% is Rs 60.8 crore. Contribution after marketing is Rs 48 crore, 30% of revenue, before salaries, rent and head office. At a Rs 640 crore post-money the fund is paying 4x revenue, or 13.3x contribution. Retail sales usually carry distributor and retailer margins that the online channel does not, so ask for this split by channel too; here we treat gross margin as uniform.
Step 3How much of the profit comes from repeat customers?
Assume the marketing spend is all aimed at new customers, which for paid social and influencer campaigns is close to true. New customers bring Rs 94.4 crore of revenue and Rs 64.2 crore of gross profit, against Rs 60.8 crore of marketing: they contribute only Rs 3.4 crore. Repeat customers bring Rs 65.6 crore at the same 68%, Rs 44.6 crore with no acquisition cost. That is 93% of contribution from 41% of revenue.
| 0.68 | gross margin |
| 0.644 | marketing per rupee of new-customer revenue, Rs 60.8 crore / Rs 94.4 crore |
| s | share of revenue from repeat customers |
Step 4Is 4x revenue earned?
Only if the repeat share holds. Brands usually find that as they grow, they reach colder audiences who cost more to win and return less often. If the repeat share fell to 30%, contribution margin would drop to 22.9%, and at the same 13.3x contribution the company would be worth about Rs 489 crore, 3.1x revenue rather than 4x. If it rose to 55%, margin would be 39.0%. My view: 4x is earned for a brand whose repeat share is stable or rising across customer cohorts, and too much for one whose growth comes from buying ever more first purchases.
Step 5What would you ask for before recommending the deal?
Ask for revenue by customer cohort: for customers first acquired in each quarter, what share bought again in the next six and twelve months. If the newest cohorts repeat as often as the oldest, the 41% is a property of the product and the case is strong; if they repeat less, the 41% is a legacy of early fans and will fall. Then check that marketing really is all acquisition: some brands spend on retargeting existing buyers, which flatters the new-customer economics. The fund's Rs 80 crore buys 12.5%, and the case rests on one line of data the deck may not show.
Where candidates lose it
Candidates pitch on the 68% gross margin and call the brand highly profitable. For a company that buys its customers, marketing is a cost of each sale, and contribution after it is 30%, not 68%.
The second miss is treating the 30% as one number. New customers contribute almost nothing; the repeat share carries the margin, so a pitch that does not test the repeat share has not tested the valuation.
What the interviewer asks next
- Retail sales carry a 25-point lower gross margin than online. Redo the contribution split.
- Tavorin plans to cut marketing to 25% of revenue. What happens to growth and to contribution?
- How would you build a cohort table from the company's order data?
- What multiple of contribution would you pay for a brand with 60% repeat revenue?
Asked at General Atlantic, Growth Equity, New York, 2022 (Wall Street Oasis): Explain a company that we should invest in.
Company names and figures are illustrative.