Udaan.com, a business-to-business online marketplace, on Tuesday said it has raised $10 million in series A funding from venture capital firm Lightspeed Venture Partners India and Lightspeed US.
Udaan was launched earlier this year by Sujeet Kumar, Vaibhav Gupta and Amod Malviya, former senior executives at Flipkart, India’s most valuable e-commerce firm. At Flipkart, Kumar was logistics head, Malviya was chief technology officer and Gupta was business finance chief.
Udaan is currently running a pilot connecting manufacturers, wholesalers, traders and retailers. It has two categories so far—mobile accessories and fashion products.
“It’s very rare to have an opportunity to back an experienced team of founders like Sujeet, Amod and Vaibhav, who have worked together for several years at Flipkart and we are excited to be partnering with them,” Lightspeed India managing director Bejul Somaia said in a statement.
Udaan expects to be fully operational in the next two months, Kumar said.
India’s B2B e-commerce market potential was valued at $300 billion in 2014, and expected to reach $700 billion by 2020, according to an April report by the Confederation of Indian Industry and Deloitte.
B2B e-commerce is also lucrative, partly because marketplaces do not necessarily have to give heavy discounts to increase transactions.
About 259 start-ups have been founded in this sector since 2015, according to data from Tracxn, a start-up tracker. These firms have raised $103 million in funding so far.
Recognizing the large potential, a number of global e-commerce firms which sell to consumers have stepped up their focus on the B2B commerce space in India. The government has allowed 100% foreign direct investment in B2B e-commerce, which has also helped these firms enter India.
Alibaba Group Holding Ltd, for instance, entered into agreements with new partners in September, including Kotak Mahindra Bank, IDFC Bank, logistics start-up Delhivery, DHL, and Aditya Birla Finance to provide better services to the small businesses on its platform. Since starting in India in 2007, it has over six million registered Indian buyers and sellers.
Globally too, B2B e-commerce business makes up a large part of Alibaba’s revenues. For the fiscal year 2016 (ended 31 March), it reported a 15% increase in revenue to $834.15 million from $725.44 million.
Amazon India, which is one of the top two retail e-commerce sites in the country, also has a wholesale arm, which was set up in 2013, that caters to small offices, departmental stores, kirana stores, drugstores, clinics, hospitals, hotels and restaurants. The service is only available in Karnataka right now.
However, entry barriers in B2B are also high. Firms need to integrate technology, put in place complex logistics fulfilment processes and, most importantly, convince businesses to go online.
The difficulty in cracking the B2B market is reflected in the fact that while India’s consumer Internet business had grown to an annualized $15.2 billion last December, according to RedSeer Consulting, the B2B Internet market is an insignificant number.