Lokal App Looks To Fulfill ‘Bharat’ Revenue Promise With INR 120 Cr Series B

“If you take the context of India, with every 100 kilometre radius, dialects change and to an extent even language changes and of course therefore the cultural habit too.” — Jani Pasha, founder of Lokal.

This notion of India’s linguistic and cultural diversity has been a popular trope for entrepreneurs in the regional language internet ecosystem. That’s because despite significantly higher internet penetration in small-town India today, habits change slowly.

This vibrant cultural and linguistic diversity offers a unique proposition for startups such as Bengaluru-based Lokal to disrupt traditional regional language mainstream media.

“The user we are talking to is rooted to this location. More than 80% of them don’t travel to other parts of the state or even adjacent districts. More than 90% of their consumption across use cases happens in this location,” Pasha told Inc42 in a recent interaction.

Founded in 2018 by Jani Pasha and Vipul Chaudhary, Lokal aggregates district-level hyperlocal information, classifieds for local businesses, matrimonial ads and other services through user-generated content as well SMB ads.

Essentially, Lokal curates district-level local news, jobs, classifieds and matrimonial ads along with hyperlocal information such as weather, grocery prices, and contact information of doctors, police stations or other authorities in the area.

Pasha claimed Lokal currently has over 40 Mn downloads and that’s without an iOS app. And in a bid to scale this up to over 150 Mn users in the next two years, Lokal has raised INR 120 Cr ($15 Mn) in Series B funding from new investors Global Brain and Sony Innovation Fund, with participation from India Quotient and other existing investors.

The infusion brings the total funding raised by the company to INR 225 Cr+ (~$27 Mn) and Pasha told Inc42 the focus is on adding more users in existing districts and launching new categories and product capabilities such as AI-powered moderation as well as matching users to the right content. In the past, the startup has been backed by the likes of Y Combinator, SOMA Capital as well as Bengaluru-based 3one4 Capital.

Having built a presence in seven Indian states — Telangana, Andhra Pradesh, Tamil Nadu, Karnataka, Kerala, Maharashtra and Gujarat — in the past five years, Lokal now curates hyperlocal information in 180 districts in these states. And with the latest fundraise, it’s going to expand to newer locations outside these states and go deeper into these states too.

Besides expanding its user base, the startup will hire its product and technology teams to bolster its workforce from the  current 110+ employees.

Lokal Banks On Hyperlocal Trust 

One of the things that Pasha emphasised in our conversation is that Lokal is not a news app or channel for the districts and Tier 2/3/4 towns of India. Instead, the app is focussed on replicating the trust factor that each community has on local leaders and ‘influencers’ that shape developments and opinions in these locations.

That’s how Lokal has been able to grow from 2 Mn users pre-pandemic i.e. 2019 to 40 Mn today. The focus is on curating information that users typically get from a newspaper but which can be updated constantly and on-the-go given the digital medium, unlike a newspaper.

The USP, Pasha told us, is the deep penetration into the information networks in these towns and districts. Similar to how information spreads on WhatsApp, Lokal is banking on local tastemakers and ‘stringers’ to deliver the relevant information to its user base across categories.

In fact, the app started as a WhatsApp group itself with a focus on Kodad, a small town in the Suryapet district of Telangana, where it ran a pilot before taking the model to other towns. One WhatsApp grew to many more for other towns in the area and more users joined these groups in rapid succession, which led to the creation of the app, the cofounder said.

Lokal’s current model is built around a network of stringers, similar to how regional language newspapers operate. Pasha says these stringers and local reporters carry a high trust factor and that’s why newspapers have remained relevant for regional language readers.

The same approach has seemingly worked for Lokal. “We have 10x higher response rates in comparison to other alternatives for posting local jobs, matrimonials, real estate listings and local ads. Being a digital platform, we can update our users as things develop, something that newspapers cannot compete with right now despite digital presence,” the cofounder added.

For instance, the Lokal app is updated throughout the day with regional news and also includes a stream of updates for current prices of staples, changes in upcoming events, weather updates as well as emergency contact details.

Beating Monetisation Blues

There’s little doubt that the Indian language internet user base offers a huge opportunity for startups. According to a Google report, the number of Indian language internet users is expected to reach 536 Mn by 2026, contributing 35% to the $4.4 Bn digital ad spend in India.

But so far startups that garner revenue through ads have not exactly proven the viability of this model in the long run.

When it comes to monetisation, Lokal ropes in small and medium businesses (SMBs) and local brands for content-led digital marketing solutions. Over the years, besides hyperlocal information, the app has added categories such as classifieds, matrimonial ads and birthday wishes which is something that newspapers also bank on for revenue.

Pasha believes that while social media platforms have brought more attention to local businesses and in some ways have replaced classifieds, the visibility problem is not being solved.

“These platforms don’t show the ads to the right users in a particular location, because they don’t have the hyperlocal awareness that we have built. As a result, we are seeing a lot of classified ads for job postings in towns, real estate ads, matrimonial ads and also ads for local events such as fairs or festivals.”

Lokal’s revenue from operations grew 17X from INR 14.4 Lakh in FY20 to INR 2.46 Cr in FY21 and then nearly 4X to INR 8.4 Cr in FY22. Even though revenue has grown exponentially, the company’s losses have surged by nearly 4X since FY20 (INR 9.6 Cr) to around INR 39 Cr in FY22.

The major cost outlay for Lokal has been in employee expenses in FY22, which came to INR 7.6 Cr or nearly 90% of the revenue from operations and 16% of the total expense for the fiscal year.

Given the company’s focus on hiring for its product and tech teams, these employee expenses are sure to rise in the future. The question for Lokal is whether revenue from ads and local classifieds can make up for the potentially higher expenses on the employee side as well as the higher marketing costs, given the focus on expanding the user base.

That’s what has complicated profitability for apps such as Lokal. The app competes with the likes of ShareChat, Public App and Koo in the regional language social media space. And none of these startups have made a dent when it comes to profitability.

In fact, Bengaluru-based Koo and ShareChat have raised significantly more funding than Lokal in the past few years. Indian language Twitter rival Koo has bagged more than $50 Mn since inception just three years ago, while ShareChat’s problems despite more than $1 Bn raised since 2021 are well-publicised.

Last week, Koo laid off approximately 90 employees in another round of downsizing, and ShareChat has also laid off more than 500 employees since late last year.

That’s not to say profitability is not possible in the classifieds space. Mumbai-based hyperlocal search engine Just Dial reported a 278.4% year-on-year (YoY) jump in its net profit to INR 83.8 Cr in the fourth quarter of the financial year 2022-23 (FY23) on the back of a strong recovery from the pandemic-led slump. However, Just Dial has built its platform over the past 27 years and has an extensive network across cities and towns in India.

Startups looking to emulate Just Dial’s profitability will need plenty of capital to acquire users, build a mature tech platform, and scale up. The challenge is especially daunting because the emergence of large language models such as ChatGPT have made life a little more complicated for content-centric platforms. Pasha acknowledges the imminent entry of LLMs in Indian regional language content too.

Lokal is watching the generative AI space closely and believes that its library of regional language content can be harnessed to build such models for India and ‘Bharat.’

Can Lokal Unlock Profits With Scale? 

Amid the overall funding downturn since 2022, Lokal’s fundraise is definitely a sign of investor confidence. Pasha claimed one of the things that attracted investors was that Lokal is profitable in Andhra Pradesh and Telangana, where it has made the deepest inroads and has presence in most districts.

“We don’t quantify our growth only in terms of user base. We quantify it in terms of how quickly a classified listing gets responses in any given location or how many responses it gets. And on those parameters we are growing very strong” – Lokal cofounder Jani Pasha

Essentially, his contention is that as Lokal’s district-level presence deepens within a state, the startup is able to target the right users for its classifieds and ads business and get organic traction on those classifieds through sharing either through Lokal or other channels.

Pasha claims this ‘virality’ of hyperlocal content has attracted more advertisers in Telangana and Andhra. “In the last one and half years, a majority of our monetisation experiments have been in Andhra Pradesh and Telangana. We only looked at monetisation since FY21 and now we are seeing that Tamil Nadu and Karnataka are also really close. In four to six months, they’ll become profitable too,” Pasha claimed.

But how will the startup solve the marketing problem? Currently, a large part of Lokal’s growth in AP, Telangana and other states has come from word-of-mouth. In new locations, the startup has to acquire new users through marketing campaigns to get to a critical mass before turning on the monetisation levers.

While the new funding will definitely help Lokal acquire new users, the key question is whether it can replicate its AP and Telangana classifieds model swiftly in new states even as the competition goes for the same ad pie.