The Rise of B2B E-Commerce Startup Udaan

E-commerce marketplaces in India are witnessing a transformational boom after the pandemic. The digital transition from offline to online or e-commerce marketplaces has been a real game-changer. While business-to-consumer (B2C) firms like Amazon and Flipkart have flourished, business-to-business (B2B) e-commerce takes the lead in revenue generation due to its large order size and sheer volume.

According to a report by IndianRetailer.com, the B2B sector is witnessing a doubling of valuations every 3-4 months. It brings in an investment of more than $100 million and is expected to reach over $1 trillion by 2024! 

The unprecedented growth of B2B marketplaces can be credited to several startups that leveraged critical technology. These e-commerce players created a ready-to-go ecosystem to help the B2B sector grow and develop to where it is today. In today’s article, we analyse one such B2B marketplace— Udaan, and how they envisioned changing trading functions in India by merging with new-age technology.

Udaan’s Origin 

Ex-Flipkart executives Sujeet Kumar, Amod Malviya, and Vaibhav Gupta established Udaan in 2016 with a unique vision to transform merchandise trading in India. They initially registered the firm as Hiveloop Technology. 

The Bengaluru-based startup gathers and unites all producers, traders, wholesalers, and retailers under a common network. This streamlines the whole B2B procedures in the nation and allows manufacturers to display their items through the online platform. Prospective traders have the liberty to choose and purchase a variety of items. Likewise, wholesalers and retailers hold the same flexibility to promote and purchase an item. Udaan’s platform features a variety of categories, including electronics, home & kitchen supplies, stationery, toys, fruits, vegetables, and other household items. 

Udaan has a network of over 30 lakh registered users and 25,000-30,000 sellers across 900+ cities in India. It covers more than 12,000 pin codes. The platform has over 17 lakh retailers, chemists, Kirana shops, farmers, etc, that conduct over 4.5 million transactions per month. This makes Udaan one of the leading players in the B2B e-commerce segment. 

Funding and Investors 

In October 2022, Udaan raised $120 million in convertible notes and debt from shareholders and bondholders. This is despite a general decline in startup funding.

According to an internal corporate document, Udaan intends to launch an IPO in the next 12-18 months. It has raised $350 million over the last four quarters, making it one of the largest structured instrument fundraisers in the nation.

Udaan's valuation stood at $3.1 billion in a previous funding round of $280 million in January 2021. According to industry sources, they will estimate the company's latest valuation at the time of the IPO or during the pre-IPO funding rounds.

The startup’s existing investors include Microsoft, Lightspeed Venture Partners, M&G Prudential, Kaiser Permanente, and Nomura.

Recent Developments 

• Udaan is booming. There are many people associated with Udaan, including traders, farmers, retailers, proprietors, restaurants, pharmacies, and street sellers. To fulfill more than half of the orders placed on its platform, it has a sizable supply chain network spread all over India. Udaan’s platform presently claims to have more than 5 lakh products.

• Over the last year, Udaan claimed it has significantly improved its unit economics by a total of over 1000 basis points (bps) with strong improvements in both gross margins and operating costs.

• The company has reportedly laid off 300-350 on-roll employees and a significant chunk of its contract workforce for a total layoff count of over 1,000 people. This is the second round of layoffs after it dismissed 180–200 employees (5% of its workforce) in June. With these layoffs, the startup aims to improve its efficiency and achieve profitability.

• UdaanCapital (which helps businesses manage their accounting and get credit) enabled credit of ₹2,200 crore to over one lakh retailers.

• The company has started delivering stocks to pharmacies four times a day across six cities. It plans to scale up the service to other places after 6-8 months. 

• Udaan said that the gross margin percentage has gone up almost three-fold year-on-year (YoY) in FY22. The company’s revenue is now at about ₹10,000 crore for FY22, a 1.6X increase compared to FY21.

Udaan’s Key Challenges

• Udaan’s main struggle was to find the right product and market mix. Though the company has already carved its own niche in the B2B marketplace, it is difficult to stand in its current market position.

• The businesses listed on Udaan must focus on integrating technology and setting up intricate logistical fulfilment procedures. Convincing retailers and wholesalers to go online with their business is another challenge.

• The execution of operations will always be a challenge, which the company has to deal with as it grows bigger.

• Establishing a proper supply chain network is a hassle for B2B e-commerce firms like Udaan.

• Even as well-funded firms like Flipkart Wholesale, Amazon Business, and Jiomart Partners continue to retain a presence in the sector, Elastic Run and Shop Kirana are emerging as rivals.

Udaan's Mission

According to US-based research powerhouse  Bernstein, B2B e-commerce players like Udaan are likely to disrupt the $1 trillion consumer retail market in India.

Udaan continues to be a trusted partner to small businesses by equipping them with technology, financial inclusion, and supply chain capabilities to compete and prevail in an increasingly tech-driven world. The company will focus on using fresh capital to expand its supply chain network in India. It also aims to grow the marketplace in both new and existing categories. The founder trio believes that they are creating a better platform for small enterprises in India. They are also aiming towards generating more revenue and cutting down on their losses. [Net loss was reported to be around ₹2,482.3 crore in FY21.]

Udaan has served as a model for several other startup companies seeking to succeed in the e-commerce sector. It is one of the few companies that has occupied a dominant position in the sector in a relatively short time, making its success story rather interesting.

As Udaan’s tagline reads ‘Khole Munafe Ka Shutter’ (open the profit shutter), it will be exciting to witness how competently they achieve and stand by it. What are your views on this startup? Share your thoughts in the comments section of the marketfeed app!