{"id":549826,"date":"2022-10-02T04:12:39","date_gmt":"2022-10-02T04:12:39","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/whatsnext\/why-asset-light-b2b-e-commerce-players-are-in-a-stronger-position-than-asset-heavy-competitors-as-vc-funding-dries-up\/"},"modified":"2022-10-02T04:12:39","modified_gmt":"2022-10-02T04:12:39","slug":"why-asset-light-b2b-e-commerce-players-are-in-a-stronger-position-than-asset-heavy-competitors-as-vc-funding-dries-up","status":"publish","type":"whatsnext","link":"https:\/\/enterpriseam.com\/egypt\/whatsnext\/why-asset-light-b2b-e-commerce-players-are-in-a-stronger-position-than-asset-heavy-competitors-as-vc-funding-dries-up\/","title":{"rendered":"Why \u201casset light\u201d B2B e-commerce players are in a stronger position than \u201casset heavy\u201d competitors as VC funding dries up"},"content":{"rendered":"

<\/a> How are B2B e-commerce players handling working capital pressures + the VC <\/strong>funding squeeze?<\/strong> For a large number of startups that rely mostly on VC funding for growth, the global VC funding squeeze<\/a> (which has also landed locally) has been a harsh wake-up call. Tougher economic conditions further added to the pressures on startups\u2019 working capital, with some B2B e-commerce startups \u2014 particularly those with hefty infrastructure investments \u2014 having to revisit their business models and plan for more sustainable growth amid market disruptions.<\/p>\n

IN CONTEXT- <\/strong>News over the past weeks of startups struggling to pay their dues and implementing cost-cutting measures amid market headwinds have put the B2B commerce sector \u2014 and the startup scene at large \u2014 in the limelight. After Capiter<\/a><\/strong>\u2019s high-profile meltdown<\/a>, social commerce startup Brimore<\/a><\/strong> issued a statement (pdf)<\/a> saying that it would restructure and cut costs in a bid to reach profitability. Brimore says it will tweak its business model, but stopped short of getting into what that means.<\/p>\n

Some are just reallocating investments:<\/strong> In a different vein, MaxAB<\/a><\/strong> \u2014 which has just launched its embedded finance product \u2014 is doubling down on international expansion to leverage more resilient markets like Morocco, where it already operates, and Saudi Arabia, which it plans to enter at the beginning of next year, CEO and co-founder Belal El Megharbel told Enterprise. Its expansions in Egypt are also focused outside of the Greater Cairo area, where the startup sees underserved areas as more attractive and less competitive than central cities, and most of its investments are going towards fintech products and tech. Fatura<\/a><\/strong> is similarly looking at expanding its BNPL product, but will focus on scaling up existing verticals rather than tapping new ones, CEO Hossam Ali told us.<\/p>\n

Behind the shift?<\/strong> The market has been dominated by two different models: One that is asset-heavy \u2014 in that the startup owns fleets, warehousing and other infrastructure \u2014 and one that is asset-light, with the role of the digital marketplace and its services acting as the core of the business. Asset-heavy companies include Capiter, MaxAB and Brimore, while Fatura, Cartona<\/a><\/strong> and MNT-Halan\u2019s Talabeyah<\/a><\/strong> are some of the big names in the asset-light end of the pool.<\/p>\n

The problem: Asset-heavy startups need (a lot of) capital to expand: <\/strong>These startups \u201chave to pay a lot of CAPEX in building infrastructure, while also needing a lot of working capital to buy inventory,\u201d CEO of the Cairo Angels Syndicate Fund (CASF), Aly El Shalakany, tells us. The fact that there are a lot of players in the market also drives them to expand at a faster rate, burning more liquidity in the process. \u201cThey require a huge amount of cash until they are able to become dominant in the market\u201d and then hit the black, he explains.<\/p>\n

\u2026which explains why funding rounds in the sector have varied widely in size.<\/strong> Asset-heavy startups like Capiter, which raised USD 33 mn<\/a> from regional and global investors, and Brimore, which raised USD 25 mn in series A funding<\/a>, have raised mega rounds in recent years. MaxAB has raised USD 40 mn in its series A round, following a record USD 6.2 mn seed round<\/a> in 2019. On the other hand, startups with lighter CAPEX costs raised a fraction of those amounts, with Fatura getting a total of USD 4 mn<\/a> before it was acquired by EFG Hermes\u2019 Tanmeyah, and Cartona raising a larger USD 12 mn<\/a> in its series A round.<\/p>\n

FOMO? <\/strong>Talabeyah, a platform launched in 2020 and promising next-day delivery and inventory management solutions for merchants, struggled to raise funds at its initial stages. \u201cWe were driven to have positive economics and a clear path towards breaking even, but investors were saying we weren\u2019t moving as fast as the competition,\u201d Talabeyah CEO Karim Nassef told us. Over at MaxAB: \u201cWe were very focused from the beginning on achieving the right metrics, which to us are not revenues and sales, but profitability and operational efficiency, and building scalable technologies and strong foundations with suppliers,\u201d El Megharbel said, adding that investors did \u201cpush\u201d for more growth.<\/p>\n

But some investors were looking for the outliers\u2026<\/strong> Talabeyah was acquired<\/a> by MNT-Halan in June \u2014 part of what made Talabeyah attractive was steady and sustained growth. \u201cTalabeyah\u2019s business model was fundamentally strong,\u201d MNT-Halan Vice President of Investments Andre Valavanis tells us, explaining that the reason they acquired them was that \u201cthe founders have a growth mindset while focusing on positive unit economics.\u201d<\/p>\n

\u2026and the asset-light models, which some found carried less risk: <\/strong>Fatura was also acquired<\/a> in June by EFG Hermes\u2019 Tanmeyah. \u201cFor us, the benefits of being asset-light outweighed the risks and the additional margins of the asset-heavy model,\u201d El Shalakany, who was an early investor in Fatura, said.<\/p>\n

These challenges are not sector-specific, and could impact others on Planet Startup: <\/strong>\u201cThe mindset of heavily subsidizing and burning cash is flawed, and this was exposed with the global correction,\u201d Valavanis said. Adds El Shalakany: \u201cIf you keep heavily subsidizing the customer below margin cost, your goal is to eventually dominate the market before doing what you want with the customer,\u201d saying that there\u2019s a lot of \u201cunhealthy competition\u201d in markets like FMCG and food delivery. \u201cThe reality is that this is not going to happen, especially in these sectors, where the loyalty of the customer lies with the price, not necessarily with the company.\u201d<\/p>\n

NEXT WEEK: Let's talk <\/strong>financials<\/strong>. <\/strong>We will look at how B2B commerce startups can amend their financial models to make up for the lack of VC appetite, and about potential financing options they can resort to at this time and age.<\/p>\n

\n

Your top stories on future trends for the week:<\/strong><\/p>\n