B2B ecommerce startup Udaan raises $50 million funding from Yuri Milner, others

The funding is meant for technology investments and to expand logistics and other operations of the Bengaluru-based company started by former Flipkart senior executives.

Ecommerce startup Udaan, which connects manufacturers and wholesalers with retailers online, has raised $50 million in Series B funding led by existing investor Lightspeed Ventures. Russian tech investor Yuri Milner also participated in the round, along with other funds.

Sujeet Kumar, Co-founder of Udaan, confirmed the fund-raise, but refused to disclose the name of the investors other than Lightspeed and Yuri Milner.

Targeting bigger market

Udaan is a pure-play horizontal marketplace on which manufacturers and wholesalers can sell their products to retailers. The company provides logistics, payment and technology support. At present, it is focusing on three categories - clothing, electronics, and FMCG and staples.

It was in late 2016 that Sujeet Kumar, former President of Operations at Flipkart, Amod Malviya, former CTO of Flipkart and Vaibhav Gupta, former Senior VP at Flipkart launched the beta version of Udaan. They announced their Series A fund-raise of $10 million at the same time. Lightspeed had led the funding then as well. The company did a wider launch in June 2017, but is still curating users.

"We have grown fast. There is $600 billion to $800 billion worth of trade between small businesses in India at present. This, despite inefficiencies in logistics, sales, marketing and other areas. Our belief is that these challenges are common across categories and we have found success by following a tech-enabled approach to solving these inefficiencies," says Sujeet, who declined to disclose sales.

The company delivers to over 500 cities, and picks up from sellers in over 80 cities through third party logistics. While Udaan works with third-party logistics firms, it has control over the experience as the tech platform is the company's. It also offers order management, accounting, and payment management solutions to merchants on the platform.

Sujeet says that while in a B2C platform, a customer might make purchases a few times a year, on Udaan the average purchase rate is around seven times a month. Conversion rate is as high as 40 percent.

"Based on the company’s progress, traction and validation of buyer/seller behaviour, as well as our strong belief in the team and market opportunity, Lightspeed is excited to invest in the Series B," says Bejul Somaia, Managing Director at Lightspeed Venture Partners, India.

Funding speeds up

The large fund-raise by Udaan is a clear indication of two trends. One that funding is definitely back in India. This year, until mid-February, Indian startups had already raised $1.8 billion. This was spread across over 100 deals. This is a continuation of the trend in 2017, when investors poured in $14 billion across 876 deals.

However, a large chunk of funding is flowing into startups that have either established themselves as leaders, like Swiggy and Zomato, or into ventures with experienced founders, like Acko, CureFit and Udaan.

This is, in fact, a good trend for the ecosystem as a bulk of Indian entrepreneurs do not start straight out of college. A study by Kalaari Capital (Disclosure: Kalaari Capital is an investor in YourStory) found that Indian startup founders, on average, have around a decade’s work experience. Also, early startup success stories like Flipkart have seen a number of its employees turning startup founders. For instance, over 200 startups have been founded by former Flipkart employees alone.

B2B focus

Startups are increasingly focusing on the large, and largely unorganised, enterprise and small businesses market. A study by industry body Nasscom in 2017 revealed that 40 percent of Indian startups are focused on the business-to-business segment. This, of course, includes pure tech companies, especially in SaaS.

However, in ecommerce too, there is a slight shift towards B2B commerce. This could be because the B2C space already has massive marketplaces in the form of Flipkart, Amazon and Paytm Mall. The B2B segment is still up for grabs despite early players like Power2SME being present in this category for years.

This category is also getting segmented. Power2SME calls itself a buyers club, IndustryBuying focuses on industrial products and Bizongo is focused on the packaging segment.

"The potential for scale is just massive and so are the inefficiencies in the current system. So there is high scope for disruption," concludes Sujeet.