GO five years back in time. What does the startup ecosystem look like? Careem and Uber have just entered and are aggressively incentivising both demand and supply, Rocket Internet’s Daraz and Foodpanda are still trying to establish a serious footprint, and the classified platforms Zameen and OLX are looking to scale. What about purely home-grown players? Well, there are far and few in between, at least those worth noticing anyway. A few have surfaced, mostly with the aim of simplifying routine tasks of an average urban middle-class citizen who’s still high on the economic boom thanks to an artificially overvalued rupee. To support that, some incubators have sprawled up and a tech publication has identified the gap and is willing to give young innovators the space they need. But all in all, it’s still very nascent.
Fast forward to today. Things are definitely looking upward, but this time around, the wave seems more focused towards businesses instead of consumers. One way to look at that is obviously through investment raised so far for each segment. While business-to-consumer continues to occupy a major share still, thanks to major rounds by the Electronic Money Institutions such as Sadapay and Tag, and retail-focused trading platforms Seed Labs and K-trade, business-to-business’s (B2B) share continued to increase.
Startups are trying to tap your neighbourhood shop by providing them with a platform to source inventory — the idea is to directly connect retailers to manufacturers and wholesalers for better prices
From bagging around a quarter of the total invested capital in all of 2020, B2B’s share has increased to over 37 per cent in the outgoing year so far, making up more than $46 million. Go a little deeper and you will find an overwhelming proportion of this amount coming from one sector specifically: B2B e-commerce. Five startups from this space managed to secure almost $37m: $17m by Tajir, $6.7m Retailo, $6.5m Bazaar, $3.5 Dastgyr and $3.2m Salesflo.
All five of these startups are trying to tap your neighbourhood kiryana store by providing them with a platform to source up inventory from. The idea is to directly connect retailers to manufacturers and wholesalers. Cutting out the traditional middleman ie the distributor — by replacing it with a tech-enabled one — will lead to better prices, we are told, on top of making the supply chain and processes more efficient.
So far, it seems to be working out through some combination of partnerships with manufacturers, penetrative pricing or discounts, 24-hour delivery and a team on the ground that’s willing to make the ordering process smooth for the kiryana stores. While usage or gross merchandise value data is obviously not available, Dastgyr in its press kit claimed to have over 5,000 daily users.
There’s another sector that is looking to cater to these retailers, albeit for a different function. Since the start of 2020, a number of ledger apps have emerged, with the promise of digitising the kiryana stores’ cash register. Though not as aggressive in terms of raising capital as their e-commerce counterparts, these startups haven’t entirely stayed behind either. For example, Creditbook and Digikhata have scored $1.5m and $2m in seed rounds in 2021 while Udhaar is part of Y-Combinator’s W21 cohort. The fourth major player is Easy Khata from Bazaar which has shown an impressive fundraising ability so far.
But let’s move beyond investment as that’s not an end in itself. It’s the scale that matters, an area where ledger apps have done quite well if one takes app downloads as a metric. Creditbook and Digikhata have already crossed the 1 million installs while Udhaar and Easy Khata have breached the 500,000-mark. Admittedly, this is not a great measure to begin with but considering how few local startups have managed to get to this level of traction, it’s still worthy of attention.
Now of course, for startups that seek to trigger a behavioural shift by replacing the cash register with an app, we should at least be looking at active usage on a daily or monthly basis. Unfortunately, there is no exact way to find that out, but we can refer to Similarweb’s usage ranking — which gives a high weightage to daily active users. According to their algorithm (which we don’t know), Udhaar seems to be on the top, followed by Easy Khata, then Creditbook while no data is there for Digi Khata for some reason.
And this is just sticky usage we’re talking about, nothing on monetisation as yet. In fact, that’s something that the local startups are still trying to figure out. “So far, it has been an engagement and behavioural change play and we haven’t really finalised the revenue stream yet. There are lots of broad stroke opportunities but there’s still some time before they can be realised. Obviously, credit is one area, then payments is another,” says Fahad Kamr, the founder of Udhaar Book. “Even India’s Khatabook [often cited as a major success story] hasn’t started generating income yet,” he adds.
Regardless, investors are willing to bet on this behavioural change, and amid the growing traction of these startups, we can certainly expect to see follow-on rounds worth bigger sums. How all of these B2B players translate this into a sustainable top or bottom line is subject to the test of time and skill, but what’s clear enough is that the average dukanwala will be the centre of these digitisation efforts.
Published in Dawn, The Business and Finance Weekly, August 1st, 2021