Behind the Rise of India’s Fastest B2B Unicorn

This is an excerpt from GGV's podcast Evolving for the Next Billion, where we interview local champions and global giants in the fastest-growing markets in the world. You can listen to the full episode or read the transcript for the episode. Hans led GGV’s recent investment in Udaan.

Udaan – the Hindi word for taking flight - embodies the vision its founders have for the young company. “It has that connotation of hope, positivity, achievement, and ambition for small guys,” says its co-founder, Vaibhav Gupta (VG). The company connects manufacturers, wholesalers with retailers online, and is often referred to as India’s fastest unicorn, having achieved over $1 billion valuations in a short period of 26 months. 

Prior to starting Udaan, VG was the senior vice president in Flipkart, one of the most successful e-commerce platforms out of India, sold to Walmart in a $16 billion deal last year. His other two co-founders for Udaan were the former president of operations and CTO at Flipkart. 

In recent our conversation for the podcast, VG shares about how his time at Flipkart helped him launch Udaan, the unique needs of the burgeoning Indian eCommerce market, and the insider view of scaling a rising unicorn. 

Can you explain in more detail what kind of problems Udaan is trying to solve that’re uniquely Indian?

VG: If you look at how the Indian economy is structured, it’s still a very strong domestic trade economy where sellers, producers and manufacturers are small businesses. You have more than 100 million manufacturers, and farmers producing things; 25-30 million retailer endpoints consuming goods and another million traders and channel players who are facilitating the trade. As mobile adoption expands, these players are made available online. We saw that as an opportunity for the advent of a marketplace, which can create value from solving the fragmentation on supply and demand side; from pricing, quality and selection discovery. That was one of the reasons why we were attracted to this market, because it was large, and the timing was right.  

What is the biggest attraction that Udaan is offering to these sellers and merchant buyers in India? 

VG: I think our biggest value for sellers was growth. When we talked to some manufacturers - typically small-sized manufacturer with a factory unit of 50-100 employees – we realized that everyone was asking the question of ‘how do I go onto the Internet?’. This phenomenon was driven by the success of Flipkart and Amazon in India; almost every single Indian manufacturer saw that the Internet can scale so much and they're so many people buying online. Hence, they (started) trying different ways as well, by hiring people to build apps for them; going onto websites and signing up for the listings. Essentially, their biggest underlying factor or intent was growth. Udaan is one of the fastest growth channels now in terms of trade in this country. To them, this channel is very meaningful. The small merchants in India actually behave very much like consumers when they think about buying products. They want access to variety; good pricing; convenience and reliable delivery.  

Another big thing for India - as you can imagine with the fragmented and unorganized channel - payment reliability is one of the biggest problems in the country. Typically, sellers have to keep working with their channel and keep collecting (payment) in small amounts over a period of time. Udaan solves the issue of delayed payments with its reliable on-time, in-full payment system, which is loved by our sellers.

I remember one of our sellers telling us a story that every morning when he goes to the temple at 8:30 a.m. and then receives a payment from Udaan at 9 a.m., he knows that his day has started well.

In our early years, we have focused a lot on ensuring that people can trust Udaan to do their business like this. Obviously, we also make mistakes but we keep communication open with our sellers. They understand that we are fixing the problems and we are transparent with them.  

Tell us about the Udaan credit system and how that plays in your value-add for the seller and buyer as well?

VG: Firstly, in India’s trade credit system, most of the small merchants do not have formal credit histories. It is typically difficult for them to get a loan or a working capital line from a financial institution like a bank. Hence, suppliers, wholesalers, family and friends become the people who finance these merchants. Extending from this opaqueness in the credit system, suppliers gain a huge advantage, where they tend to inflate the price at which they’re selling the products to the buyers.  

Now, Udaan is trying to address these problems, by coming onto the platform to make credit transparent. We create credit lines for our buyers based on their transaction and usage behaviour on the platform. This enables us to create a credit product, which is based on economic data and is transparent to both buyers and sellers. Simultaneously, manufacturers become very competitive in pricing the product because the pricing has been decoupled from the credit, and the payment risk has been solved for them. In turn, the volume of transactions on the platform is increased, and we can improve our credit product further because we get more data from users. These two approaches of decoupling credit from pricing and analyzing data to assess credit capabilities enable us to add value to the system, both in terms of enhancing the marketplace and creating lending products. 

Hans, if you think about Alibaba back then, when they scaled, digital payment was a big player in their success. Looking at that 90% of the trade is still on cash and it looks like Udaan is doing really well, can you explain that a little bit to us from your perspective as an investor?

HANS: I think back when Taobao got started by Alibaba, GDP per capita in China was at around $3,000-$4,000 per person. And in that range, it was easier to see consumers aspire, buy something, goods on Taobao from a manufacturer seller who’s far away. When you’re dealing with two participants who are far away from a distance standpoint then cash is not going to be useful, will not be as good. So, what Alibaba ended up doing was coming up with Alipay to get the seller and buyer to work with each other more efficiently. So, if I’m a seller and VG is a buyer and I sell him something and I ship the goods to him, I need to be sure that he has money to pay for it. So, if he leaves money in his Alipay account, Alipay let me know in my Alipay account that the money is already in Alipay and I feel secure to ship my goods to him. And when he gets the goods, he wants to make sure that my goods to him are as good as advertised. So, he’s not going to release the money to me until he’s sure the thing is good. So, in seven days he doesn’t complain, that’s how the money in his escrow account at Alipay will get released to my Alipay account. This way Alipay becomes an escrow service to make sure the transaction is good. And that’s how Alipay grew very quickly with the expansion and growth of Taobao. And what VG was saying earlier is that GDP per capita in India is still low enough that B2C commerce takes so much time, C2C commerce takes so much time to grow the business over time that he’s better off focusing on B2B first. 

And a lot of B2B business today are local so cash is still a big component. But over time as B2C commerce go online, then I’m sure there will be more business done between buyer and seller across different regions. And that’s when UPI mobile payment will become useful.

Can you tell us what were the lessons you learned from Flipkart and what gave you guys the idea to start Udaan? 

VG: One of the big things we learned at Flipkart was how India was changing very fast. Across the country, you see mobile and Internet penetration in consumers and businesses grow rapidly. The second thing is that the India market is very unique like how the Chinese one is different from the U.S. market.

India is unlike both of them. Although the digitalization is going very fast, the purchasing power of the consumers in the country is still very low; the country is heavily unbranded; a lot of old ways of trading, buying and selling still persist. 

Nonetheless, Flipkart has shown us that India has power, and (offers) an opportunity to build large scale platforms, but they have to be conceptualized natively.

How do the three co-founders of Udaan come together?

VG: The three of us have seen enough of each other in action in Flipkart. As you can imagine, Flipkart was not an easy time. It was where we could see each other in both good and bad times.

In addition, with our similar middle-class backgrounds, there is a chemistry and a value-system match between us. We had the ability to push each other, maintained a tight relationship and strong ongoing trust.

When we started Udaan, we recruited about 8-10 core people who are amongst the best in the local technology industry. The team expanded to 15-20 people today. We have a lot of trust in each other and are able to ensure focus on the problems and answers, without having to worry about each other, or the risk of exposing our own weaknesses. Essentially, there’s a lot of ownership in the company, and I think that’s working for us.

Special thanks to Madhu Yalamarthi on GGV's investment team for contributing to this episode.

Evolving for the Next Billion (new Season 2) is an English-language podcast about tech and entrepreneurship in the fastest-growing markets in the world, hosted by GGV Capital. In Season 1, called 996, we focused on the movers and shakers of China's tech industry, as well as tech leaders with US-China cross-border perspectives. In the new season, we interview local champions and global giants who are reshaping the lives of the next billion internet users. From Beijing to Bangalore, Sao Paulo to Singapore, you will hear stories about ambition, passion, ingenuity, and resilience.