Microsoft bets on e-commerce firm Udaan with play in convertible note round

Top tech firm joins host of other global investors in the Bengaluru-based B2B platform; move could set the stage for Udaan to go public in 18 months and boost its valuation then

Microsoft, one of the world’s biggest technology companies, has joined the convertible note funding round of Udaan, which was launched in October 2021 and has now reached $275 million via convertible note and debt. Microsoft has joined new players M&G Prudential, Kaiser Permanente, Nomura, TOR, Arena Investors, Samena Capital and Ishana Capital, according to an internal company letter.

The Bengaluru-based business-to-business e-commerce platform had raised $250 million via convertible note and debt. The new capital is an addition of $25 million to the funding round. The move is expected to set the stage for Udaan to go public in 18 months and give a boost to its valuation at that time.

“We are excited to announce that Microsoft Corporation joined our Convertible Notes offering launched in October last year,” said Aditya Pande, chief financial officer, Udaan, in an internal note. “M&G Prudential, Kaiser Permanente, Nomura, TOR, Arena Investors, Samena Capital and Ishana Capital, among others, participated in the convertible notes offering round.”

He said the convertible note offering launched in October 2021 witnessed 2x subscription, and raised a total of $225 million. “The step to bolster the balance sheet through mandatorily convertible notes to IPO highlights continued evolution of Udaan’s capital strategy and is in line with our preparation for a public listing in the next 12-18 months,” said Pande. “With the closure of the Convertible Notes round, total funds raised by Udaan through debt and Convertible Notes in the past six months has reached nearly $275 million.”

In 2017, Microsoft along with China’s Tencent and eBay invested $1.4 billion in Flipkart and which valued the e-commerce firm at $11.6 billion.

Udaan achieved a valuation of $3.1 billion during its last round of funding of $280 million in January 2021 from existing and new investors.

According to industry sources, valuation of the latest round of fundraise will be derived at a future date either at the time of the IPO or during the pre-IPO rounds of funding. A convertible note is an instrument typically used by companies at pre-IPO stage, and the instrument converts into equity at the IPO. Large scale tech companies that have successfully used convertible notes include Airbnb, Uber, Spotify and Robinhood.

Last year in September, Udaan appointed co-founder Vaibhav Gupta as CEO. This is part of the plan for the next phase of growth for the company. The other two co-founders, Amod Malviya and Sujeet Kumar, as Board members are actively working with Gupta.

Udaan competes with e-commerce giants such as Amazon India, Flipkart, Reliance’s JioMart and the Tata group for a share in the grocery market which is expected to be worth $850 billion by 2025.

Udaan now has a network of over 3 million registered users about 30,000 sellers across over 900 cities in the country covering more than 12,000 pin codes. The platform has over 2 million retailers, chemists, kirana shops, HoReCa, farmers, etc. doing over 5 million transactions per month. The company operates one of the largest logistics networks with over 200 warehouses spread over 10 Mn Sq Ft space across the country delivering over 8000 tons of products everyday. To cater to the growing demand, Udaan plans to scale its warehouse capacity to 50 million square feet across the country in the next 7-8 years.