D2C startup due diligence in India: what to check first

D2C numbers look strong until returns, discounts and channel fees come off. Diligence starts there, with the money that actually reached the bank.

Your typical consumer brand deck shows gross merchandise value: every order placed, at list price, including the ones that never got paid for. That's the top of a long waterfall. By the time cash lands, the brand has paid for discounts, returns, shipping both ways, a sales channel's commission and a payment gateway's cut. You want the bottom. We'll take the six checks from our guide to evaluating early-stage startups and apply them to D2C, in the order that finds problems soonest.

Why do gross sales mislead in D2C?

Gross sales in D2C count orders, not money kept. Returns, cash-on-delivery parcels that come back undelivered, discounts and channel fees can eat a large share of every rupee before you even get to product cost. A brand can grow gross sales fast while net revenue stays flat. So your first question is simple. What reached the bank?

Returns alone are a big line. In a National Retail Federation and Happy Returns survey of large US retailers, retailers estimated that 16.9% of their 2024 annual sales would be returned. That's American retail, store and online together. It isn't India. Comparable Indian figures by category aren't published, so don't borrow the number; borrow the lesson. Ask the founder for their own return rate, by category and by channel. Then watch whether they know it without opening a laptop.

How do you get from gross sales to net revenue?

Ask the founder for a monthly bridge from gross orders to net revenue, and then to cash. Each deduction gets its own line: discounts, returns, undelivered cash orders, channel commission, shipping and payment charges. If they can't build it in a day, that's your first finding. Founders who know their numbers tend to have this sheet open already. You'll feel the difference in the first five minutes.

Here's what the bridge can look like. Sample, illustrative, not from any company:

• Sample: ₹100 of gross orders at list price.
• Sample: minus ₹12 of discounts and coupons.
• Sample: minus ₹15 of returns and parcels that came back undelivered.
• Sample: minus ₹18 of channel fees, ₹9 of shipping, ₹2 of payment charges.
• Sample: ₹44 left.

And that ₹44 (Sample) still has to pay for the product. Sobering, isn't it?

Returns and undelivered orders

Cash on delivery is common in Indian e-commerce. It's also where orders quietly die. A buyer in Jhansi or Nashik refuses the parcel at the door, the courier carries it back to the warehouse, and the brand pays shipping twice for a sale that never happened. Ask for undelivered orders as their own line, separate from returns. When a brand folds the two together, it's usually hiding the bigger leak.

Discounts

Discounts make growth cheap to buy. You'll want the share of orders that used a coupon, month by month, with the Diwali and Republic Day sale months marked. Then ask what happened to repeat orders once the coupons stopped. Did sales fall off a cliff? Then the customer was buying the discount, not the brand.

Channel fees

A brand on large e-commerce sites and quick commerce apps pays commission, fulfilment charges, penalties and its own ad spend inside those apps. Get the fee schedule for each channel. Compare net revenue per order across them. The brand's own website often looks cheaper. Is it, once you add the Instagram, YouTube and Google ads that sent the buyer there? Often it isn't, and you'll only see that if you ask.

Which Indian records confirm D2C revenue?

D2C revenue leaves a paper trail in India: channel settlement reports, gateway payouts, GST returns and bank credits. Ask for all four, for the same months, and lay them next to the founder's dashboard. They won't agree to the rupee. They should agree in shape and size, month after month, and you'll see quickly if they don't.

Start with settlement reports. Each e-commerce site sends its sellers a statement of what it collected, what it kept and what it paid out. Then read the GSTR-1 and GSTR-3B returns, which show what the company declared to the tax department each month. If the dashboard runs ahead of both, you've found your gap. Our revenue verification method works here too; just swap client contracts for settlement reports.

Next, the consumer rules. The Ministry of Consumer Affairs notified the Consumer Protection (E-Commerce) Rules, 2020 in the Gazette, and they require e-commerce entities to publish return, refund and exchange terms and to name a grievance officer who acknowledges a complaint within 48 hours. Open the brand's website yourself. Check. Packaged goods carry labelling duties under the Legal Metrology (Packaged Commodities) Rules, 2011, and food or supplement brands need registration or a licence from the Food Safety and Standards Authority of India. Then the trademark. Search the Trade Marks Registry yourself: is the mark in the company's name, or a founder's?

Gross sales tell you what customers wanted. Net revenue tells you what the brand kept. Invest in the second number.

How do you check repeat buyers and the cost of the next order?

The strongest sign in a D2C brand is a customer who comes back without being paid to. Ask them to group buyers by the month of their first order, then you track how many order again. Then set that against what the brand spends on ads to win each new buyer. Repeat orders pay back acquisition cost. One-time buyers don't.

Ask for the cohort table straight from the store's order export, as an Excel file you can sort yourself. Not a chart. Older groups should keep buying; if each new month's group fades faster than the last, the product isn't holding people. Our walk-through on checking unit economics before you invest covers payback and contribution per customer in full.

One more check. Who owns the customer? A brand that sells mostly through large e-commerce sites may not hold its buyers' contact details at all. That's fine for your revenue check. It's a weakness for repeat orders, and you should price it into your offer.

What should a D2C diligence checklist include?

Send these on WhatsApp or email before your first meeting. A brand that answers within days has its numbers in order. You'll learn as much from the speed as from the answers.

1. The monthly bridge from gross orders to net revenue to cash, for the last year.
2. Return and undelivered rates, by category and channel.
3. Settlement reports, gateway payouts and GST returns for the same months.
4. A cohort table of repeat orders.
5. Each channel's fee schedule, plus ad spend inside each app.
6. The trademark certificate, FSSAI registration if it's food, and the published return policy.

Where should you start on a D2C deal?

Run the bridge first. It takes you an hour. It tells you whether the rest is worth your week, and then you can move to the paperwork and the cohorts.

In D2C, the claims that move a valuation sit in channel contracts and invoices.

Questions

What is the first number to check in a D2C startup?

Check net revenue, not gross order value. Take gross orders and subtract discounts, customer returns, cash-on-delivery orders that came back undelivered, channel commissions, shipping and payment charges. The founder should show that bridge month by month, and the total should tie to bank receipts.

Which documents prove a D2C brand's revenue in India?

Ask for channel settlement reports, payment gateway payout reports, monthly GST returns and bank statements for the same months. Put them side by side with the founder's dashboard. Gaps are normal in small amounts; a gap that grows every month needs an explanation before you go further.

Which rules apply to a D2C brand that sells online in India?

The Consumer Protection (E-Commerce) Rules, 2020 apply to e-commerce entities, including a brand's own store. They require clear return and refund terms and a grievance officer who acknowledges complaints within 48 hours. Packaged goods also carry Legal Metrology labelling duties, and food brands need FSSAI registration or a licence.

How do you judge repeat purchase in a D2C startup?

Group customers by the month of their first order and track what share buys again in later months. A brand whose older groups keep buying has a product people come back for. A brand that needs new ad spend for nearly every order is renting its customers.

Sources: National Retail Federation and Happy Returns, 2024 retail returns to total $890 billion (press release), 5 Dec 2024 · Ministry of Consumer Affairs, Consumer Protection (E-Commerce) Rules, 2020, Gazette of India G.S.R. 462(E), 23 Jul 2020

For more on how startup funding works in India, read the MyStartupValley blog or visit mystartupvalley.com.