Business-to-business marketplace Udaan has raised $280 million from new and existing investors as the Indian startup builds a war-chest to accelerate its growth and fend off rivals.
The new capital is not part of a new financing round but is an extension of its Series D. The Bangalore-based startup, which secured $585 million prior to the new capital as part of its Series D round and has overall raised $1.15 billion to date, is now valued at more than $3.1 billion, a source familiar with the matter told TechCrunch.
Octahedron Capital and Moonstone Capital are financing the fresh capital, with participation from existing investors Lightspeed Venture Partners, partners of DST Global, GGV Capital, Altimeter Capital and Tencent.
Much of the business-to-business market in India remains unorganized. This means that merchants in the nation today have to travel to other cities — where all the major dealers operate — to stock up their inventory. But these merchants don’t have much leverage to negotiate, so they struggle to find best-value for money and access to a wider selection of catalog.
Udaan, co-founded by three former Flipkart executives, is solving this problem by connecting small retailers with wholesalers and traders. The startup today serves more than 3 million retailers and small and medium-sized businesses and it has signed up thousands of brands, including Coca-Cola, PepsiCo, Boat Lifestyle, Micromax, HP, LG, ITC, HUL and P&G.
Amod Malviya, co-founder of Udaan, said in a statement that the coronavirus pandemic, which prompted New Delhi to order a nationwide lockdown and put restrictions on e-commerce firms, underscored the significance of small businesses and mom-and-pop shops (popularly known as kiranas) in the country.
“Udaan is at the forefront of this uniquely Indian e-commerce opportunity, emerging in the last four years as one of the largest e-commerce platforms in India, while taking an India-first mobile-first approach to e-commerce. This financing enables us to further our journey of taking e-commerce to the depth and breadth of the country, with Udaan’s unique low-cost model for core middle India,” he said.
Other than the inventory problem, Udaan also helps merchants secure working capital. Small businesses, especially mom-and-pop shops, rely on money they secure from selling their existing inventory for buying their next batch. Because Udaan is able to see the engagement of different merchants on the platform, it is able to determine to whom it could safely grant working capital.
These decades-old challenges also present a massive potential reward to firms. “The unaddressed SME credit demand in India is ~US$300-$350 billion, with more than 90% of current demand being met by banks. A typical digital SME lender focusses on Rs1-5 million ($13,575 to $67,875) ticket size with no collateral, average tenure ~12-18 months, and with some ecosystem anchor,” analysts at Bank of America wrote in a recent equity research report, obtained by TechCrunch.
“While growth potential in theory is high, despite much higher yields, we don’t find their economics to be much superior to banks even in a steady state. Overall, steady state ROE (return on equity) for an average digital SME lender is unlikely to be much more than 18% levels — not meaningfully higher than a big private bank,” they wrote.
Udaan said it will deploy the fresh capital in further creation of the market, and expanding the selection of products and categories it offers. Additionally, the four-year-old startup said it will expand its financing capabilities for small businesses and extend its supply chain network.
The fresh fundraise “reflects the long-term truly transformative and fundamental value creation potential that Udaan platform offers for the lives and businesses of Indian MSMEs, who are major job creators and form the backbone of our economy and the society,” said Malviya. “Participation of existing and new investors in this financing highlights the increasing recognition of capital markets of this unique nature of the Indian market, and the opportunity it offers.
In the past two years, scores of startups and giants such as Reliance and Amazon have started to explore the business-to-business market in India, which is currently dominated by Udaan.
For instance, India’s largest retail chain Reliance Retail, which serves more than 3.5 million customers each week through its nearly 10,000 physical stores in more than 6,500 cities and towns in the country, entered the e-commerce space with JioMart in late 2019 through a joint venture with sister subsidiary telecom giant Jio Platforms. By mid last year, JioMart had established presence in over 200 Indian cities and towns — though currently its reach within those cities and customer service leave a lot to be desired.
Reliance Retail also maintains a partnership with Facebook for WhatsApp integration. Facebook, which invested $5.7 billion in Jio Platforms last year, has said that it will explore various ways to work with Reliance to digitize the nation’s mom and pop stores, as well as other small- and medium-sized businesses.
For JioMart, Reliance Retail is working with retail shops, giving them a digital point-of-sale machine to make it easier for them to accept money electronically. It is also allowing these shops to buy their inventory from Reliance Retail, and then use their physical presence as delivery points. The platform is currently largely focused on grocery delivery, however. In a recent report to clients, Goldman Sachs analysts estimated that Reliance could become the largest player in online grocery within three years.
Further reading:
From India’s richest man to Amazon and 100s of startups: The great rush to win neighborhood stores
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