Over the last year, B2B even saw its first e-commerce unicorn in Udaan. Several others saw rounds of funding. The likes of IndiaMART are exploring an IPO. It is all coming to a head.
And the conversation is shifting. Traditionally, B2B companies gain an investor interest when the consumer internet segment matures. Experts argue that this may not be the case in India yet. Nonetheless, there are other factors that have turned the tide in favour of B2B start-ups, factors that have been bubbling under the surface for a few years.
There are layers here. Some are easy to understand, such as the fact that the profit margins in these companies are higher. Some are more nuanced.
“The goods and services tax (GST) has been one of the biggest drivers for B2B firms. The passage of the tax liberated companies that found it difficult to trade within states,” said Gaurav Chaturvedi, venture partner, Kae Capital. The GST eliminated the need for calculating different taxes and, in some cases, eased tax burden, giving firms a higher profit margin. The GST also meant that previously non-digital companies were forced to keep their records online.
This opened up a whole new customer group for SaaS companies, not just for the GST, said Chaturvedi, but also for digitisation brought on by a younger generation of entrepreneurs who want to adopt technology to optimise things such as supply chain costs.
“All of this can be covered by SaaS companies,” he said. Changes in immigration policies also mean that some hires are being replaced by technology and SaaS companies in India are turning into ‘solution providers’, Chaturvedi said.
Put these two together and you have the build-up of a significant level of enthusiasm in B2B companies.
“India is to SaaS start-ups what Israel is to security,” said Chintan Mehta, partner and fellow in residence, iSpirit.
While some layers are new, others have been built over years. “The Infosys legacy is a strong factor here. Not just in terms of mentorship but also convincing global and local audiences that tech from India can solve problems,” said Chaturvedi.
Apart from SaaS, the likes of Delhivery and Ecom Express, which initially catered to just e-commerce companies, have opened up their client base, creating a new market. This is said to be one of the reasons why SoftBank, along with the Carlyle group, was eager to invest $350 million in Tiger-backed Delhivery.
Apart from this, foreign investors are taking a keen interest in sectors that have still to gain momentum such as artificial intelligence and robotics. “These are bets that will pay out later,” said Chaturvedi.
Most investors are simply hoping that the horse they have put their money on wins. It’s just that the horses Tiger bets on are more keenly followed than others.