Financial technology startups catering to the requirements of enterprises are increasingly grabbing investor attention. Multiple companies have managed to snap large-sized investments in the business-to-business financial services space over the last two years and few are looking to raise fresh rounds in the current financial year.
While lending to the MSME sector had gained traction with online credit startups being funded in a big way over the last year or so, now companies in treasury management, supply chain, corporate pay roll are also scaling up fast as they come on the investor radar. This comes at a time when the NBFC crisis has hit the online lending firms, as ET has reported earlier, and digital payments platforms continue to burn cash with no clear path to profitability.
“Within the B2B space, fintech is transforming into a lucrative area for the investors community and Indian startups are attracting global funds,” said CM Grover, founder, IBSFintech which offers a treasury and risk management software for corporates like Maruti Suzuki, HCL Corporation Group, Snapdeal, among others. These startups typically take longer to scale, cater to niche business requirements and do not grow exponentially.
On the positive side, they usually develop a strong technology platform, have capacities to scale globally at a faster clip and can turn profitable with minimal amount of funding compared to consumer startups, experts tracking the sector said.
Investors are increasingly looking at getting the fundamental metrics right like profitability, unit level of economics, customer acquisition cost, and are only then willing to pump capital.“ Venture capitalists and other investors are focussed on the rate of addition of new businesses, revenue growth from existing clients and their stickiness,” said Vinay Bagri, chief executive officer, Niyo Solutions which provides digital banking for employees of small enterprises.
“Their interest is driven by multiple factors, companies here tend to be more capital efficient, can reach unit economics profitability much faster than B2C companies, said Nilesh Thorve, chief executive officer, Dealbank which helps startups raise funds from family offices.
Sumir Verma, managing director of Merisis Advisors an investment bank, said that many of these enterprises are trying to solve structural problems and if they succeed they will create entry barriers for others. “We are seeing many more deals in this area now. The increase is mirroring the evolution of the ecosystem ,” he said.
The biggest challenge for startups is to convince investors of the business model. Grover from IBSFintech said in their endeavours to raise funds they have been evaluated multiple times on volume metrics typical of consumer internet companies, which is not the right one.“We do not have set paramteres to be evaluated unlike the consumer-facing companies,” said Ramaswamy Iyer, chief executive officer, Vayana Network which works in the supply chain financing business.
With a large chunk of small businesses still offline, internet companies still acquire customers through an agent network.“ India still needs feet-on-the-street model for acquisition of corporate clients. Cost wise it may work out but in developed economies this won’t be feasible,” said Anshul Rai, chief executive officer of expense management startup for businesses Happay. “Investors do not find these businesses attractive always but interest is growing.”
According to data sourced from business intelligence platform Tracxn, around $364 million have been pumped into the B2B fintech space through more than 80 equity rounds. Last year the number of deals stood at 76 and the amount pumped in was $345 million.
(Additional reporting by Biswarup Gooptu)