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The $100m ARR Club - Part I
This is the first in a series of three blog posts looking at startups from emerging markets that have reached $100m in annualised revenue (ARR). This series uncovers the key trends and significant developments that propelled these startups to reach that milestone and to see what lessons can be transferred to Sturgeon’s markets in Central and South Asia. We analysed startups with $100m in ARR across India, Indonesia, Brazil, and Mexico. These markets are at different stages of their digitalisation journey relative to our markets and provide different insights and perspectives on the challenges and opportunities to reach $100m. Within these countries, we focused on Marketplaces, B2B Software (SaaS), and FinTech as the three core verticals in which Sturgeon invests. This first article will look at Marketplaces, with the next two delving into FinTech and B2B software.
Through our research, we identified several shared milestones, yet also observed a range of divergent achievements based on geographical location, industry focus, and unique business models. Common observations were:
The top quartile took, on average, 4 years to hit the $100m mark, the average was 6.5 years, and the bottom quartile took 9.5 years. The average year-over-year growth across sectors to reach $100m has been 30-40%.
SaaS was the most capital-efficient business model, requiring about $130m in capital to hit the $100m mark, followed by Marketplaces at $272m and Fintech at $423m (although there is some nuance here as many have raised significant debt capital as part of this). Within verticals, there was a high variance in capital efficiency, with no one business model being a clear winner.
This series of posts is based on an analysis of 52 startups across different countries that have either reached or are on a path to reach $100m in annual revenue. In India, we looked at 22 Marketplaces, 7 FinTech’s and 6 SaaS companies. Elsewhere, we studied the two major super apps in Indonesia, Grab and Gojek, as well as 4 marketplaces and 2 FinTech’s. In Latin America, there were 6 FinTech’s and 3 Marketplaces in the $100m ARR club.
Many models emerged during the early rise of marketplaces in India; investors poured over $1bn into players like Flipkart, Snapdeal, Paytm mall and Makemytrip, all of which enjoyed first-mover advantages. Indian marketplaces raised more than $17Bn between 2015 – 2022 and have acquired 100m+ users since inception.
As per this Bain report, India's e-commerce market, which totalled $72bn in Gross Merchandise Value (GMV) in 2022, is estimated to grow to $350bn in GMV by 2027, supported by strong macro tailwinds and continued investments. These macro tailwinds are compounded by several structural tailwinds:
The government has invested significant time, effort, and capital to develop the local ecosystem. The Digital India program, launched in 2015, invested $3bn in 2022 alone.
Sophisticated financial infrastructure through UPI, India’s Unified Payment Interface, alongside innovation driven by 500+ payment companies in India across the spectrum of BNPL, payment gateways, and peer-to-peer payment platforms to speed up e-commerce adoption.
Logistics, previously a challenge as marketplaces sought to fulfil customers’ orders, has also improved dramatically through logistics startups like Blackbuck, Rivigo, Edgistify and intracity instant delivery startups such as Dunzo.
Today, India has 22 marketplaces with ARR higher than $100m, and below are the differentiators that made them successful.
Copycat but with local adaptation:
In the early 2000s, many e-commerce players struggled to pick up in India, but Flipkart prevailed. Flipkart is the Amazon equivalent in India and is the market leader today with 46% market share. In 2015, when competition between the B2C marketplaces kicked off, Amazon outspent Flipkart nearly 3:1. In just the festive quarter in 2015, Amazon spent a total $30m compared to Flipkart’s $10m for the same period. Flipkart understood the nuances of the Indian market better than its international competitors. They implemented cash on delivery and easy EMIs, given the reluctance of Indian consumers to pay upfront, which helped it scale three times the speed of Amazon in the early days. It also implemented a no questions asked refund policy and many such supply chain moats to defend its first mover advantage.
Focus on the value and category leadership:
Our analysis revealed that full stack and transactions on the platform business models scaled, whereas pure listing platforms struggled to achieve scale despite having higher margins. Justdial, MagicBricks, and Matrimony.com, the leading listing platforms in India, failed to scale beyond $10m ARR. In price-conscious markets, consumers follow a cut-the-middle-man approach, and listing platforms don’t provide much value addition to consumers.
Even within horizontal marketplaces, Flipkart built category leadership with electronics, Amazon with Prime and Pantry Myntra for fashion. In contrast, Snapdeal never built any category as their USP and continued building too many warehouses and burning cash, eventually leading to the verge of bankruptcy before they turned the business around and rebranded as a value player for tier 3 consumers.. A lesson from this is to build fit-for-purpose infrastructure as opposed to building for everything and letting OPEX run out of control.
Solve for Ecosystem issues:
90% of Indian retail remains unorganised, with thousands of small retailers and distributors making the supply side a major challenge. Many vertical marketplaces leveraged data and depth of expertise to create their own D2C brand to solve supply-side issues. Although horizontal players are still 75% of the total GMV, these vertical marketplaces have succeeded quickly – Nykaa cosmetics reached the $100m mark in 6 years and IPO’d at $13bn in 2021. It launched 12 in-house brands over the last 2 years, which contribute to 17% of overall revenue.
BigBasket, the grocery platform, took just 5 years to $100m ARR and is currently IPO bound with a valuation of $3B. Boat, a marketplace for consumer wearables, has taken 6 years to do the same. These vertical marketplaces have also been more capital-efficient, with Nykaa raising $69m, Boat $70m and Big Basket $100m to reach $100m ARR. Vertical marketplaces burnt on an average 30% less compared to top-quartile horizontal marketplaces.
Opening new markets and lowering CAC
Despite 61% of the population now being online, less than 10% of India's total population and less than 20% of its internet users currently engage in online transactions (~125 million people). Acquiring new customers has become challenging as city consumers are spoilt for choices. To succeed and capture a bigger market share, startups like Swiggy & Meesho’s expanded to tier 2/ tier 3 cities. 60% of Nykaa’s demand comes from non-metro areas. Finding low-tech channels for distribution and transactions, such as WhatsApp and Instagram, has helped marketplaces scale revenue faster, Additionally, as in the case of Udaan, Meesho & Delhivery, having offline agents to cater to onboarding audiences helped customer acquisition. Per employees at these startups, 40%+ revenue came through such “phygital” channels.
B2B the next big opportunity
Overall, while consumer marketplaces have seen a rise, relative market saturation has seen their growth stall somewhat, with the top-performing marketplaces now growing at a pace of 30 – 40% per year. At the same time, the leading B2B marketplaces are witnessing the same growth levels seen by consumer marketplaces in the early days. The top quartile B2B marketplaces such as Indiamart & Zetwerk have seen on average of 95% YoY growth in ARR. Although the take rate for B2B marketplaces is lower at 6-10% compared to the 10–15% for B2C players, their large addressable markets and high ARR growth rate has made them an attractive opportunity for early-stage investors as consumer marketplaces stall.
Lessons from SEA and LATAM
E-commerce and marketplaces are still in their nascency in other developing markets compared to India. However, the early signs of their success are now evident. In both SEA and Latin America, startups are deploying capital more frugally ($170m vs. $272m in India) to get to $100m ARR and are using a playbook of efficiency by building vertical marketplaces.
In Indonesia, like India, a growing young population and increasing internet penetration led to the rise of internet marketplaces. Superapps such as Grab and Tokopedia have expanded horizontally, covering the entire geography. Grab has a total user base of 187m while Tokopedia has 137m – more than 50% of Indonesia’s total population. However, recently, vertical marketplaces like eFishery and Traveloka have quickly scaled to $100m businesses in as little as a 5-year time horizon. eFishery scaled by integrating the entire ecosystem by leveraging data on fish, feed and water quality collected by its smart device. It helped eFishery strategically expand into feed supply, disease prevention and financing and helped onboard founders, creating network effects. As a result, eFishery has grown 200% YoY from 2021.
In Mexico and Brazil, real-estate marketplaces Loft & Quintoandar are leading the game, while B2B marketplace startups are nascent but have attracted a lot of fresh capital in the last few years. Sophisticated full-stack payment-enabled solutions are yet to emerge as most marketplaces today are still listing and commission-based. After an initial surge of adoption in E-commerce during COVID, E-commerce growth has dropped from 22% YoY to 13%. Logistics, and access to credit became a hindrance for many businesses. However, the hot wave of FinTech and digital payment services will serve as a tailwind for further marketplace growth.
Sturgeon’s Markets & Portfolio
The digital and technology ecosystems in Sturgeon’s markets in Central and South Asia (excluding India) are nascent when compared to India, SEA or LATAM. Conservative estimates would put them anywhere between 8 to 15 years behind in terms of development, however, they are rapidly catching up. We can see the same tailwinds that catalysed the Indian ecosystem across our markets:
Increasing government support and investment. This includes physical locations that often have tax benefits as well as serving as accelerators, such as IT Park in Uzbekistan, Astana Hub in Kazakhstan or the National Incubation Centres in Pakistan. Alongside this is increasing direct investment, including the UzVC Fund in Uzbekistan, GITA in Georgia, and Startup Bangladesh in Bangladesh. These physical locations and investment capital is helping to build the foundations for future success.
The development of the financial infrastructure, both from the government and private sector. The Pakistani government has recently launched Raast, a direct comparable to UPI in India, on top of the mobile operator-owned mobile wallets EasyPaisa and JazzCash. Bangladesh is now the largest Mobile Financial Services market in the world, dominated by its first unicorn bKash and others such as Nagad. The leading mobile wallet in Uzbekistan, Payme, was recently acquired for more than $100m. Regional plays are also developing, such as Payze, targeting multicounty ecommerce across Central Asia and the Caucasus. Together, these private and government-backed solutions are building the payment rails to enable greater ecommerce penetration.
New payment and lending solutions opening up access to credit for the previously under- and un-banked populations. These range from ZoodPay, a consumer super app providing a range of credit solutions in Uzbekistan and Pakistan, to earned wage access provider Abhi, operating in Pakistan and Bangladesh. Complimentary to this are companies such as Datacultr, a digital debt collections platform that collateralises users’ smartphones to enable access to credit. In these markets where incumbents lack the data, distribution or credit-scoring capacity to lend to consumers or SMEs, there has been a surge in startups filling that gap already.
Improvements in logistics from first to last mile, driven by local startups. To name a few, Zip24 in Uzbekistan, Trukkr and PostEx in Pakistan, Cargon in Georgia, Relog in Kazakhstan, and Loop and TruckLagbe in Bangladesh.
Looking at our portfolio of ecommerce marketplace businesses, we see similar trends towards vertical marketplaces and holistic ecosystems to capture more of the value chain. In Uzbekistan, Orient Swiss has built a consumer-focused ecosystem including lending (ZoodPay), ecommerce (ZoodMall) and e-logistics (ZoodShip). This follows the success of London-listed Kaspi in Kazakhstan, a super app with 11m monthly active users (in a country of 18m people) that generated nearly $3bn in revenue and $1.2bn in net income in 2022. Such an integrated ecosystem of products builds distribution and stickiness that ultimately drive the level of profitability that Kaspi has achieved. Zood is building a similar ecosystem, and today has over 10m downloads and 2m active users.
In Bangladesh, Shajgoj is building a vertical beauty marketplace similar to Nykaa. Shajgoj has been able to learn directly from Nykaa, shifting its focus to private-label products much earlier in its development and pursuing omnichannel B2C and B2B distribution. The company has nearly doubled its gross margin in the last 12 months and is now EBITDA positive, with a long runway of growth in both the offline and online spheres to reach $100m in revenue in the next 5 years. Also in Bangladesh, GoZayaan is following the path of Makemytrip in India and building a multimarket Online Travel Agency targeting South Asia. As the market leader already in Bangladesh, they have expanded to Pakistan and Singapore to solve the same problems. Being multimarket gives them a competitive advantage on pricing and costs and opens up more avenues for a potential exit in the future. GoZayaan has doubled GMV in the last 12 months and reached profitability in its core market.
Zood, Shajgoj and GoZayaan all have the advantage of being able to see what has worked in other emerging markets and to localise that in their target geographies. They also face lower competition, as the venture capital available in these countries is limited, meaning they can capture greater market share and generate higher revenues with less capital raised. This greater efficiency means we expect each to require less than half of the money its comparables have needed in other markets to reach the $100m revenue mark, leading to better outcomes for the founders and for us as early investors.
Having looked at 29 marketplaces (and two super apps) from India, SEA and LATAM that have reached $100m in annual revenue, it is clear that Central and South Asian marketplaces are still at the beginning of their journey to $100m in annual revenue. There is a lot that these countries at the nascent stage of their digitalisation can learn from their more developed emerging peers:
Government support is growing and helping lay the foundations for future success. On top of this, payment infrastructure, access to credit and logistics are three core pillars that need to be solved to enable growth. As we have seen with Kaspi in Kazakhstan and Zood in Uzbekistan and Pakistan, there is an opportunity to capture the entirety of this value chain in one ecosystem through a super app. However, we also see opportunities for independent companies in other markets in these areas, which we will cover in more detail in the FinTech and B2B SaaS articles in this series.
Vertically integrated marketplaces that control their supply chain benefit from greater predictability of supply and enjoy higher margins on top of that. Startups like Nykaa and eFishery have proven this playbook, and we expect to see more companies following in their path, just as Shajgoj already is. Especially in Central and South Asia, where the supply of capital is limited, the greater scaling efficiency of vertical marketplaces will be crucial to growth.
Operationally complex, trust deficit but high average order value and high margin marketplaces, such as travel and real estate, have been successful across emerging markets. It is important to onboard and nurture consumers and facilitate on-platform ease of transaction - which helps add more value than a simple listing function.
Localisation remains vital to long-term success, and no cut-and-paste model can be deployed blindly. Having deep local understanding and experience across the founding team is a prerequisite for capturing the marketplace opportunity.
Our next blog post will look at the 15 FinTech startups that have scaled to $100m in revenue, what led them there and what the opportunity set is in Sturgeon’s markets. If you think we have missed out on any key startups or trends, let us know in the comments, and we can address them in a follow-up post.