The investment arm of the U.K. retail bank M&G has led a funding of $340 million into Udaan, a business-to-business e-commerce startup, in one of the largest financing rounds secured by an Indian startup in 2023.

The Bengaluru-headquartered startup, which helps merchants in smaller Indian cities and towns secure inventories from major brands as well as gain access to working capital, said the new funds include some convertible debt.

Existing backers Lightspeed Venture Partners and DST Global also participated in the new round, which awaits regulatory approval. Udaan competes with a number of players, including Mukesh Ambani’s $100 billion Reliance Retail, the largest retail chain in India.

The new funding round, Udaan’s first with equity since 2021, ensures that the startup is “fully funded” and on track to becoming profitable in the next 12-18 months, the seven-year-old startup said. The startup is eyeing filing for an initial public offering in 2025 and has over the years consulted with bankers to check readiness.

Udaan didn’t share how M&G and other investors valued the startup in the new round. It was valued at $3.1 billion (post-money) in 2021 and the new round is certainly a down round. Its gross revenue in the financial year ending March stood at about $680 million, whereas loss was trimmed to under $380 million.

The Series E funding, nonetheless, is a huge boost for the startup that has spent the last two years trimming costs and becoming more efficient. It also needed some funds to repay a loan that was coming due early next 2024 and required the startup to have just as much capital raised against equity in the bank for the entire tenure of the lending, according to a person familiar with the situation.

Founded by three former Flipkart executives, the trio together ran the startup until 2021 when Vaibhav Gupta was elevated as the startup’s first chief executive officer.

From Ambani to Bezos’ Amazon to Udaan founders’ previous employer Walmart’s Flipkart to FMCG brands and lenders, scores of firms in India are attempting to serve kirana stores — the tens of millions of stores including mom-and-pop shops that dot thousands of cities, towns and villages of India and serve as the nation’s backbone.

These retailers and suppliers have traditionally relied on small, localized wholesaler networks, which are relationship-based and costly to maintain. Even some of the largest brands — like Unilever, which operates one of the strongest distributions networks — reach only a fraction of the country’s hundreds of thousands of villages, cities and towns.

Udaan works with thousands of sellers and connects them to 3 million retailers, allowing the smaller merchants to gain access to high-quality and reliable products across categories including grocery, fruits and vegetables, FMCG, as well as lifestyle, electronics, home and kitchen and pharma.

“The regional-operated design will not only get us closer to our customers, but also make our operations more agile and efficient,” said Gupta in a statement. “We are committed, as ever, to our mission to empower small businesses of Bharat, while unlocking a uniquely Indian and huge $100 billion eB2B market opportunity.”

The startup says its reach extends beyond 1,200 cities in India for daily delivery and over 12,500 ZIP codes through a of supply chain system. Udaan also extends working capital to small businesses, freeing them from chasing their customers who typically settle at the end of the month or at a later date.

“M&G is pleased to support Udaan as it pursues a profitable growth strategy,” said Niranjan Sirdeshpande, (EMEA) Director at M&G Catalyst, in a statement. “We believe it has the right operational platform to be the trusted partner of scale to small businesses across India by empowering them with technology, financial inclusivity, and supply chain capabilities. Our investment strategy aligns with Udaan’s ambition to simplify and increase efficiency in a congested B2B market.”

Udaan has raised over $1.5 billion against equity and through debt over the years, according to market intelligence platform The Kredible. It is one of the largest investments of Lightspeed in India and other global markets, based on the amount the venture investor has put into the startup. Lightspeed owned more than a third of Udaan prior to the Series E funding.

“We are extremely excited to continue supporting Udaan as it further strengthens its leadership as India’s largest EB2B marketplace,” said Bejul Somaia, a partner at Lightspeed, in a statement. “We believe this financing puts the company on an extremely strong financial footing and on course to further improve profitability while empowering small businesses across Bharat.”

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