Earlier this year, three former executives from Flipkart Ltd, India’s most valuable e-commerce firm, launched Udaan, an online marketplace connecting manufacturers, wholesalers, traders and retailers. In November, Udaan.com raised $10 million in Series A funding from Lightspeed Venture Partners India and Lightspeed US.

In a year that saw investor excitement around consumer Internet companies cooling, dozens of startups in India’s B2B segment like Udaan have raised money from venture capital funds. The reason: More traditional retailers and manufacturers are going digital and several enterprises have started using the Internet to conduct day-to-day business. It has also helped that many of them were launched by successful executives from companies such as Flipkart and Google India, who identified the potential of the B2B segment.

Commerce, logistics and niche software start-ups that address needs of other businesses are among B2B segments that attracted investors in 2016, data shows. Some of these sectors—in particular B2B commerce—have largely been untouched by technology so far, meaning that while it’s particularly tough to convince Indian enterprises to buy technology products and services, the market size is lucrative and estimated to touch $700 billion by 2020, according to an April report by the Confederation of Indian Industry and Deloitte.

In 2015, the B2B commerce space saw the founding of 198 startups, and attracted $16 million in 14 deals, according to data from start-up tracker Tracxn. This year, although only 67 companies were founded, the funding jumped to $98 million across 30 deals. The sector has seen $122 million funding since 2014.

B2B startups require less capital, turn profitable faster than consumer start-ups, and generate revenues from the start. While these factors have so far meant that enterprise software start-ups, such as Freshdesk Inc., which sell to global businesses received investor attention, companies that help Indian businesses go digital are now taking off too.

“B2B is a lucrative segment,” said Rutvik Doshi, Director at Inventus Capital Partners, which has invested in firms like Power2SME and Unbxd. “As long as they’re solving a real pain point, or a real need, there’s an opportunity to build a very large business out there. At the end of the day, what is happening is consumerisation of technology. GMail and Hotmail started out as consumer products, but today, a large number of people use them within enterprises as well. The same thing, we believe, is going to happen in the B2B space within India also.”

The three largest funding rounds in B2B e-commerce – $22 million by Indiamart, $20 million by Power2SME, and $20 million by Just Buy Live – also took place in 2016.

Having a robust logistics network is essential for the e-commerce sector and the B2B logistics sector, which includes companies that make software to optimise logistics processes, is also looking up.

In the B2B logistics segment, about 183 companies were founded in 2015, and $363 million was poured into firms in this sector across 37 deals. In 2016, 59 companies were founded in this sector and $128 million was raised across 22 deals. Since 2014, the sector has seen $545 million in venture funding.

The biggest round of funding went to Ecom Express Pvt. Ltd in 2015 when it raised $133 million from Warburg Pincus. Delhivery (SSN Logistics Pvt. Ltd), which raised $85 million in a series D round last year, has raised about $135 million in funding so far. Rivigo (TrucksFirst Services Pvt. Ltd) also raised $75 million from Warburg Pincus in 2015. The investments underline investors’ trust in their business models, and in their founders’ ability to solve complex problems.

“The problems that exist within India are quite different from the US and other developed markets. Now, there is confidence from investors that very large companies can be built by backing Indian entrepreneurs looking at Indian challenges, even with the kind of infrastructure, technology adoption that may exist here,” said Rahul Garg, Founder, Moglix (Moglilabs Pvt Ltd), an e-commerce procurement platform, which has raised about $4 million in venture funding and counts Accel Partners, Jungle Ventures and Ratan Tata among its investors. Garg was an senior executive at Google India.

While making the investment in Udaan—started by Sujeet Kumar, Vaibhav Gupta and Amod Malviya—Lightspeed had said it’s “very rare” to have an opportunity to back an experienced team of founders. At Flipkart, Kumar was logistics head, Malviya was chief technology officer and Gupta was business finance chief.

The attention that the B2B sector is getting, especially in B2B e-commerce where the likes of Amazon and Alibaba are putting significant efforts to make inroads, augurs well for companies that were so far struggling for lack of capital, experts said.

“There were good B2B businesses before too, but they were starving because they were not getting investor confidence at all. That has changed. If you look at the last six months investor confidence is shown as quite high. That really helped the B2B ecosystem,” said R. Narayan, Chief Executive Officer, Power2SME (run by Gurgaon-based BEBB India Pvt. Ltd), which makes procurement for SMEs simpler.

Source: Mint