Deal focus: Ace Turtle says so long to SaaS

Ace Turtle resisted tapping external investors until 2017, three years after its founding. The unhurried pace was due to its positioning as an e-commerce enabler – providing services in payments, customer engagement, and logistics – rather than as a cash-burning platform eager to build its own traffic.

Nitin Chhabra (pictured), the company’s co-founder and CEO, claims that becoming India’s answer to Amazon or Taobao was never on the agenda. Ace Turtle was also deliberately omnichannel from the outset. It recognised that offline stores could be used to bring in online customers at a relatively low average acquisition cost, while serving as distribution points as part of a more cost-efficient logistics system.

The strategy appealed to Vertex Ventures Southeast Asia and India, an affiliate of Temasek Holdings-owned Vertex Holdings, which led the first funding round. It reasoned that all brands would ultimately seek omnichannel solutions, and the thesis has played out as expected.

“Offline brands have built their own digital storefronts while the new-age D2C [direct-to-consumer] brands that started off as purely online are now expanding offline. Ace Turtle saw this trend early on and recognised that brands want ways to directly manage the customer journey, regardless of the channel,” said Ben Mathias, a managing partner at Vertex Ventures Southeast Asia and India.

Ace Turtle’s core technology offering, Rubicon, is described as a distributed order management system that can process inputs from any digital channel and identify the most preferable fulfilment points in real-time. Rubicon can also be used to catalogue product inventories and manage marketing materials.

It has turned Ace Turtle into a mainstream software solution for brands in India, but there was a significant strategic shift in 2020 during the worst period of the pandemic. The company secured the licensing rights to manufacture Lee and Wrangler products for distribution in India. Similar arrangements followed with Toys R Us and Babies R Us.

Chhabra believes the success of the pivot is captured in Ace Turtle’s numbers. In 2020, six years after its founding, the company achieved annual recurring revenue (ARR) of USD 10m. Eighteen months after the pivot, ARR was up to USD 55m. Sales doubled in the 2023 financial year and the company became EBITDA-positive.

“The management team has had extensive experience as brand operators, which we believe is critical in building and growing a successful franchisee of international retail and fashion brands,” said James Lee, a general partner at Vertex Growth, an independently-managed growth-stage investor that counts Vertex Holdings as an anchor LP in its fund

“By combining their expertise in brand management with the tech-first approach and India’s rising consumer middle class, the company has a strong foundation for long-term success and growth.”

Pursuing efficiencies

Vertex Growth recently led a USD 34m Series B for Ace Turtle, while the Southeast Asia and India unit re-upped. They were joined by SBI Investment, Stride Ventures, Tuscan Ventures, Trifecta Capital, and Innoven Capital, among others.

Lee added that Vertex Growth emphasizes defensible business economics regardless of market conditions. However, issues like efficient deployment of capital and prudent cash management have become even more important given the current challenging fundraising environment.

Ace Turtle distinguished itself with Wrangler and Lee, immediately shutting down the wholesale business – a key revenue contributor – because it didn’t generate any customer data. Most of the own-brand stores were also closed and distribution relationships with department stores were terminated if there was an unwillingness to share customer data.

“Of the 300 brick-and-mortar stores, only 50 met our evaluation criteria, so we shut the rest. The most important parameter for us was their ability to adopt technology – whether they were flexible enough to try new technologies and quickly scale up with successful trials. We introduced new initiatives on a quarterly basis, so we made sure store operators were aligned with our way of working,” said Chhabra.

He added that, despite the wide-ranging closures, Wrangler and Lee went on to achieve their highest annual sales since entering India 25 years earlier.

Ace Turtle brings efficiencies through its network of factories, which create a closed-loop ecosystem whereby purchasing data is collected, analysed, and fed back to supply chain and design teams. It contributes to decisions on what products to manufacture and where to distribute them, where to locate offline stores – based largely on online consumption patterns – and how to market products.

The company has also tweaked its revenue model, receiving a commission on each item sold rather than charging subscription fees. Ace Turtle gets 40% of the gross margin on a Toys R Us product made by a third party; the margin share is much higher for its own products. The company’s India factory network is responsible for 100% of fashion items and 22% of toys made under the four licensed brands.

“We started off as a pure SaaS [software-as-a-service] player and we soon realised that adoption is a significant challenge for large enterprises,” said Chhabra. “Our clients often struggled to utilise the full functionality of the platform. As a result, we saw more growth when we took over the entire piece ourselves rather than leaving the adoption to our clients.”

Ace Turtle started phasing out SaaS clients last September and expects to rid of this exposure in the next couple of months.

It has also sought to retreat from overseas markets. The company expanded into Malaysia and Singapore in 2017 in response to customer demand, yet Chhabra resisted calls from other brands – and from some investors – in favour of doubling down on India.

“If you look at any category in India, penetration is either low-digit or high single-digit. There is a lot of untapped growth potential which we may not be able to fully capture in our lifetimes,” he said. “Given the size and complexity of the Indian market, why don't we drive growth within India instead of exploring regional markets? While we can’t predict the future, our current focus is firmly on India.”

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• Topics
• South Asia
• Early-stage
• Technology
• India
• Vertex Ventures
• Vertex Growth
• e-commerce
• TMT