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Flying B2B

A string of multi-million dollar funding deals involving B2B start-ups shows the current market dynamics present tremendous growth opportunities in this space

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Business-to-business (B2B) is evolving as a lucrative segment within the start-up ecosystem in India. Marking a shift from ventures that cater exclusively to consumers, the B2B segment, propelled by firms operating in B2B e-commerce, fintech, logistics and software-as-a-service (SaaS) spaces is gaining traction of late.

Traditionally, the B2B space in India was largely unorganised, with outmoded and unorganised distributors and wholesalers, says Rahul Garg, founder and CEO, Moglix.

“There was no symmetry in the information available and most industrial products were not catalogued in one place. But now gradually things are changing for the better. With internet penetration and the availability of payment options, there exist multiple opportunities for B2B entrepreneurs and vendors,” says Garg.

Entrepreneurs feel the current market dynamics present tremendous growth opportunities for B2B companies. 

Globally, as per Forrester data, B2B e-commerce will be worth $6.7 trillion by 2020, outpacing the business-to-consumer (B2C) e-commerce segment which will be $3.2 trillion by next year. Entrepreneurs in India have taken a cue from this data by aggressively setting up ventures in the B2B space. According to a Nasscom-Zinnov report, 2017 witnessed the birth of over 1, 000 new technology-driven start-ups in India, of which about 40% were focused in the B2B sphere.

Since B2B denotes transactions between two businesses, it carries certain distinct advantages that are not commonly seen in B2C.

“Unlike the B2C marketplace, B2B start-ups offer need-based solutions wherein clients approach businesses directly for buying products and availing services, leading to better unit economics and faster profitability. In addition to this, while smaller businesses are aggressively leveraging technology like cloud and mobile internet to bring down their cost of operations, globalisation of SaaS products is a big push for the B2B sector. Moreover, the B2B businesses typically showcase infinitesimal cash burns, allowing the companies to scale up their operations, plough back cash into expansion and hit the road to profitability easily and quickly,” says R Narayan, founder and CEO, Power2SME.

According to Mandar Agashe, founder and vice chairman, Sarvatra Technologies, in B2B, the closed feedback loop with customers helps in improving products faster, while the start-ups enjoy a steady stream of revenues. “B2B also has a lower cost of acquiring customers, as unlike B2C, it does not require heavy marketing and advertising investments.”

Furthermore, experts claim B2B start-ups are considered stable as they witnessed a reduction in their mortality rate from 36% in 2016, to 30% in 2017.

However, experts feel that since B2C start-ups design their products and offerings for the end-consumers, they have always garnered a fair share of investor attention. “But given the multiple opportunities and returns on investments that B2B offers, investor sentiments have become stronger over the years,” says Narayan.

As per a 2017 Nasscom report, B2B e-commerce start-ups raised a total of $196.5 million, the highest since 2010. 

2018 also witnessed a string of funding deals involving B2B start-ups. Saas provider Freshworks raised $100 million, entering the Unicorn club. B2B logistics start-up Blackbuck raised $27.4 million in a round led by Sequoia Capital, with talks of raising another $150-250 million in the near future. While Moglix, which is into B2B e-commerce, raised $23 million in a round led by Accel Partners, International Finance Corporation (IFC) and others. Power2SME has raised $60 million so far through five funding rounds. 

Narayan says when it comes to B2B, investors primarily focus on the technical prowess of the start-up. “With the emergence of new technologies like cognitive, cloud, Internet of Things, etc, and the government's push for research and development, the ecosystem can transform the innovation culture. We will continue beefing up our integrated digital supply chain technology solutions with data science and machine learning capabilities,” says Garg, adding that Moglix has, in a span of 3.5 years, been catering to 400 large manufacturing units and over 5,00,000 small and medium enterprises. “We are bullish on expansion.”

Sarvatra Technologies, which is an end-to-end payments and banking technology solutions provider, plans to reach out to new banks and fast moving consumer goods retail outlets with niche products. Agashe says they have grown 10 times in the last five years.

Narayan says Power2SME closed the last financial year with a gross merchandise value of Rs 1,200 crore. “We have expanded aggressively, entering 10 new states in the last six months.”

BUSINESSES BLOOMING

  • $6.7 trillion – B2B e-commerce will be worth by 2020, outpacing the B2C e-commerce which will be $3.2 trillion
     
  • $196.5million – B2B e-commerce start-ups raised as per a 2017 Nasscom report, the highest since 2010
     
  • $100 mn – Saas provider Freshworks raised in 2018
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