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  • South Asia

Deal focus: Lightspeed boosts Udaan’s B2B drive

  • Holden Mann
  • 28 February 2018
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Lightspeed India Partners renews its commitment to B2B online marketplace Udaan and its emphasis on data-derived trustworthiness

In India, all business is local. The country’s diverse mix of languages and cultures, compounded with its history of internal tax barriers, has produced a highly fragmented landscape in which geographically isolated small and medium-sized enterprises (SMEs) rely on established networks of local suppliers. As a result, outsiders with national aspirations find it nearly impossible to gain traction in these restricted local cliques.

“These entities primarily do business within their existing circles of trust, and there are relatively limited ways for sellers to expand the buyers that they transact with, or for buyers to expand the sellers that supply them,” says Bejul Somaia, a partner at Lightspeed India Partners. “Even if you discover a new trading partner, it’s hard to know whether you can trust them, and trust is the foundation of commerce.”

The goods and services tax, introduced last year, is expected to break down India’s tariff network and make things easier for national logistics players to get a foothold. But that still leaves the trust issue. 

This is where Udaan comes in. The start-up, founded by former executives from Flipkart, aims to provide small companies with an online business-to-business (B2B) marketplace where they can feel safe growing their supply base. Udaan believes a new $50 million Series B round from Lightspeed and DST Global founder Yuri Milner will provide the resources to make this goal a reality.

While other Indian B2B start-ups have emphasized the convenience of their service for businesses and their suppliers, Udaan sees its paramount role as establishing its corporate customers’ faith in their opposite numbers, as well as the platform itself. Udaan’s key edge in this regard is the information to which its status as facilitator of transactions gives it access. 

“A seller will know whether a specific buyer pays on time or not as well as typical acceptance or rejection rates, while buyers will know how often sellers ship on time, and what their quality rates are,” says Somaia. “They can use this data to build a trusted marketplace where there’s a real flow of commerce and credit.”

Along with its online marketplace, Udaan provides logistics services to clients as part of efforts to control the customer experience from end to end. The start-up will use the new capital to improve this offering, as well as its recently launched lending service, which provides credit to its pool of small business customers. 

Lightspeed led Udaan’s $10 million Series A round in 2016, so re-upping represents a mark of continued faith in the business – and its ability to innovate in ways that set it apart from its competitors. “There was very strong validation of the core use case, evidenced by compelling product-market fit metrics such as the buyer/seller growth, transaction frequency, retention rates and demand from more than 500 cities,” says Somaia.   

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