India MSME services provider ElasticRun raises $75m

Kalaari Capital also participated by buying employee-owned shares. The three investors provided $40 million in funding in 2019, while Kalaari has also backed four rounds between 2016 and 2018. Total capital raised to date amount to more than $150 million.

ElasticRun provides a range of physical and digital services to unbranded mom-and-pop retailers, known locally as kirana shops, in rural areas. Much of the offering focuses on overcoming challenges related to distribution and fulfillment when businesses must manage small-quantity inventories away from well-serviced cities. There is also a strong focus on helping kirana shops participate and compete in e-commerce.

ElasticRun operates about 500 distribution stations, which serve more than 100 brands. The company realized a sudden expansion in its network as well as in its e-commerce enablement business during 2020. It expects to triple in size over the next 12 months.

"The COVID-19 pandemic has enhanced focus for many brands towards rural markets, and our model has enabled us to deliver real value to them and grow our brand basket significantly," Sandeep Deshmukh, co-founder and CEO of ElasticRun, said in a statement.

India has about 12 million kirana shops, which account for 11% of GDP and 8% of employment. About 10 million of them are in rural areas, where sales are expected to grow to $600 billion over the next five years. They are seen as not only a means of accessing underserved consumers but as a neglected source of consumer data.

There are several hurdles around modernizing this part of the economy through technology and the participation of consumer brands. In addition to the cost and logistical difficulties, small rural retailers face challenges around credit availability, internet access, and pricing transparency. COVID-19 has increased the strain on the ecosystem by spiking demand for essential goods.

The demand for MSME credit options has underpinned consistent PE interest in local non-bank financiers, even as market shocks have shaken up lender business models. Alternative approaches to credit issuance include the professionalization of MSME accounting. This has emerged as a discrete investment category, with recent activity including a $60 million round for Khatabook.

Meanwhile, a host of PE-backed operators have aimed to digitize and otherwise organize the Indian MSME space from various angles.

At one end of the spectrum, large corporates have sought to create comprehensive infrastructural systems where their services and branding are ubiquitous. Reliance Industries raised about $26 billion last year for a plan in this vein, combining the resources of its Jio Platforms, JioMart and Reliance Retail affiliates. Last month, Amazon formed a $250 million fund for a similar agenda.

There has also been substantial traction among independent start-ups. In addition to ElasticRun, these include last-mile delivery player Shadowfax and logistics aggregator Shiprocket, which raised $13 million last year. Grocery platform Jumbotail raised about $13 million in 2019 to connect kirana shops with consumer brands and farmers directly rather than through traditional intermediaries.

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• Topics
• South Asia
• Consumer
• Support services
• Expansion
• India
• Prosus Ventures
• Avataar Venture Partners
• Kalaari Capital
• SME
• e-commerce
• Logistics