Start-ups in alternative lending and B2B commerce attract investors

Three-fold rise in funding and doubling of deals in financial technology, automobile technology, online pharmacy and telemedicine sectors, start-up tracker Tracxn’s figures show


The quantum of funds ploughed in to the sector increased about 37 times to $74.33 million between January and June this year, as against $2 million last year. Photo: iStock images
The quantum of funds ploughed in to the sector increased about 37 times to $74.33 million between January and June this year, as against $2 million last year. Photo: iStock images

Mumbai/Bengaluru: Consumer Internet companies may have fallen out of investor favour over the past nine months, but start-ups in alternative lending and business-to-business (B2B) commerce are still able to attract funding.

Sectors such as financial and automobile technology, online pharmacy and telemedicine were in vogue with investors in the first six months of 2016, with the number of deals at least doubling and the amount of investment increasing at least three times from corresponding period last year, according to data from Tracxn, a start-up tracker.

According to Tracxn, the alternative lending segment attracted $67.6 million in funding across 22 deals in the first six months of 2016, propelled by a $25 million fund-raising by CapitalFloat and $32 million by LendingKart in May and June, respectively.

That represents a three-fold increase in the amount of investment and a doubling in the number of deals as against from the year-ago period. Between January and June last year, $21 million was infused into the sector across nine deals.

Alternative lending start-ups essentially lend small and medium business or retail consumers through tie-ups with non-banking financial companies or enable peer-to-peer lending, connecting lenders and borrowers.

“Platforms like ours are different, because a lot of funding in alternative lending has gone to those doing balance sheet lending, i.e, companies lending out of their own books. We are capital-light companies. The interest in this sector has picked up in last one year, it is certainly heated,” said Rajat Gandhi, founder and chief executive at Faircent, a peer-to-peer lending start-up that has raised at least $1.5 million this year.

Investors have turned cautious towards putting money in start-ups and are questioning their business models and valuations. Apart from demanding that start-ups slow expansion, slash costs and cut discounts, many venture capitals are setting performance milestones; some investors are only releasing funds in instalments.

According to a July report by KPMG and CB Insights, an angel investor and venture capital database. venture capital investment in Indian start-ups stood at $1.98 billion between January and June this year, a 43% decrease from $3.5 billion in the corresponding period last year.

“Sectors like alternate lending in Fintech is able to raise money because their business model is very clear. You know how much the transaction will be and how much will be the profit. Second, thing is that their customer acquisition cost is low. Many of these companies (that are lending) have business associates,who are on ground and help them get a loan who are in need, unlike etail companies (online retail) who spend on online advertisements to trigger purchase. An individual who is borrowing will be in need for that kind of money.” said Sreedhar Prasad, partner at KPMG India.

“Similarly for B2B, there is no case of heavy discounting involved to get customers or users- they are limited in number and are closely knit. Also, B2B is at a very nascent stage- so, it is yet to start growing”, added Prasad.

The B2B commerce sector—which saw start-ups such as Indiamart, Power2SME and JustBuyLive, among others, raising funds—witnessed an increase in the number of deals to 14 in the first six months of this year as from four in the corresponding period last year.

The amount ploughed into the sector increased to $74.33 million between January and June from a mere $2 million last year.

While the alternative lending segment saw the most deals, the automobile technology segment was the biggest grosser in the first half of this year with $195.95 million, a four-fold increase from about $50 million in the corresponding period last year.

The number of deals went up to 10 from six in the first half of 2015.

“The auto-tech start-ups have started to spend simultaneously on marketing among other things, which has raised consumer awareness. Consumers don’t have to spend long on discovery if we are able to put together that kind of information on our portal. A lot more people are thus using online portals to buy the right car, be it new or used, which was not the case earlier,” said Amit Jain, co-founder and chief executive at Girnarsoft Pvt. Ltd, which owns CarDekho.

According to data available with Tracxn, the telemedicine and online pharmacy segments have also gained mileage with investors, although the ticket size of investments for online pharmacy start-ups dropped.

Online pharmacy start-ups raised at least $16.5 million across nine deals between January and June as against $11 million in two deals in the corresponding period last year.

Telemedicine start-ups attracted $6.5 million across nine deals, as against a paltry $150,000 across four deals in the year-ago period.

“Digital health is the least affected by the funding slowdown. Certainly, unlike 2014 and 2015, investors are more cautious. But, digital health start-ups have raised a lot of money, the reason being this is an evergreen sector. This is not dependent on any variations or cycles. It is not a fad. It is a sustainable sector,” said Prashant Tandon, chief executive at online pharmacy start-up, 1mg.

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