Khatabook Raises $100 Million to Empower Indian Merchants

Khatabook Secures $100 Million Funding to Expand Financial Services

Khatabook, a company focused on assisting Indian merchants with digital bookkeeping and online payment acceptance, announced on Tuesday a new funding round of $100 million. This capital injection is intended to facilitate the launch of comprehensive financial services.

Series C Funding Details

This latest financing, designated as a Series C round, was spearheaded by Tribe Capital and Moore Strategic Ventures. It has valued the Bangalore-based startup, established two and a half years ago, at approximately $600 million, according to co-founder and CEO Ravish Naresh in a recent interview with TechCrunch.

The funding round saw participation from Balaji Srinivasan, Alkeon Capital, and numerous existing investors. These include Sriram Krishnan, B Capital Group, Sequoia Capital, Tencent, RTP Global, Unilever Ventures, and Better Capital. Notably, Khatabook is also undertaking a $10 million share buyback program.

Employee and Investor Rewards

The share repurchase is designed to recognize the contributions of both current and former employees, as well as early investors in the company. Furthermore, Khatabook is increasing its stock options pool for employees to a total of $50 million.

Addressing the Digital Gap in Indian Retail

Despite the rapid increase in internet access across India over the past decade, a significant portion of merchants still operate offline. These small business owners, typically running local stores, traditionally rely on manual bookkeeping methods.

The Challenges of Traditional Bookkeeping

Maintaining ledgers on paper is a process that is both time-intensive and susceptible to inaccuracies. Khatabook aims to modernize this process by offering a suite of digital tools.

The company provides merchants with solutions for digitizing bookkeeping, managing expenses, and overseeing staff. With a team of over 200 employees, Khatabook has already acquired over 10 million monthly active users, spanning nearly every postal code within India.

Competition in the Indian Market

Numerous companies, ranging from startups like Dukaan to large corporations such as Facebook, Amazon, and Reliance Retail, are actively targeting India’s neighborhood stores. These stores represent a significant opportunity in the South Asian market.

The Scale of the Opportunity

India is home to approximately 60 million small and medium-sized businesses. A substantial number of these are the traditional “kirana” stores – small, family-owned shops – found throughout Indian cities, towns, and villages. These businesses often operate with minimal overhead and can demonstrate strong economic performance.

Industry Perspectives and Future Plans

Arjun Sethi, co-founder and partner at Tribe Capital, emphasized the power of network effects in building sustainable businesses. He stated that Khatabook has successfully created such a network by facilitating the transition of MSME businesses from paper-based to digital systems.

Sethi also highlighted the company’s early success and potential for further growth, particularly as it leverages its network to expand its offerings.

Expanding Product Offerings

Khatabook, which also benefits from backing from Emphasis Ventures (EMVC), has been broadening its product range to attract more businesses. The company plans to introduce lending services to merchants later this year.

According to Naresh, testing of the lending product is currently underway with both retailers and distributors.

The Potential of Online Lending

The online lending sector in India has experienced significant growth in recent years. However, few companies are specifically focused on serving the needs of small and medium-sized businesses. Analysts at Bank of America estimate the unaddressed SME credit demand in India to be between $300 billion and $350 billion.

They note that the majority of this demand is currently met by banks, and that typical digital SME lenders focus on loan sizes ranging from $13,575 to $67,875, without requiring collateral, with an average tenure of 12-18 months.

Resilience and Future Outlook

The pandemic presented challenges for Khatabook, resulting in a decline in business during periods of lockdown in India. However, the company has demonstrated resilience and has since recovered.

Naresh reported that July was a record-breaking month for Khatabook, attributing the strong performance to the recovery of MSMEs and the comparatively lesser impact of the second wave of the pandemic.