Why is Jeff Bezos investing in this Indian's Indonesian Startup

By Lee Kah Whye
Singapore, December 6 : "Frictionless payment and offering credit to retailers so that they can more efficiently manage their cashflow are critical components of modern digital commerce," said Ganesh Rengaswamy, Managing Partner at Venture Capital firm Quona Capital, in an interview with tech publication TechCrunch earlier this year. Quona which has backed various ecommerce and fintech startups in Asia is a key investor in ecommerce marketplace Ula.
Ula was founded to use technology to provide a one-stop-shop to help small retailers in Indonesia organise their sourcing and supply chain as well as to manage the financial aspects of their business. The initial focus for Ula has been on mom-and-pop shops, called "warungs" in Indonesia, which are selling perishable food items and basic household goods.
The COVID-19 coronavirus has been dominating our lives for the past (almost) two years, and along with it, ecommerce has been expanding. Therefore, it is not surprising that investment has been pouring into logistics, distribution and ecommerce startups.
Based on a Credit Suisse report published in October this year, there are 35 unicorns in Southeast Asia. Unicorns are startups that have attained USD1 billion in valuation based on their latest funding round. In 2021 alone, 19 of these attained unicorn status. Out of the 35, the vast majority, 26 are based in Singapore and Indonesia - 15 in Singapore and 11 in Indonesia - and almost half of them (46 per cent) are related to logistics and ecommerce.
In January this year, Ula raised USD 20 million in a Series A financing round led by Quona Capital and B Capital Group. Other series A investors Sequoia Capital India and Lightspeed -- both were involved in the USD10.5 million Seed round in June 2020.
The startup raised another USD 87 million in a Series B funding round in October lead by Prosus Ventures, Tencent and B-Capital. Of note, is the participation of prominent billionaire and Amazon founder Jeff Bezos's investment firm Bezos Expeditions in this funding round. Other investors include Singapore-based private equity firm Northstar Group, South-east Asian funds AC Ventures, Citius, and existing investors Lightspeed India, Sequoia Capital India, Quona Capital and Alter Global.
The firm will use its Series B proceeds to invest in growing its presence across Indonesia while expanding in South-east Asia by adding new categories, expanding its "buy now, pay later" (BNPL) offering, as well as building new technology and a local supply chain and logistics infrastructure.
Ula was founded in January of 2020 by Alan Wong who used to work at Amazon, Derry Sakti who headed consumer goods multinational Procter & Gamble operations in Indonesia, Riky Tengaara (Lazada) and Delhi-native Nipun Mehra who is also the CEO.
Mehra had previously worked at Amazon in Seattle USA and Flipkart in India. He has also had stints in investment firm Sequoia India and fintech company Pine Labs.
Mehra who graduated from the Netaji Subhas Institute of Technology and has master's degrees from Wharton and Sandford in the US told TechCrunch, "Much like India, much of the Indonesian retail market is unorganized. In the food and vegetable category, for instance, there are lots of farmers who sell to agents, who then sell to markets. From these markets, the inventory goes to small wholesalers, and so on. There are lots of players in the chain."
"If you look at the whole retail value chain, especially for essential goods, FMCG (fast moving consumer goods), staple, and fresh produce, it's significantly fragmented," said Quona's Rengaswamy. "Whereas the market has moved on in terms of being able to more efficiently consolidate demand and supply, Ula is trying to redo the retail distribution ecosystem with a significant technology overlay. It's connecting some of the largest players in the supply side to the smallest retailers and consumers."
The founders saw an opportunity to create a business-to-business platform that would enable stallholders to order stock at competitive rates and have it delivered to their store for a small fee. On top of this, Ula can help these micro retailers in Indonesia obtain working capital so they do not have to wait to be paid by their customers to buy new inventory. These "warungs" are embedded in the community to which they have strong ties and often operate on credit and trust. Collecting payment often takes longer than it should. Access to capital so that they have the option to pay for supplies later can be a game-changer.
The timing of Ula's launch in January 2020 could not have been more fortuitous. As COVID-19 hit and the country started to lockdown its population, customers' demand for essential items grew. At the same time, it was difficult for these neighbourhood kiosks to source for goods from wholesalers as this was traditionally done through physical visits. This caused many micro retailers and consumers to rely on digital platforms and delivery services.
In a short period of time, Ula has grown the number of retailers on its platform to more than 70,000 today, offering over 6,000 products.
"The typical Amazon, Flipkart -- or here in Southeast Asia we have Shopee, Lazada, Tokopedia and so on -- has been more on the non-food side. Food is a very different way of running things," said Mehra to CNBC.
"Usually in emerging economies, their income profile is such that they have to buy frequently and in small baskets. The moment you get into that dynamic, the traditional way of doing ecommerce doesn't work. You can't deliver a three-, four-, five-dollar basket to somebody's home and do it profitably ... so you have to find other ways of doing it."
These millions of neighbourhood kiosks, which sell fast-moving consumer goods, like drinks and packaged food, as well as household items are an integral part of Indonesian society, especially in the smaller cities and provinces outside the capital Jakarta. They account for about three-quarters of the country's USD 50 billion consumer goods sales.
Within the next 18 months, the CEO Mehra hopes to quadruple the number of merchants Ula works with from 70,000 today to 300,000. He also hopes to help merchants expand into new categories such as apparel and technology, with the ultimate goal of doubling their income.
"Why restrict yourself to the items that are in your store? Why can't you order everything that your customer needs? Why can't you be that channel?" he said.
"In my mind, that is what will lead to a new form of retail. Not something which we have seen in theU.S., not something which we have seen in China. It will be an Indonesia-specific, unique solution."