Gurugram-based home services startup Urban Company on Wednesday (June 2) announced that it has become a unicorn after a new round of funding that values the company at $2.1 Bn. The Series F funding of $255 Mn was led by Prosus Ventures, Dragoneer and Wellington Management, with participation from Vy Capital, Tiger Global and Steadview. With this latest investment, Urban Company is now the 13th unicorn to be minted this year.
Founded in 2014 by Abhiraj Bhal, Raghav Chandra, and Varun Khaitan, Urban Company (formerly known as Urban Clap) is a home service company that focuses on beauty and massage, appliance repair, plumbing, carpentry, cleaning, and painting.
It is currently present in more than 30 Indian cities including Ahmedabad, Bengaluru, Chandigarh, Chennai, Delhi NCR, Hyderabad, Jaipur, Kolkata, Mumbai, Pune along with four international markets — Australia, Singapore, Dubai and Abu Dhabi. Last year, it rebranded itself to Urban Company, as it wanted a more globally acceptable brand name.
The company had reported an operating revenue of INR 212 Cr in financial year 2020 (FY20), up 84.2% from INR 115.2 Cr in FY19. Its losses grew 95.5% in the same period
Urban Company claims that its operating model focuses on service professionals with the aim of turning them into micro-entrepreneurs, multiplying their earnings by 2-3 times. It has more than 35K service partners, including over 10K beauticians and hairdressers.
Inc42 sat down with Urban Company cofounder and CTO Raghav Chandra to chat about the startup’s journey and growth plans.
Inc42: A cash pile of $255 Mn is a lot of dry powder. What will you use it for?
Raghav Chandra: The investment will go into three buckets. We are setting up our tech headquarters in Bengaluru with around 100 people and the number to 250-300 next year. A bulk of the money will go into building capabilities in the supply chain such as ramping up inventory of cosmetics and spare parts for the services we offer. This also includes establishing a quality playbook of the service deliveries for safety and hygiene. Also, we are looking to enter the next 100 cities in India next year and launch one or two more international cities in the coming years.
Inc42: How has the pandemic impacted your business?
Raghav Chandra: We don’t have audited numbers for revenue yet, but revenue has probably grown 2X in the year ending March. Broadly, we are aiming to double it again by the same time next year. I would say the pandemic has led to a deeper appreciation of safety and hygiene. Going out to a salon nearby is not an option anymore for a lot of people. It has made our efforts a lot more relevant for the consumers.
Inc42: Has the second wave been any different than last year from a business standpoint?
Raghav Chandra: Last year and this year have their own different flavours. In 2020, we spent a lot of time understanding how to operate in the pandemic, how to deploy tech and making sure the livelihoods of our partners do not get disrupted. We saw almost zero business in May and June last year. In comparison, we went up all the way to about 1 Mn orders in the month of March. This is quite a lot as it is almost 2X of our pre-Covid peak which was in February last year.
Inc42: Unlike food delivery or ecommerce, gig workers on your platform need to spend time inside a customer’s home and be in physical contact for some services. What have you done to minimise risks?
Raghav Chandra: We have temperature checks and processes to detect if partners are wearing PPE gears when they are inside the house. But all of that was done last year itself. We are proud of the fact that upwards of 60% of our 35K+ partners have already had their first dose of Covid vaccination. This has been made possible by encouraging partners to take the jab and making it easy for them to find and book slots. However, once we realised that was not enough, we also tied up with several vaccination camps to drive up the number of vaccinated partners. I think we should be able to vaccinate 80% of all our partners with at least one dose by the end of this month.
Inc42: While aggregation-based platforms have benefitted from the pandemic, gig workers who deliver the services have complained that their pay decreased. What is the scenario at Urban Company?
Raghav Chandra: When the lockdown happened last year, we were the first to reach out to the partners and tell them that they should not step out. We raised funds for them and also gave out loans when they needed money. I think they have been very understanding and appreciative of the fact that we have their best interests in mind even when a particular month might be slow in terms of business. The thing about earnings is that it has not been consistent across categories — some services are deemed essential while others are non-essential by government directives.
Inc42: Speaking of differences across categories, the beauty and grooming segment has been reported to be the lion’s share of your business since the pandemic began. Are you making any efforts to rectify that by strengthening other categories?
Raghav Chandra: It won’t be right to say that any one category has the lion’s share. Yes, salon service is one of the larger categories and the demand in men’s grooming has been a surprise. But, other services like AC maintenance and repair, home cleansing and disinfection services account for a fairly similar share. The end of Q1 is when the AC category starts to pick up really well. This year and the last were no exception. I would say that the strength of a category varies based on seasonality and the geography under consideration. And we have seen a good rise across the board.
Inc42: Categories like AC and home cleaning are considered to have lower ‘lifetime value’ compared to the customer acquisition cost due to their low-frequency nature — and hence not good for unit economics. Are you exploring new categories?
Raghav Chandra: We have been an extremely healthy unit economics business for a long time. You don’t have to drive daily purchases to do well. Also, there is a difference between the order values for various categories — while a haircut or grooming session may cost you INR 1,000-1,400, painting the house will cost you around INR 40,000. So, frequency does not matter much at the end of the day. different categories of concern. I think you can actually find us experimenting with new categories, going deeper into a few or tweaking them. The reasons may be big-ticket size, ambitious bets, or a natural extension of the business. That happens across the board, but I don’t think we explore new categories to compensate for bad choices.
Inc42: Several home services startups and beauty who have gone online are launching private labels (of products used in the servicing like cosmetics) to improve their margins. Do you have any such plans?
Raghav Chandra: It is not something that is on top of our mind, although it could happen. There is a team which is working on that theme, but there is nothing substantial happening currently in that direction. We have worked very hard to standardise the products and cosmetics used in our operations so that it becomes very easy for the partners to buy what is desired. That will continue as it is an integral part of the customer experience.
Inc42: The customer experience that internet companies charge for is ‘convenience’. What if people in Tier 2 and 3 geographies don’t pay for home services after the pandemic ends?
Raghav Chandra: We entered 10 new cities in the previous quarter, including Kanpur, Kochi, Coimbatore, Guwahati and we see those geographies doing well. The question is not if Tier 2 is ready to adopt, but whether there is a product that serves their needs. Of course, there will be a lot of challenges that have to be solved, but we have to remember that they have money and are aspirational. Every time I went to my hometown of Kanpur before the pandemic, people would ask ‘Why don’t you come here?’ I think those folks have been ready for years now. Also, every household in South Delhi is not a high spending one — there are pockets of higher and lower consumption in all cities, be it Tier 1 or Tier 2.
Inc42: The economy is in a bad shape and unemployment is rising. Don’t you think it is a cause of concern for the technology sector with billions of dollars being invested?
Raghav Chandra: India is poised to do great things in the coming two decades. And the reason is that we are a young population. Companies like ours are saying, ‘Okay, great, there are problems to be solved. But instead of just sitting on the fence line, can we actually be a part of this nation-building?’ The slowing economy and unemployment due to the pandemic is a worldwide phenomenon and those things will recover. I think we need to come out of the jugaadu mindset as a country and ask if we are doing something in the best way possible. A lot of companies in the tech industry have that problem statement in different sectors. It is our job to create that infrastructure and innovate to help the country prosper.