How far will the ‘Udaan’ fly?
By: Kumar Louhit
Tags: Startup, Udaan, Business Models, Analysis, Entrepreneurship

If you are ever been to Bangalore, particularly in the HSR layout area, it might be almost impossible to not spot 3 massive offices of Udaan standing next to each other near the BDA complex.

Hiveloop Technology, the Bengaluru-based company that owns the B2B eCommerce marketplace Udaan, claims to be valued at Rs 53,365.4 crore ($7.5 billion at prevailing foreign exchange rates) based on projected cash flows and upcoming equity infusions.

Udaan operates an eponymous B2B marketplace that connects small retailers with wholesalers and traders. The platform supports a wide range of categories from lifestyle, electronics, home and kitchen, staples and toys, to fruits and vegetables.

Before those ‘3’ years

Udaan was founded in the year 2016 by the 3 former employees of the Flipkart. It was not new for Flipkart executives to get into the Indian startup ecosystem as a founder or as an investor. In fact, the “Flipkart mafia” or ‘Flipsters’ as we call ex-Flipkart employees were known to have an instrumental contribution to the ecosystem.

Ex-Flipsters have turned into Entrepreneurs and are ruling the Startup ecosystem. There are over 235 startups founded by ex-employees of Flipkart! Additionally, there are over 40 startups that are backed by Flipsters who are on their board or have invested in them.

Flipkart is a beacon of inspiration for an entire generation of Entrepreneurs.

And the latest from the Flipkart stable is Udaan, one of the fastest-growing B2B startup.

Inc42

Udaan was founded by Amod Malviya, Vaibhav Gupta, and Sujeet Kumar who worked at Flipkart for 8 years before coming together to build Udaan. The team brought the right balance of product, technology, and operations. Vaibhav led product management and finance, Amod was the CTO while Sujeet was a senior operation executive (and ran Ekart and WS Retail) at Flipkart.

Udaan was founded in 2016 at the tail end of India’s e-commerce frenzy when scores of startups that had attempted to build business-to-consumer online shopping platforms were conceding defeat.

At the time, very few players — like Power2SME and Moglix (industrial products) and Bizongo (packaging for businesses) — were looking at the business-to-business market in India.

Initially, Udaan was started only as a logistic platform for small buyers and sellers for electronics, staples, and apparel. The categories at which the founders were pretty comfortable with working at Flipkart.

They focused on logistics for about 10–12 months before pivoting to a full stack tech solution.

In the early days, Udaan was able to build a huge data database of buyers and sellers which later enabled them to quickly onboard those sellers and retailers onto their platform.

Udaan raised a Series A round of $10MM in November 2016 from Lightspeed Venture Partners. At the same time, they launched the beta version of their tech platform.

But, as soon as the platform launched, exponential growth was seen, and the capital started to flow in. This further proved that Udaan had and still has great potential.

With internet penetration increasing across the country at the time, the timing of the opportunity couldn't be better.

Leveraging tech in a not-so-sexy space

Consolidating the unorganized retail segment is certainly a massive opportunity, but working with small businesses and Kirana stores are often considered non-sexy.

Amod in an interview admitted it is a non-sexy space to be in, but emphasized that working with small businesses is a great way for tech entrepreneurs to step outside their comfort zones.

Even as more than half a billion people in India are online today, most businesses in the nation remain offline. But a growing cohort of startups in the nation is beginning to help merchants make use of technology.

India’s small businesses, including many small neighborhood stores known as Kirana shops, are a key part of the country’s move online.

Global retailers like Walmart Inc. and Amazon.com Inc., India’s largest conglomerate Reliance Industries and startups like Udaan are all rushing to digitize these small businesses, helping them ramp up to become a service point for delivering products and services to the community. Udaan has an early mover advantage against its large rivals

Udaan's focus was on India’s core problem of a fragmented supply chain with over 100MM farmers, 25MM manufacturers, and millions of importers. On the other end, are some 30MM retail endpoints, including tiny stores and restaurants, and in between multiple channels of wholesalers and traders.

Udaan’s platform provides pricing transparency and facilitates convenient transactions by offering support in payments, lending, and logistics. This is a technology that’s only beginning to penetrate small cities and towns.

Udaan timing was also a masterstroke with Jio leading to a 1000X increase in monthly internet consumption and rapidly expanded smartphone penetration to Bharat digitizing the SMB’s, retailers, wholesalers, and Kirana shops.

According to Forrester analysts’ reports, the B2B eCommerce market is currently at a $1 trillion+ mark and is expected to grow up to $2 trillion by 2020.

Forrester Research

By Aug 2017, it was selected into Microsoft Accelerator’s 11th cohort, effectively using the deep networks of the technology giant.

By early 2018 it had expanded its categories to include FMCG and staples. It also scaled to over 500 cities with sellers in 80+ cities through third party logistics

It’s also important to recognize and appreciate the dynamics of the B2B e-commerce market vis-à-vis B2C market. Early metrics from Udaan suggested that the average purchase rate was around 7 times a month with a strong conversion rate of 40% (compared to under 5% for B2C)

The learnings from Flipkart clearly helped.

The ability to create teams fast, set up processes and focus on systems thinking to scale tech helped the company hit the phenomenal vendor growth.

The Udaan trio, bred in small towns in India’s states of Bihar and Uttar Pradesh, said they didn’t have access to supermarkets or grocery chains growing up. Shopping for big purchases meant traveling to a nearby big city. That inspired them to come up with Udaan’s business model.

The B-2-Business Model

With the idea to understand the demand and supply aspects across various categories. The company focused only on the logistics part for about 8–10 months when they started.

Udaan Logistics essentially helped it to foster a relationship with the buying and selling community in B2B space. For more than a year and a half, Udaan did logistics on subsidized rate and it helped them to gain significant exposure within the community.

More importantly, logistics allowed Udaan to gain insight into who is buying what. Essentially, the company’s deliberate goal was to build a database of buyers and sellers before getting into the supply business.

Around early last year (Feb-March), Udaan began the B2B supply business with a handful of buyers and sellers. Within a short span of about 22 months of operations, it has been able to onboard about 1,80,000 sellers and buyers on the platform.

While 80 percent of this is buyers comprising of small-scale retailers, the remaining 20 percent are manufacturers who are selling inventories on Udaan’s platform.

A large catalog coupled with efficient and cheap logistics has made Udaan popular amongst buyers in smaller cities.

Besides adding sellers from India, Udaan also has started sourcing manufacturers from China.

Udaan helped businesses discover customers, suppliers, and products across categories and connect them to get the best deal. The platform also facilitates secure payments and gives logistics support. The company also offers accounting, order management, and payment management solutions to merchants on its platform.

The founders of the company found that financing working capital has been a major headache for end retailers. The retailers end up borrowing from local lenders who charge exorbitantly.

After receiving a non-banking financial company (NBFC) license to provide finances to SMEs, it has also started underwriting loans for these small businesses.

360-degree Disruption

Udaan’s complete support through logistics, payment, and technology created stickiness and a repeat behavior on the platform

The B2B Aggregator model gave it a recurring and predictable revenue rather than building around flash sales and discounts like B2C Aggregators Flipkart or Amazon.

Since its inception, Udaan has collected millions of data points which helped them understand buying and selling trends for different customers and make recommendations accordingly.

The rapid capital raise has further helped validate the company’s business model. Udaan reached unicorn status within 26 months since its inception and from its official launch in June 2017; the company was valued at $1 billion in August 2019 after the conclusion of its Series C round of funding.

The firm subsequently reached a valuation of $2.8 billion after raising $585 million in a Series D round of financing in October 2019.

In its valuation report in February, Udaan valued itself at $7.5 billion based on cash flows for nine financial years and equity infusions expected over three years.

According to the same report, the firm passed a resolution to receive $51 million in an internal infusion from Trustroot; the latest funding is the first tranche of this expected investment.

Furthermore, the company aims to raise $140.7 million through equity infusions by March 2020. Udaan expects equity capital investments of $128 million in FY2020–21 and US$184.5 million in FY2021–22.

Isn’t this a lot of money for just a 3-year-old startup?

Well, Udaan is on a mission to disrupt a $700 Billion industry and that’s just tip on the iceberg.

Today, the opportunity in front of Udaan is huge. The startup has amassed more than 3 million retailers and more than 25,000 sellers from 900 cities and towns in India. The startup processed 5MM orders in the month of August 2019.

Just like China’s Alibaba, Udaan was able to provide predictions on future supply and demand of stocks and helped wholesalers save a lot of time in managing their inventory.

Udaan’s ability to understand the deep SMEs and SMBs market and supply chain helped them to disrupt the traditional process with full-stack tech solutions. It tapped into this small business eCommerce segment when no other players were spending big to leverage technology and make the lives of small entrepreneurs easier.

With $2Bn in annual GMV and 5MM orders monthly, the next step in the vision for Udaan would to become an all-encompassing tool for businesses across India and bridging the gap between Bharat and India.

Udaan is on a mission to disrupt the traditional, disorganized, and fragmented market by building tools and solutions from product sourcing to facilitating transactions for the next generation of Bharat businesses.

The ecosystem in China and India are fairly similar. By trying to recreate China’s giant Alibaba’s success in India, Udaan has become a force of empowerment for the community of millions of small businesses that form the backbone of India’s economy.

Today, a wide range of merchants, including farmers, shopkeeper owners, restaurants, chemists, and street vendors are connected to Udaan. The startup has set up a supply chain network throughout the nation to fulfill more than half of the orders on its platform. In providing a B2B eCommerce and credit platform for India’s offline entrepreneurs, Udaan has become a way to grow business and profitability levels.

While far from being profitable, with an annual expenditure of over $110 million in 2019 as compared with $6 million in revenues, It would be interesting to watch Udaan creating new streams of revenue moving forward. The company is one of India’s most highly-valued and highly-funded startups, with a roster of high-flying investors that includes Tencent, Altimeter Capital, Digital Sky Technologies (DST Global), GGV Capital, Lightspeed Venture Partners, and Hillhouse Capital Group.

Other players in the mix include Kalaari Capital and Nexus Venture Partners-backed Jumbotail, which is looking to go deep into supplying staples and PoS (point-of-sale) to Kiranas, and fresh produce focused B2B platform Ninjacart which was valued at $331 million during its last funding round in April.

According to a report by research and marketing firm Redseer, the online B2B segment has been successful in acquiring only 1 lakh retailers out of 1.5 crore Indian retailers.

That implies that there is a huge potential to even fly higher in the segment. It would be interesting to see as Udaan’s journey unfold in the new Bharat.