Over the course of Inc42’s Moneyball series, one answer we often found investors repeating to us when asked about what they look for in an ideal entrepreneur is that he/she should have a deep understanding of the problem they are trying to solve.
Some may call this response simplistic, but considering how often it gets repeated, it’s certainly something worth exploring when talking to new startups. And when Inc42 sat down with Ravish Naresh, CEO of Khatabook, it became abundantly clear that Naresh definitely empathised with the problem the company is trying to solve.
Khatabook is a mobile app that helps small shopkeepers and Kirana store owners in India manage their books by helping them track the money owed to them through the means of a digital ledger. The service sends reminders on Whatsapp and through SMS when it’s time for the merchant to collect and helps keeps track of due payments which traditionally have been done through writing in notebooks.
The merchant partners interact with the Khatabook service through the app, which has Indian regional language support, also includes an option of “Hinglish”. On the back of this app, Khatabook has crossed over $1 Bn in transactions, 1 Mn downloads and on-boarded over 400K businesses organically in the past year. The growth is especially notable considering that a year and a half ago it only had 40K merchants on the platform.
Khatabook Celebrating Small Town Business Values
The scorching traction Khatabook has received is because the team comprises of sons of tier 2 cities and its shops.
Naresh, a IIT-Bombay alumnus, himself hails from Meerut in UP, while Khatabook cofounder Jaideep Poonia is from Hanumangarh in Rajasthan and comes from a family that runs a pesticides shop. Another cofounder Ashish Sonone is from Bilaspur in Chhattisgarh, while Dhanesh Kumar is from Jehanabad, Bihar and his family runs a mobile accessories and recharge shop. Finally, Vaibhav Kalpe who originally built Khatabook, had the experience of working at his father’s electrical shop in Nanded, a town in Maharashtra.
The CEO said that this is one of the primary reasons for everyone at Khatabook to have a deep understanding of the problems faced by merchants which helped build the right product combined with the fact that utility apps designed for India and that too for the smaller users has not been done before.
Related Article: Sequoia’s Surge-Backed Khatabook In Talks To Raise $20 Mn
As per a PwC study, there are about 12 Mn mom-and-pop stores in India and these Kirana stores constitute more than 90% of FMCG grocery sales in the country.
Generating Real Value For Kirana Stores
“Last year, when Kalpe came on board, the app already had 40K merchants but was very rudimentary; there was no backend, the front end was basic but we had a great initial starting base and we worked on meeting these deficiencies,” said Naresh who acqui-hired the team and was previously the cofounder and COO of Housing.com.
Unlike other platforms which cater to the merchant community which spend a lot in getting downloads and installs, Khatabook used the power of word-of-mouth marketing to get their message across. This customer acquisition strategy works because shopkeepers are more likely to believe other shopkeepers about the savings and revenue benefits of Khatabook. The shopkeepers are sent timely reminders from Khatabook on WhatsApp about the due payments.
Once the shopkeeper starts using the app, their spending receivables go up by a factor of half. So if a shopkeeper has INR 7 Lakh – INR 8 Lakh outstanding in dues from debtors, he can get back around INR 3 lakh- INR 4 Lakh back in good time thanks to Khatabook’s service, Naresh said while explaining the model.
“This is something no normal app does, everyone is giving INR 100 cash back but INR 3 lakh – INR 4 lakh of real value is something no one is creating,” said Naresh.
Tapping The Credit Market
Khatabook is part of the first cohort shortlisted under Sequoia Capital’s startup accelerator and incubation programme called Surge, and the decision to be part of the program also happened kind of organically, Naresh said.
Naresh has known Prateek Sharma who is an investor at Sequoia Capital, from before and also Shailendra Singh, who is the managing director at the venture capital firm, helped him in this journey. “The stage we were in, we were either going to apply for a Y Combinator Series A programme and then around the same time Surge came about. It’s going really good with Surge; they go the extra mile. Prateek is helping our team shift to Bengaluru,” said Naresh.
Khatabook has till date raised about $4 Mn (Pre-Series A) and counts Y Combinator, Info Edge and Sequoia as investors.
The startup currently does not have any monetisation plans and is focussed on user aggregation, instead of monetising the existing services that it offers.
What Khatabook does have in the pipeline in terms of monetisation is offering financial services. “In the next 18-24 months we will target financial services which are apt for this segment,” said Naresh, who also hints at plans for offering larger set of services for these sellers, one that includes helping them spread the word about their shops. Case in point — digital business card, which the shopkeepers can share over Whatsapp which has a link to their Khatabook account.
The startup is also building its own UPI-based payments stack which it will roll out to the merchant users so that payments can happen from within the app. “We don’t want to make money on payments because our customer base is very price sensitive, whatever our cost, we will pass it on to the merchant,” Naresh added.
Currently, Khatabook is looking to hire more people in the engineering and development teams while also looking to build its data science team to take advantage of the large datasets it has collected.
The startup is also seeing customers from outside India, who now account for 10% of the user base from countries such as Bangladesh, Pakistan, Nepal and some from the Middle East.
Update | October 01, 2019
Khatabook Raises $25 Mn In Series A
Khatabook has raised $25 Mn Series A round from GGV Capital, Partners of DST Global, RTP Ventures, Sequoia India, Tencent, Y Combinator and others.
This makes a total of $29 Mn in funding for Khatabook since its inception in December 2018. The company plans to utilise it for scaling up its technology team and building new products.
The round also saw participation from more than 20 prominent angel investors including the likes of Amrish Rau, Anand Chandrasekaran, Deep Nishar, Gokul Rajaram, Jitendra Gupta, Kunal Bahl and Kunal Shah.