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From Ending Up In SaaS By Accident To Facilitating $6 Bn Retail Sales Through Its Platform: The Capillary Technologies Story

From Ending Up In SaaS By Accident To Facilitating $6 Bn Retail Sales Through Its Platform: The Capillary Technologies Story

What you seek is seeking you. – Rumi

This quote certainly rings true, though it might not exactly put you on a straight path towards itself. At least, that’s what happened with Aneesh Reddy, Krishna Mehra, and Ajay Modani – founders of omnichannel engagement and commerce solution company Capillary Technologies. The three of them shared a common alma mater in IIT Kharagpur, but more than that they had a common itch – starting something of their own.

While Aneesh and Krishna were wingmates, they used to stay in the same floor back at the IIT campus, Ajay was junior to them and from the same hostel. Together, Aneesh and Krishna had even set up the E-cell together in 2005, hoping that someday they will be starting out on their own too.

However, they did need one drunk evening to cement their path to entrepreneurship. Recalls Aneesh, “We met up on Krishna’s birthday on January 20, 2008. Krishna had been working with Microsoft while I had been working with ITC. Ajay, meanwhile, worked with a steel company. We met up, got drunk, and decided we should start up now!”

While alcohol may have been the tipping point for it all, the fact of the matter was –  they were barely out of college and did not have a million dollar idea of what they wanted to do. So they decided to save INR 6 Lakhs -INR 7 Lakhs each, personally, and then quit. And because they did not have a great business idea, they decided to go the VC way!

“We decided to pick two sectors which were doing well and growing and to do something between them. So we started reading up these Mckinsey reports. Krishna quit in August 2008 and I quit in November 2008. We figured out that the two sectors that were really growing big in India during that time were retail and mobile. So we zeroed in on doing something between the two.”

And that’s how the trio hit on their first idea in September 2008- Dealhunt– an SMS-based service which enabled consumers to hunt for the best deals around them.

The Dealhunt Chronicles: Of Calcutta Traffic Police And Managing Durga Puja

The trio decided to startup in Kolkata and the reason was simple.

“We were in Kolkata at that time and figured out that it is the cheapest place to do anything in life!” explains Aneesh.

Of course, being close to Kharagpur, assured them of the best interns or part-time people to come to  work for them. The Dealhunt model was simple – any customer could SMS a short code specifying he wants a deal on something and the team would send a response specifying the nearby stores where it was available. For this, the team spoke to a lot of retail stores and hired five-six people to meet them.

But what became the turning point in the Dealhunt story was that, as a pilot to test it, the team had to get the short code number out to the users. And, somehow, between speaking to mobile operators, a contact introduced them to the city traffic police that was looking for a similar service to man traffic during Durga Puja (Pujo) celebrations.

Explains Aneesh, “The traffic police wanted us to build a service under which – during Durga Puja days people could SMS a short code enquiring about traffic blockades in on particular route and would receive a message back identifying all the traffic blockades on that route. We agreed to build that thing to actually see how many people will use it. It was a serious use case of finding out how many people actually would try get information on SMS.”

So, the team camped in the traffic control room of the police and built out the tech. Because it was done through city police, all mobile operators sent SMSs to all their customers about the effort. The service was heavily publicised, almost 1 Cr SMSes were sent out. And yet, after this much PR, only about 5K people messaged for updates in those 10 days.

Capillary Technologies: Stumbling Into SaaS By Accident

The team had learnt their lesson – this SMS-based business model was not going to work.

Says Aneesh, “That was the time we did our first and only pivot. Although mobile was getting big, people were not searching for information through SMS. So we went back to retailers to know what they want. Their complaints were that their customers were not coming back, walk-ins were low.”

The trio spent another six months conducting research, meeting 50 branded retailers like BATA, Peter England, and the likes. The majority of them had complaints that their same store sales were down, they did not know who their customer was. So, the team built software for them which enabled them to run their CRM on mobile numbers. And thus, Capillary Technologies’ first product was launched in March 2009. But, since this occurred after the bloodbath of 2008 and the recession was still ongoing, many retailers expressed their inability to buy servers to install software and paying an upfront license fee. Instead they wondered  couldn’t the team charge a per month fee instead?

“We felt, at least, the customers are serious about paying, so let’s charge a per store/per month fee. So that’s how we really got into SaaS! So, basically, we ended up in SaaS by accident rather than by any serious plan!” he adds, with a chuckle.

Left with no other option but to charge a per month free, Capillary Technologies decided to host the software on Amazon servers so that the retailers don’t have to spend their money on these servers.

Today, the omnichannel engagement and commerce solution company is helping retailers and consumer packaged goods (CPG) clients engage with their customers across channels and transact across channels in over 30 countries. Leading brands such as Unilever, Walmart, Landmark Group, Madura Fashion, Arvind Brands, Redtag, Calvin Klein, Gap, Courts, Clarks, Starbucks, Pizza Hut, and Puma work with Capillary to drive retail excellence.

Monetising From Day Day One: Making $6 Bn In Retail Sales Possible

Capillary has stuck to monetising from day one, with regard to its business model. In fact, as Aneesh jokes,

“The internal joke in the company is – we never wrote a line of code before someone paid us for it. We monetised from day one. In India, no one likes to say no upfront. So, our qualifying criteria to understand whether a client is serious, is whether he will pay up how much ever small the amount be.”

So, from day one, the SaaS startup has charged a per store/per month fee. As far as traction is concerned, Aneesh claims, “We do roughly $6 Bn of retail sales for various retailers on our platform. In any sense, that’s between 8%-15% of organised retail in India.”

Now present in 30 countries, with a stronghold in India, Southeast Asia, and MENA, it has about 200 large paying customers and another 500 small customers. Aneesh adds that 95% of the revenues come from the large customers and the customer churn has been less than 10%, in the last few years.

Commenting on how it is also slowly making inroads in China, he says, “We entered China last year, it is still an upcoming market for us. In an enterprise business, it takes two years to get to your first 10 referenceable customers. So for us, China is still in that first phase.”

Luck By Chance: Winning The QPrize Challenge

2008 was a tough year for  startups – especially when SaaS was hardly the phenomena it is now today. According to Aneesh, there have been two milestones in Capillary’s journey which helped to play the odds stacked against it. And one of those was purely luck by chance.

Referring back to the setting up of E-cell at IIT, one of the measures Aneesh and Krishna instated was that the E-cell would give $22k-$29K (INR 15 Lakhs-INR 20 Lakhs) to capable startups, as a soft loan and would get 3% of the company in return. Naturally, when they set up Capillary, the first thing they did was to go back to IIT and pick up that $22K (INR 15 Lakh) loan. That saw them through the first year.

By the end of September 2009, they were running extremely low on funds. The team had barely two months of runway money left to sustain and hardly had a contact/investor to approach for raising funding. Added to that was the fact that, in those days, angel investing itself was something of a nascent phenomenon. But as luck would have it, through a friend at Qualcomm, they were apprised of the QPrize challenge – Qualcomm’s annual business plan challenge which was launching globally.

Recalls Aneesh, “We applied one day before the deadline was about to close. We won in the India challenge and came second globally. As a result, we won $73K (INR 50 Lakhs)! It was a windfall, given the fact that we had survived a year on a mere INR 15 Lakhs. That was our first real big turning point. Suddenly, we had the appetite to go and hire a lot of good people.”

Added to that, Qualcomm Ventures did a lot of PR for Capillary, so suddenly a bunch of angels started approaching them. So from running the company on their own credit cards, the team ended up raising $500K in about three months.

The Rajan Anandan Connection

The second turning point came with the addition of Google’s India Head Rajan Anandan as an early advisor and investor in 2011 – when Capillary slowly started expanding internationally, first to UK and then to Singapore, it realised that the half a million it had raised would take it nowhere. So, it went back to VCs for raising more money. But due to the nascent stage of SaaS in India, it got extremely poor valuations. It was then that someone connected the team to Rajan.

Recalls Aneesh, “I remember when we met him, we were cocky enough to tell him upfront we wanted a minimum commitment of INR 50 Lakhs!” But the cockiness paid off,as Rajan was impressed by the work the team was doing. As a result, he introduced them to a bunch of friends and Capillary ended up raising another $500K at a $9 Mn pre-valuation. But more than the money, it was having Rajan as an advisor that was the big turning point.

Explains Aneesh, “He has helped us think through in building a large stack business. For instance we used to pitch the product to marketing folks. Since we had technology in our name, people would wonder why are we approaching marketing? We were seriously thinking of changing the name of the company from Capillary Technologies to Capillary Marketing Solutions. Rajan told us we were going nuts! And explained to us how there’s immense value to building a technology company.”

So it is no wonder that last month, in December 2016, Rajan also joined the board of Capillary Technologies. Of course, the firm has also progressed to raising funds from marquee investors such as Sequoia, Norwest Venture Partners, and Warburg Pincus, and American Express Ventures. Last September, Mumbai-based venture debt fund InnoVen Capital also extended a loan to Capillary.

Building A Multi-product SaaS Company In Asia

When it comes to the competition, Aneesh believes that Capillary easily has the best product in the market for Asia. He adds, “When you sell to enterprises, you compete with the best in the market and internationally as well – such as with SAP, Oracle, and Microsoft.”

Added to that, smaller startups try to win on price. But he claims that brands try those out and then move to Capillary on account of the superiority of the product. To substantiate this, he says that the average ticket size has grown 8x times from the time of inception. He adds, “Today, large enterprises, CIOs, everyone is moving to buy Saas. In 2012, there were probably only two or three companies in India which had crossed million dollars in SaaS revenue. In 2016, there were 50 companies who had done so.”

It is for this reason that Capillary is doing all it can to garner a big piece of this growing hunger for SaaS – and one of the ways it is doing so is through acquisitions. Last year, for instance, it acquired ecommerce platform SellerworX, entered into strategic partnership with DataWeave, and also picked up a minority stake in on-site customer engagement suite WebEngage. The year before, it acquired digital commerce solution provider MartJack.

Explains Aneesh, “I believe that Asia is an underserved enterprise software market. There are a lot of white spaces in technology which a lot of these enterprises have, which no one is addressing today. So, there is great potential in building a multi-product SaaS company in Asia. So, all these acquisitions we have done and will do are products that our existing customer set will be interested in.

“For instance, in 2015, we were a single product company – we had one customer engagement product for retail. We asked ourselves, ‘What if we could go to seven to eight products as a company which can salvage another $100K for a customer every year?’ We realised, not all of it is going to come from building products ourselves Some of it is going to come through acquisitions.”

Meanwhile, internally too, the 250-strong tech team is focussing on building products on machine learning and video analytics. Adds Aneesh, “The data you can collect on an online store is so much higher than an offline store. So one theme we are working on is how close we can get the offline store to the online store. The core of what we do is all data. We are also investing on a product on retail insights.So, basically, we aim to make omnichannel as data-rich as possible and use that data very well to make analytics people independent.”

Translate that to numbers, and he says the aim is to hit $50 Mn in run rate by March 2018.

Editor’s Note

It is no secret that SaaS is an ever expanding sector in India. As per a Google-Accel report, a $50 Bn market awaits Indian SaaS startups. Added to that, currently, India is home to over 500 SaaS startups. Enterprise SaaS is, however, a different ball game altogether which simply does not operate as the same way as SMB SaaS, where customer needs can be served with online modules alone.

Capillary has established itself as a reputed player in the space and has chosen wisely to focus in Asia. But given rising competition from startups and global players alike, it will be interesting to see how it fares well as the demand for enterprise SaaS increases in the region.