Over the last five years, India has emerged as one of the fastest-growing markets for home décor and furnishing products, expected to garner $664.0 billion by 2020 in APAC. With the wave of uberization hitting almost every Indian entrepreneur, from e-pharma to e-beauty, there isn’t any segment left untouched. India’s home interior design market is no different, and one start-up that standardizes this highly fragmented market is Livspace, founded in 2014 by Ramakant Sharma, co-founder & COO, and CEO & co-founder Anuj Srivastava.
Bengaluru based Livspace, is an end to end home design and décor platform that creates a three-sided market place that brings together homeowners and a curated community of interior designers and vendors.
Livspace’s Business Model
Livspace integrates the interactions between its stakeholders, i.e. homeowners, interior designers and vendors that help it to build a catalog of standardized products. It makes use of a 3D visualization tool, Canvas which allows designers to create solutions for their clients while maintaining precision in designing and timeliness of the implementation period. To ensure great customer experience with technology, Livspace has onboard an excellent team of 100 software developers and engineers working on complex designs, AI and image processing.
At Livspace, the designer and the homeowner collaborate to create the best design. A designer showcases the concepts in 2D or 3D and the client reviews and delivers a decision. Livspace contractors then come to customers’ homes to turn the concept into reality; selection to installation takes 12 weeks. There are around 500 vendors and 3000 designers to take care of every small thing- designing, manufacturing, and installation.
The homeowner is expected to make payment in 3 stages, i.e., 10% to start the project, 40% to place the order and rest 50% once the project is completed.
All about numbers!
It clocks an average order value of Rs 10-12 lakhs per home designed and outfits 5,000-6,000 houses per year. Of that, the company’s take-home rate stands at a good 40%, out of which 7% goes to the designer.
The company is valued at $500 million based on multiple of discretionary earnings method. This model establishes the value of the firm by multiplying the seller’s discretionary cash flow by a composite valuation multiple based on certain parameters like market size, growth, industry, competition in the market, market saturation, etc.
Livspace’s annual revenue is 6,000 homes X Rs 12 lakhs per home = Rs 7,200,000,000. Taking the 1USD= Rs 70, the annual revenue is $102,857,143.
Approximately, $100 million.
Multiplier = 5x
Therefore, 5 X $100 million = $500 million.
The average multiplier used to value e-commerce companies stands at 3x. However, Livspace has used 5x as its multiplier due to the scalability of its operations indicated by its increase in revenue by 82.1% in the FY2018.
The margins stand at a good 40% helping them make money at every order. Today, around 45% of its revenue comes from modular and wardrobe line of business alone. This Uber-like model of aggregation has worked well.
Money in the bank
Livspace’s primary investors are Helion venture partners, Jungle ventures and Bessemer venture partners who contributed an aggregate of $12.6 million in Series A funding. It raised INR 12 crore through debt financing from Trifecta Capital in Dec 2016, and $70 Mn in a funding round led by private equity firm TPG Growth and Goldman Sachs in October 2018.
Earlier this year, Livspace announced that it received a substantial investment funding from Ingka Group, strategic partners of IKEA raising its total funding to $97.6 Million. This deal has pushed Livspace to the top of the ladder in the home design and renovation industry while widening the gap between itself and its competitors. IKEA was interested in Livspace mainly due to its platform approach as opposed to its competitors, HomeLane and FlipSpaces that work on demand aggregation.
As of today, Livspace is in advanced talks to raise $100 million at a valuation of $500 million. Venturi Partners, TPG Growth, Ratan Tata’s UC-RNT Fund might also participate in the funding round. It plans to expand its footprint beyond metro cities in India and expand offline through “experience centers” from the existing four stores to twelve to fifteen over the next one year.
In March 2015, it acquired DezignUp, a dynamic community, and marketplace for design professionals. In May 2015, it acquired Dwll.in, a curated network of interior designers. With its third acquisition this year of YoFloor, Livspace has not only built a thriving design community of designers as well as homeowners but also made it hassle-free for homeowners to get an alluring design experience in real-time.
Livspace – a Soonicorn?
Livspace has grown about 500% in the last 2 years while the net profit margins have grown from a meager 18% to 40%. However, losses incurred by the firm for FY 18 almost doubled from INR 47.75 Cr to INR 94.81 Cr. This can mainly be attributed to the increase in employee benefit expenses, which saw a hike of 57.1% and marketing expenses which inflated 3 times. This could be a sign of worry for the company.
Even with the company just managing to stay afloat, it has shown a slight improvement in its financial performance as LivSpace lost Rs 2.1 to earn a rupee in FY18 as compared to losing Rs 2.3 for the same in FY17.
Currently, the brand caters to 9 metropolitan cities with a vision to expand its presence to 3 more metropolitan cities. It eventually plans to step foot in the international market. It is also keen on expanding its presence in the offline market space through its experience centers.
If it continues to maintain its growth pace, it will not be long before it achieves the tag of a unicorn.
What could possibly go wrong?
Analyzing Livspace’s financial performance for the past 3 years, it is clear that the company has shown some tremendous growth in terms of revenue and acquiring market share. But where it fails to deliver, is in terms of operating profit. Livspace has doubled its losses in the FY2018 which may put its liquidity at stake. It may run out of money to meet its day to day expenses.
The cut-throat competition in this market adds on to its misery. HomeLane, which is Livspace’s biggest competitor has raised $30 million in a fresh round of funding to fuel its expansion into home renovation as a service and to expand into 10 new cities.
Customer satisfaction is at the core of any business and Livspace seems to be slightly off the boat in this context. On an average 2 out of 5 customers are dissatisfied with the service provided by Livspace. Clients complain regarding the quality of work, delayed delivery, local vendors being appointed and 10% handling fees are charged with no proper supervisor on site. Most of the customers are of the view that Livspace’s only motive is to get more customers on board rather than satisfying the existing ones.
All in all, the furniture and home design space have massive potential online and thus the chances of Livespace becoming the first unicorn from India in the home decor and furnishing market are very high. Further, with the government’s recognition of infrastructure and ‘housing for all’, online furnishings and home decor businesses are anticipated to see a tremendous boost.