B2B start-ups raise good money as investors show renewed interest

Investors are realising that the B2C market is hyper-competitive and alot of cash is required for building a mass market brand and acquiring customers

Last week, B2B industrial goods marketplace Moglix raised $60 million led by Tiger Global and Sequoia India. Moglix is not alone. Several B2B start-ups such as Delhivery, Blackbuck, Enzen, Ninjacart, have raised good money this year, on the back of renewed interest from investors.

B2B start-ups have raised $2.25 billion in 2019 across 218 deals – accounting for 61 per cent of $3.65 billion raised by B2C start-ups across 318 deals. B2B start-ups accounted for 39-40 per cent of the money raised by B2C raised in the in 2017 and 2018, according to data from Tracxn. 

B2B deals accounted for 38 per cent of the $5.9 billion raised by start-ups till July 10 this year, up from 28 per cent in the last two years. Investment in the B2C space still accounts for bulk of the deal flow, accounting for 62 per cent of the deal value this year, down from 72 per cent last year.

The shift is best captured by Tiger Global’s investments this year. 

The US-based investor, best known for backing and exiting Flipkart, invested in over a dozen start-ups this year till mid-July. Ten of these investments are in B2B start-ups. ‘‘For Tiger Global, it majorly due to a change in leadership. Lee used to focus a lot on consumer. Scott (Shleifer, who now looks after the Indian market) focuses more on B2B,’’ says ShareChat founder Farid Ahsan. 

Lee Fixel, who steered Tiger Global’s early bets in India, is leaving to start his own firm. But even Tiger Global has been shifting gears. Four of its eight investments in 2018 were in the B2B space. ‘‘If you look at percentage change, again Tiger’s change in behaviour is a key reason, as a lot of large consumer funding that Tiger used to do has shifted to B2B,’’ adds Ahsan. 

What is driving this change? Funds are realising that the B2C market is hyper-competitive with strategics such as Amazon, FlipKart and Jio spending a lot of capital, says Dhruva Agarwala, founder & Group CEO, PropTiger which acquired SoftBank-backed Housing. ‘‘B2C businesses require a lot of cash for building a mass market brand and acquiring customers. B2B businesses are relatively more capital efficient,’’ he says. Industry watchers estimate foodtech firms Swiggy and Zomato are burning $30 million-40 million a month while e-commerce firms are burning a lot more. 

‘‘B2B businesses (enterprise software makers) have the potential to tap a relatively more lucrative US market or other foreign markets in addition to the domestic market. Besides, the prospect of a B2B business becoming profitable relatively sooner is higher,’’ says Agarwala. It’s not just about enterprise software, but other B2B businesses that investors are bullish today. Logistics firms such as Delhivery, Blackbuck and Rivigo, for instance, raised a lot of capital this year (see table).

Supil Chachan, Director, BlackBuck says the Indian economy goes through a long value chain (B2B) before serving an end customer. The market size for these industries is running into billions of dollars. It gives a huge market size for a B2B start-up to serve the value chain and bring efficiency into the system and therefore, attract investor attention/capital [logistics, retail]. For instance, logistics is $150 billion market, with long-haul market alone estimated at $100 billion.

‘‘The ecosystem has matured enough to enable a lot of B2B companies to start finding traction in India, plus positive examples of companies like Zoho, Freshworks, Druva etc have validated that high quality B2B companies are not just possible, but highly valuable with strong structural advantages,’’ says Prashant Tandon, founder & CEO of online pharmacy 1mg.

‘‘The Indian ecosystem now provides an opportunity to develop and mature quality products for a very demanding ecosystem out here, and when these products are presented to global market, they have started to look highly nuanced plus a great value offering,’’ adds Tandon.