Why Tiger Global and other investors are eyeing Indian B2B startups in their hunt for the next billion-dollar bet
India’s business-to-business (B2B) startups have rarely been associated with the hysteria and excitement that typically surrounds billion-dollar valuations and large funding rounds – much unlike their more flamboyant business-to-consumer (B2C) counterparts. But that’s set to change.
In the hunt for the next billion-dollar bet, marquee investors like Tiger Global Management are already ramping up their investments in Indian B2B startups, signalling growing investor interest in enterprise startups.
That interest, investors say, is driven by the potential Indian B2B startups have to seize global market opportunities, as they create disruptive tech-based products and solutions for global businesses.
Rising investments in B2B startups
To be clear, investor interest in the B2B startups space has been gaining pace. In the first quarter of 2019 alone, investors pumped in around $2.36 billion in funds in pure-play B2B startups; that number is up more than a third from the total value of investments seen in the same period a year earlier.
This increase reflects the trends seen in the prior years, where the total funding raised by B2B startups in 2018 stood significantly higher at $3.52 billion, or up 74 percent from $2.02 billion in 2017.
“B2B always had the traditional way of making money and scaling. It also always had a large global scope, which therefore makes it a lucrative bet for investors,” says Radhesh Kanumury, CEO and Managing Partner at Arka Venture Labs.
Arka Venture Labs assists Indian B2B startups foray into the US by providing a combination of funding, mentoring, and access to the Silicon Valley ecosystem.
As of Tuesday, May 7, Indian B2B startups had already raised around $3.35 billion in 2019. That amounts to 95 percent of the total amount raised by B2B startups in 2018.
Or, to put it more simply, in just a little over four months, Indian B2B startups have raised as much money as they did in the whole of last year.
This year’s numbers include the $100 million investment made by global investment group Tiger Global in agritech startup NinjaCart, a ticket size that rivals those it made in its top B2C bets like online retailer Flipkart, and ride-hailing aggregator Ola back in 2015 and 2016.
Tiger roars ahead in the Indian B2B space
New York-based Tiger Global, which has made significant B2C bets in the Indian startup ecosystem in the past, has recently turned its focus on Indian software-as-a-service (SaaS) startups.
The firm, which went into a period of hibernation for over three years, making just around 5-8 deals per year, has, so far this year, participated in as many funding rounds, signalling its renewed interest in the Indian startup ecosystem.
Until its investment in Ninjacart, Tiger Global had made smaller investments in the range of $4 million to $30 million in several B2B startups, including expense management startup Fyle, and SaaS mobile analytics and marketing CleverTap.
But Tiger’s more recent investments -- in Ninjacart, and Zenoti, the enterprise cloud platform provider for the beauty and wellness industry, -- highlight the firm’s current investment strategy, which has, in turn, further piqued investor interest in the B2B space.
After all, Tiger Global was among the most active institutional investors in India, with the fund participating in over 40 deals in the country in 2015.
In fact, the hedge fund’s latest fund of $3.75 billion is expected to focus on consumer internet and cloud computing startups. Globally, too, solutions providers for niche markets -- dubbed 'vertical software' -- are gaining ground, and Tiger Global is looking at them closely. In China, it invested in Meicai, a platform that connects farmers with restaurants. In India too, Tiger is expected to add several more SaaS-based startups to its portfolio in the coming months.
On investor interest in the B2B space, Manish Singhal, Founding Partner of AI and deep-tech focussed fund Pi Ventures, says, “Investors don’t drive the market. They invest based on where the market is and how the market acts.”
Currently, investors are betting on B2B as the market is opening up to working with B2B startups, Manish says. Earlier, for most B2B startups, their business was largely global, but that is changing, explains Manish.
“Domestic companies today are closely working with B2B startups and are giving them strong business,” he says.
Deeper tech integration
Indeed, the lure of Indian B2B startups lie in their potential to disrupt specific areas of large industries by building tech-based enterprise solutions that can be applied at a global level.
“B2B startups are technologically intensive from day one and much later in the day become operationally intensive. B2C startups work the other way. In that sense, true product innovation happens in the B2B segment,” says Naganand Doraswamy, Founder, Ideaspring Capital, a fund focussed on deep tech and B2B enterprise startups.
For example, Ninjacart is using technology to transform the farmer to consumer supply chain by connecting farmers directly with businesses, in a bid to ensure fair pricing for all. Likewise, Zenoti uses technology to provide a full suite of cloud-based services, including predictive analytics, to large chains in the beauty and wellness industry, which is estimated to be a $10 billion global market.
A growing base of B2B unicorns?
Similarly, B2B startups like robotics startup GreyOrange, cloud data protection and management startup Druva, mobile ad network InMobi, and cloud-software startup FreshWorks have all built successful and strong enterprise businesses that are based on a need in the enterprise market, notes Radhesh of Arka Venture Labs.
InMobi and Freshworks are among the six Indian B2B startups that are among the 23 odd unicorns in the Indian startup ecosystem. The other four unicorns, or startups with a valuation of over $1 billion, are Gurgaon-based logistics startup Delhivery, data analytics firm Mu Sigma, B2B marketplace Udaan, and B2B payments startup PineLabs.
In September last year, Udaan became the fastest Indian startup to reach unicorn status, with its fund raise of $225 million from DST Global.
FreshWorks and PineLabs also achieved unicorn status last year, while Delhivery became the first unicorn of 2019 after raising $395 million in a Series F funding round led by Japanese conglomerate SoftBank.
And yet, Delhivery may not be the only B2B startup to achieve unicorn status this year. As the B2C space gains maturity, investors believe the next wave of large bets will be made in the B2B space.
Ideaspring’s Naganand says,
“Most of the bets in the B2C space have already been made. If you look at ride-hailing, there is Ola, but no other Indian player will get that amount of funding. Flipkart has taken the pie in ecommerce. What other bets can be made in B2C? Even on the global front, the cycle is complete. Uber has announced its IPO, so has AirBnB, and Lyft. So now the next level is from B2B startups.”