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Cracking The Investment Puzzle: 5 Pointers To Help You Raise Venture Capital For B2B E-Commerce Venture

B2B e-commerce industry is currently one of the very few market segments currently open to 100% FDI.
Cracking The Investment Puzzle: 5 Pointers To Help You Raise Venture Capital For B2B E-Commerce Venture
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If you ask randomly-picked ten entrepreneurs what may be the most likely thing their start-ups expect to face a challenge with, the word ‘funding’ will probably make an appearance no less than seven to eight times. Raising new funds does not come without its fair share of stumbling blocks, particularly with the global investment landscape witnessing a major slowdown. According to a recent report by Goldman Sachs, the private equity funding into Indian ventures has witnessed a tangible decrease in 2016.

Even the Indian e-commerce segment, which has been a darling of local and international investors, has not been left unmarked by these changes in the start-up and investment landscape. Several prominent B2C e-commerce companies today are considered to have inflated valuations due to a lack of profitability and high burn rate, causing their investors to internally mark down their share values in anticipation of an imminent market correction. This growing apprehension has also made investors cautious about pumping fresh funds into e-commerce ventures.

In the face of such massive odds, securing funding for your B2B e-commerce start-up might sound like a daunting task. But to my mind it is also an opportunity since investors would be favorably considering other sectors for investing. However, the B2B e-commerce segment is a different beast than its consumer-facing cousin. The industry has been attracting investment from major investors and private equity firms across the globe owing to its outlay, which currently exceeds $300 billion. The viability of investing in a B2B venture in India is also driven by the fact that less than 2% of the country’s overall retail industry is currently online. With smartphone adoption increasing at a rapid pace, the sector is expected to exhibit a concomitant growth to touch $700 billion in market size by the end of the decade. Moreover, the B2B segment, unlike the B2C industry, is open to 100% Foreign Direct Investments under the current government regulations, which further boosts the probability of securing funding for a B2B e-commerce start-up.

But while the time is ripe for B2B e-commerce marketplaces to make the most of the increased investor confidence, below mentioned are a few tips that can help your B2B venture in strengthening its investment pitch and significantly enhancing its chances of raising capital:

  • Building a strong service delivery framework: The B2B industry has a high entry-level barrier which requires players to build a robust, end-to-end service delivery network comprising exporters, logistics service providers, payment partners, auxiliary businesses and financial institutions. Ensuring that you have strong connections and robust supply chains in place before making the pitch to potential investors can increase their confidence in the operational stability of your venture and increases the chances of a successful investment pitch.
  • Unit Economics holds the key: Given the recent upheaval in the start-up landscape, particularly the e-commerce segment, the focus for both investors and entrepreneurs has shifted from hyper growth to positive unit economics. Minimising your burn rate can not only free up tangible capital that can be utilised to further consolidate your operations, but also makes your venture a very attractive proposition in the eyes of the investors.
  • FDI and the B2B business: As is mentioned above, the B2B e-commerce industry is currently one of the very few market segments currently open to 100% FDI. With several large foreign e-tail chains such as Wal-Mart already having entered the Indian market, pitching your business idea to foreign investors looking to cash in on the e-commerce growth in India makes great business sense. Not only do you give your chances of securing investments a tangible boost, but also potentially unlock key business insights from global industry leaders, thereby also giving the chances of your success a massive shot in the arm.
  • Planned growth: Currently, the B2B e-commerce segment has less than 200 players operating within it. In an industry that is expected to touch $700 billion by 2020, this represents an immense scope of opportunity for both start-ups and investors. Meticulously charting out the long-term as well as the more immediate short-term goals can aid you in presenting to potential investors concise information about your start-up’s mission and vision. This results in greater transparency about the start-up’s future growth and helps you in sealing the deal.
  • Market disruption through technology, and why it appeals to investors: The largely offline nature of the Indian B2B retail segment leads to several inefficiencies in business operations, fragmented supply chains and a broken end-user experience. Leveraging tech to disrupt the market approach not only adds greater value to partner businesses, but also drives the adoption of your platform and increases the chance of its continued growth and scale. This focus on market disruption appeals to the investors due to its impact and potential for profit. Basing your start-up’s operations around a disruptive idea can therefore greatly increase the success probability of your investment pitch.  
Edition: December 2016

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