Business-to-business marketplaces such as Power2SME, Moglix and Industrybuying have attracted a lot of investor interest lately. Most recently, Gurgaon-based BEBB India Pvt. Ltd, which runs Power2SME, an online buying hub for small and medium enterprises (SMEs), raised funding from World Bank arm International Finance Corporation.
In an interview with VCCircle, Power2SME founder R Narayan talks about the fundraise, how the company is planning to use the IFC connection, competition and how the implementation of the goods and services tax will boost online sourcing of raw materials in the country. Edited excerpts:
You raised $10 million from IFC this year. How will you use the funds? What is your growth plan?
Before the GST was rolled out, we were operating in 12 states. After the GST, India has become one market for us. We are expanding our presence across the country. We have three properties—Power2SME.com, FinanSME.com, and SMEShop.com—and we are going to invest a lot on the tech side this year.
FinanSME connects SMEs with lenders. We will do much deeper tech investments for this platform. We have an automatic algorithm that gives us SME data such as balance sheet, profit and loss, and credit scoring. Similarly, for SMEShop, we are onboarding more sellers and buyers.
IFC has also invested in rival Moglix. Does this worry you?
Not really. The investors actually place their bets on multiple baskets. That's an accepted norm in the industry. The investors are extremely professional in the way they participate in each of these companies. So, that does not worry us at all.
What is Power2SME’s valuation after this funding round?
We will disclose the valuation and other information next week.
We saw a lot of traction in the fin-tech segment this year. Will the company now focus more on its SME credit enabling platform FinanSME?
The focus will always be on Power2SME. All SMEs depend heavily on supplier credit, and there is a lot of it that can be given to these enterprises. We take supplier credit along with working capital credit from financial institutions. This is where we expect IFC to play a big role in mentoring us because they have so many investments in financial institutions. They will be able to help us build strategic partnerships with banks and non-banking finance companies to make lending much easier.
How is the business growing? Could you disclose your revenue?
We posted revenue of Rs 240 crore in the year through March 2016 and around Rs 870 crore in March 2017. So, we almost tripled our revenue. We hope to keep up the momentum. In the current fiscal year, we hope to achieve nearly Rs 1,800 crore in revenue.
Our wallet share in terms of SMEs for the past three-four years has grown from 10-15% to almost 35-40%. The number of SMEs on our platform has increased dramatically to around 60,000 now.
In terms of transaction size, we were earlier at an average of Rs 12 lakh per transaction. That has gone up to around Rs 35-40 lakh per transaction.
Who are your customers?
The average size of SMEs working with us is anywhere between Rs 5-80 crore. There are also some outliers such as large companies worth Rs 500 crore that buy through our platform.
Besides bigger players like Moglix, Industrybuying and OfBusiness, the sector has some early-stage players. How do you view the competition?
We deal in steel, cement, chemicals, etc, wherein the market size is $150 billion. In a few years’ time, we aim to be a $1-billion company. But, even at $1 billion, we will be less than a percent of the market. So, there is huge space for everybody out there.
The B2B market mostly operates offline. Do you see the online pie of SME buying and selling growing?
I see a lot of SMEs going online and doing their procurements today because of deeper awareness of the market. The traditional market will change. Second, lending will help SMEs move online. Every business has to be online to take advantage of the GST. This will enable the market to come online much faster.
Tolexo, a big player, has shut down. What strategy will make this business sustainable in the long run?
It depends completely on the DNA of the entrepreneur. Tolexo is a listing company and not ready for commerce. Unlike normal commerce, B2B services large-ticket items. You can't run a B2B company with an order size of less than Rs 5-10 lakh. If you run a B2B commerce company with an order size of Rs 3,000-4,000, it is very difficult for anyone to break even.
Power2SME has broken even in less than five years of its existence. We are profitable. The main reasons for this are that we have a large order size and over 85% repeat customers. The best part in B2B is that every month you need the same material and if you like the supplier, you can go back to them.
Like other sectors, can we expect consolidation in this segment?
It's still early days. I think we should give a couple of more years to this space.
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