Something special happened for the Bangladesh startup ecosystem last week. ShopUp, the B2B commerce company, has raised a whopping $75 million in a Series B round led by Valar and participated by a list of steller investors. The round is the largest by a Bangladeshi startup and largest by a B2B commerce company in the region.
ShopUp, from a humble beginning, has built an enviable operation and an excellent execution muscle. It is inspiring to watch. Co-founder and CEO Afeef Zaman credits this capacity of execution to his team in an interview with TechCrunch.
ShopUp is a complex operation — building a platform at the intersection of ecommerce, capital, logistics, and potentially other B2B services in the coming days. The company has three products: B2B wholesale marketplace Mokam, logistics service REDX, and small business working capital financing service Baki. The company describes itself as a full-stack B2B commerce platform for small businesses.
While each of ShopUp’s products has achieved some success — for example, REDX is one of the fastest-growing logistics services in Dhaka, Mokam, ShopUp’s B2B commerce platform is at the center of ShopUp’s current operation.
Mokam is a B2B wholesale marketplace where ShopUp connects small businesses with supplies. The company says it serves some 500,000 neighborhood shops through Mokam providing them access to 10,000+ branded and unbranded products. ShopUp works with brands, suppliers, manufacturers, and importers to make these products available.
Mokam is where Baki, ShopUp’s embedded finance product comes in. Instead of providing direct finance, ShopUp allows small businesses to buy products on credit. The process is simple: while purchasing products on Mokam, if you need credit you simply apply using the same app. This makes the entire financing process seamless for the retailers. Mokam has been adding other features such as small businesses can manage their customers’ credit and send them reminders for payment. The product is likely to add more features such as bookkeeping, invoicing, and other relevant features in the coming days. Mokam ties ShopUp’s different parts, in particular commerce and capital, and other potential services in the coming days.
Launched in 2016, ShopUp started as a social commerce and marketing company enabling small f-commerce companies to streamline their promotion, order management, and delivery. ShopUp integrated with Facebook Messenger enabling sellers to automatically manage sales and keep track of growth trajectory, inventory cycle, and customer retention, etc.
The first problem ShopUp solved, in those early days, for its customers was allowing small f-commerce entrepreneurs to manage their orders, promote their products regardless of whether they have a credit card or not, payment, choosing the right content and packaging, shop management, and then eventually helping them to better manage their logistics, initially through partners and eventually by launching its own logistics company REDX. ShopUp also helped connect these small businesses with finance through partnerships with microcredit institutes and financial institutions using its credit scoring tool.
The company has grown from there to become an integrated platform for B2B commerce, enabling small businesses to order their supplies, integrating logistics and credit with it.
Building a wholesale marketplace for small businesses means now brands, manufacturers, importers and everyone who sell to these small businesses are also ShopUp’s customer. Although this appears farfetched because ShopUp’s Mokam is primarily targeting mudi dokans now, if we consider the earlier version of ShopUp where the company used to empower f-commerce companies to manage their businesses, the B2B wholesale marketplace evolution completes a circle — the same merchants can source their products from ShopUp. It means ShopUp can potentially empower these businesses with both generating and managing demand as well as supplies. At the same time, when these businesses sell products they need logistics services and REDX can fulfill that.
ShopUp now works with small businesses and helps them go digital. The company says there are some 4.5 million small businesses that can benefit from its services. Many of these businesses are also moving to digital channels such as Facebook to reach new customers, which creates new demands for logistics solutions.
What ShopUp has achieved so far is tremendous. It has now even more things to do. The emphasis ShopUp puts in the words small business has reasons. Small businesses enable the rest of the company’s ecosystem. Small businesses make ShopUp lucrative to the suppliers that are also its customers. Small businesses make ShopUp's logistics business and the credit service Baki work. And as the company matures its existing services, small businesses could become key to more opportunities. Each of ShopUp’s businesses is large enough independently. But together they reinforce each other, enable a flywheel, create an ecosystem and one service works as a hook for other services. A small business using Mokam for inventory is likely to use Baki and then REDX when necessary. The other way around also makes sense. Similarly, it helps create competitive moats for the company. Every user has more than one reason to stick with ShopUp.
Like most of the B2B e-commerce platforms, ShopUp has tapped into some of the common B2B commerce revenue streams namely buying and selling commission, logistics services, finance and credit, and advertising and sales. There are other areas to expand of course such as analytics, ledger and invoicing and sales and business management services, etc. But primarily earlier four options are what most B2B companies use. To that end, ShopUp already has a solid business.
The primary challenge for ShopUp, as it looks to scale, will be digitization — willingness of small businesses to go digital. In markets like India, digitization has happened due to policies like demonetization and super cheap 4G internet. While Bangladesh has seen excellent internet and smartphone penetration, at the current pace, the market lags in digitization. The other challenge will come from dealing with distributors and wholesalers who now supply to these small businesses.
Similarly, small businesses value revenue and growth over everything else. If you offer a small business that you can help them sell more, they would be happy to pay you. Demand is more lucrative than supplies. That’s why ShopUp’s services clicked so quickly with f-commerce services because ShopUp was helping these businesses to grow. With the small businesses, while ShopUp’s service can practically help small businesses to grow, the service is not straightforward for most small businesses to see. To that end, it could be a challenge for ShopUp to grow its base. Similarly, the majority of small businesses get products through distributors of brands and non-branded importers and they too offer credit to these small businesses. It would be interesting to see how ShopUp overcomes these challenges as the company scales.
The rise of B2B commerce
B2B commerce has been making waves of late. This is a natural evolution of commerce and the result of an understanding in the tech world that the next phase of growth in internet commerce will come from digitizing small businesses. Particularly applicable for emerging markets like Bangladesh where small businesses power the economy but don’t receive enough support. Bringing these businesses online can contribute to the digitization of these economies and unlock true opportunities.
There has been a growing consensus about the importance and potential of B2B commerce companies. In November 2020, Merritt Hummer of Bain Capital Ventures announced on TechCrunch B2B marketplaces will be the next billion-dollar e-commerce startups.
The thesis is interesting and it has led to an outpouring of capital for startups empowering small businesses using technology across markets over the last few years.
This year alone, a large number of B2B commerce companies have raised a staggering amount in venture capital investment across emerging markets from Bangladesh to Pakistan to India to Indonesia to African markets.
Between India, Bangladesh, and Pakistan, B2B commerce companies have raised hundreds of millions of dollars in venture capital money.
In January, Uddan, the Indian B2B startup raised $280 million. Moglix, another Indian B2B ecommerce company, raised $120 million in series E to become a Unicorn. In July, Karachi-headquartered B2B ecommerce marketplace Dastgyr raised $3.5 million in a seed round. In August, another Karachi-headquartered B2B ecommerce startup Bazaar raised $30 million in the largest Series A round in Pakistan. ShopUp in Bangladesh just closed its $75 million Series B round last week. In Africa, B2B commerce marketplace Omnibiz raised US$3 million in seed investment a few months ago. These are just a few to name.
Dhaka has several companies operating in the vertical. Service marketplace Sheba is one of the prominent ones although the company follows a unique model. There is Tallykhata, the bookkeeping startup that came out of SureCash. Ledger app Bonik also operates in the same space. ShopUp’s success is likely to inspire greater activities in the vertical.
This is just the beginning for B2B commerce companies. Not only in Bangladesh but across markets. As digitization grows in Bangladesh, we are certainly going to see more activities in the B2B commerce space in the coming days.
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Genex Infosys gets into Logistics: Publicly traded IT services company Genex Infosys has launched a logistics aggregator company called Loginex Limited. The company, which has been building partnerships with local logistics companies in Dhaka, will officially launch in January 2022. TBS writes about the company here.
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