Online firms known for bringing convenience goods and services — grocery, tailoring or fitness services and the likes — to the doorstep of consumers have outdone others in getting venture capital and private equity investments in recent months. According to available figures, so far in the current calendar year, these firms have garnered over a fourth of the total $252-million PE/VC investments by way of angel, seed and Series A round financing.
This marked surge in investors’ interest in the hyperlocal e-commerce segment is largely attributed to the exponential scope for growth in the traditional grocery and home services market, as it has been largely unorganised and inefficient.
Mukul Singhal, principal at SAIF Partners, says the multi-stage investment outfit is bullish on investing in companies that cater to local services that have a strong smartphone platform. “We are keen to invest in companies that provide market place for commerce around home and on-demand local services like interior designers, beauticians at home, wedding planners for example,” Singhal said.
Sandeep Ladda, leader, technology practice, PricewaterhouseCoopers, says PE and VC interest around online hyperlocal and home services is building due to the exponential scope to scale up business. “This rapidly growing convenience oriented segment is driven by India’s young population, and may outpace 56% CAGR in the next two to five years,” Ladda added.
Mukesh Singh, founder and chief executive of online grocery store ZopNow, says there was little investor interest in the hyperlocal segment three years ago.”Now investors have a better understanding of this market. We have seen a surge in investors’ interest over the past three to four months. There are more investors who are willing to commit capital in this area,” Singh observed.
ZopNow says it incurs overall operational expenses of approximately Rs 80 per order. With an average customer acquisition cost of around Rs 300 to Rs 400, it claims an order rate of 10% to 12%. While its operations in Bangalore have been able to break even, Singh expects operations in Hyderabad, Pune, Mumbai and Gurgaon to break even within six to nine months. “We have managed a year-on-year growth rate of 20%-30% and aim to expand to five new cities by year end,” Singh added.
All online grocery firms together account for merely 0.1% of the overall grocery industry that is pegged at $350 billion. This underlines the scope for growth in this segment, and explains the underlying investment thesis of most PE and VC firms.
There are around 150 start-ups catering to the grocery category in the hyperlocal segment, yet only 15 to 20 are expected to survive.
UrbanClap.com raised $1.6 million from SAIF Partners and Accel in April. The start-up provides a broad-based market place that connects qualified professionals like fitness experts and event planners to consumers. UrbanClap says its has around 300-500 visitors each day, and around half of these visitors fulfill their specific requirement.
UrbanClap, that set up shop in October last year, has not been charging commissions for its services. Varun Khaitan, co-founder of UrbanClap, says the start-up is currently focussing on market share, but may consider a 10 to 15% cut from professionals by next quarter.
“We hope to break even in around two years. This industry is worth around $100 billion and our focus is to increase market share to secure high revenue in the long-term. Our investors have confidence in our business model and our long-term revenue will outweigh current operational losses,” Khaitan noted.
Like UrbanClap, there are 30-40 similar start-ups, yet Khaitan expects only 4-5 players to survive beyond the seed round.
“Some consolidation may happen after two years but surely not in the next 12-15 months. Even though Amazon, Flipkart and Snapdeal understand e-commerce and have money, it will be difficult to wipe us off because of our deep understanding of this domain,” Singh said.