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We are thrilled to announce our latest investment in Dastgyr. GoingVC Partners welcomes partnership with Zohaib, Muhammad, and the entire Dastgyr team to support them in building Pakistan’s fastest B2B e-commerce marketplace. Here is a bit more about the business, opportunity, and why we invested.
Dastgyr is a B2B e-commerce marketplace that is digitizing B2B trade for the unorganized retail sector in Pakistan. The company’s platform connects small-scale retailers with manufacturers and suppliers. Dastgyr’s app allows small retailers to procure inventory from wholesalers, distributors, and manufacturers at competitive rates. Retailers can explore a wide variety of products from different brands, build a custom basket, and confirm next day delivery, all from their smartphones.
B2B trade is large and fragmented across Pakistan’s retail industry; with multiple, inefficient layers. There are over 2m retailers in Pakistan, and they all face problems purchasing supply. Their current supply procurement process involves them having to manually source from numerous wholesalers who charge high prices. In addition, the majority of these retailers remain underserved and unbanked, not having access to credit.
Some of the biggest pain points of these small retailers (known as Kiryana stores) are as follows:
- Extremely high prices and inconvenience: They get unfavorable rates and face huge inconvenience in procuring from multiple channels (mostly wholesalers). In order to be well stocked they have to make over 5 visits to wholesale markets every week.
- Inconvenient and expensive logistics: They have to arrange inward logistics of most of their purchases themselves.
- Non-availability of credit facilities: Despite their willingness to grow, they do not have access to outside capital that enables them to grow.
For suppliers, trade is costly and inefficient, with high sales & logistics costs & low demand coverage.
Dastgyr (Persian for “helper”) is a B2B trade marketplace that uses technology to connect small retailers with manufacturers and suppliers, and offers financial inclusion to retailers through it’s embedded finance working capital solution.
We Love It: Dastgyr
The Team: Significant experience in logistics domain; founded Airlift, hyper-growth decentralized urban mass transit app (raised from First Round Capital).
- Careem: Part of the early team at Careem (acq. by Uber for $3.1Bn). Led performance Muhammad Owais - Co-founder - Dastgyr and strategy for the Pakistan and KSA markets, growing the Pakistan market by 15x in 13 months.
- Daraz: Part of the early team at Daraz (acq, by Alibaba for $150Mn). Business Analyst focusing on fulfillment and key accounts management.
- Airlift: Founding team member at Airlift (Pakistan's fastest-growing startup of 2019). Wore multiple hats incl. head of product where he built the product from scratch, launched Karachi and scaled it from 0 to 20,000 rides in less than 8 months.
- Family Office: Part of a $20m+ ARR business; focusing on relocating heavy industrial power plants from Europe to emerging economies like Pakistan and Bangladesh. Managed projects worth more than $15M in 2018 (highest ever in the company's history). Spent more than 5 years in manufacturing, speaking with 1000s of manufacturers across Pakistan and SE Asia.
- Airlift: Founding team member at Airlift; Headed the supply side at Airlift in Lahore and Karachi; owning supply-side technology and building a commercial vehicle marketplace. This helped Airlift scale to more than 40,000 rides/day.
Top-tier investors: Current investors include SOSV, Asian Development Bank Ventures, Seedstars, Edgebrook Partners, Reflect Ventures, Haitou Global, Tricap Investments (UAE based PE Fund).
Hyper Growth: Onboarded 35,000+ retailers in 10 months; executed over 250,000+ orders across Lahore and Karachi (Pakistan’s 2 biggest markets).
Dastgyr’s typical customers are small retailers selling FMCG (fast moving consumer goods), staples and food items. These retailers are the local mom-and-pop shops/corner stores that operate in densely populated areas serving their day to day needs. They operate with approx. $3,000 in working capital, on average. There are over 2 million such stores spread out across Pakistan.
Other benefits of Dastgyr’s platform include:
- Prices are updated periodically to ensure transparency.
- Order visibility ensures that the retailers are always aware of where their order is.
- Flexible order window ensures that retailers never go out of stock again.
On the supplier side, Dastgyr offers suppliers a way to reach more retailers while reducing costs:
- Suppliers reduce their sales & logistics costs by partnering with Dastgyr for order & delivery.
- They increase demand coverage to all of the retailers on Dastgyr’s platform.
- Manufacturers get insights re. retailers buying behavior, area specific demand & competitors.
- Trade offers can be communicated instantaneously to retailers through in-app ads.
Competitive Advantage: Marketplace model vs inventory led model adopted by competition; allows Dastgyr to scale quickly, set low prices through supplier competition, house more SKU’s, take a majority of customers’ wallet share and increase overall stickiness.
Dastgyr does not have a direct competitor in the Pakistani market, as there is no other player currently building a B2B e-commerce marketplace in the country. However, there are 3 other players in the B2B e-commerce space that are indirect competitors to the company: Tajir (launched 2018, raised $19m), Retailo(launched Oct 2019, raised $9m), & Bazaar (launched Oct 2019, raised $36.4m).
These competitors have adopted an inventory-led model vs Dastgyr’s marketplace model. The biggest barrier to entry to adopting the marketplace model with last mile logistics is building the marketplace itself - both the demand side and supply side would need to be scaled simultaneously. With first mover advantage, Dastgyr can take advantage of the network effects in this model.
Marketplace network effects implies that the incumbent competitors cannot scale at the same speed as Dastgyr, as network effects will be non-existent for them. Dastgyr is currently reaping the benefits of this approach by having suppliers, retailers and manufacturers come from referrals by ecosystem champions who’ve benefited from increased volumes and earnings.
Technology is another barrier for the incumbents to adopt the marketplace model. The marketplace model requires building software for the supplier/wholesaler/manufacturer side of the platform as well, which involves allowing the supply side to compete within themselves and set prices.
Given Pakistan’s overall market size, there is enough room for several players. This space has been validated by investments from Asian Development Bank Ventures, Kleiner Perkins, Global Founder Capital, SOSV & Wavemaker Partners.
Short term advantages
- Supply margins: Dastgyr has locked deals with key manufacturers and suppliers through the deep connections the team has within the grocery community.
- Better pricing: By locking in better suppliers, Dastgyr is able to price more efficiently and pass on some of the extra margins to the retailers on their platform. This allows them to earn a short term edge over other players.
- Onboarding Shops: The final piece of the moat is Dastgyr onboarding retail shops at a faster rate. By onboarding more retailers in a shorter time span, Dastgyr can use the increased volumes to negotiate even better rates with the suppliers on the platform. The end result is an expanded moat and a flywheel, with better supplier relationships and more retailer volume driving down prices, offering the best rates and fueling platform expansion further. Dastgyr has 35,000 shops in <10 months, with 170,000 retail shops in Karachi/Lahore alone.
Long term advantage: Business Model Differentiation
- Marketplace vs Inventory Model: At scale, Dastgyr will be a hybrid of both models, but the focus will firmly remain on the former. Warehousing will focus on fast-turnover, high margin SKU’s.
- Infinitely Scalable Model: Marketplace models, while more difficult to execute early on, are infinitely scalable as compared with an inventory led solution. Marketplaces are not prone to the problems of working capital, goods pilferage and heavy infrastructure costs. At the same time, rewards/margins are identical compared to that of the inventory model. The model also allows Dastgyr to house more SKU’s taking the majority of the customer’s wallet share, increasing the stickiness of the platform.
- Drop-Shipping: Dastgyr is leveraging drop-shipping in the short term to match their retailer’s increasing supply needs, which allows them to scale much faster vs the warehousing model adopted by the competition. This drop-shipping/marketplace model has enabled the company to beat their projected estimates by more than 2.5x compared to what they had projected in August at inception.
Massive Market Opportunity: $152Bn market in Pakistan with 2m retailers. $1.2Tn market in MENA.
Pakistan’s retail sector is the third largest contributor to its GDP, with over 2 million retail stores in the country. The market for B2B commerce in the country is valued at $152Bn annually, growing at more than 6% per annum. Out of the 2m retailers, over 1.3m of them are classified as mom-and-pop grocery stores. The total market size for informal B2B grocery retail is valued at $58Bn annually.
The company’s initial focus is the informal grocery retail market valued at $58Bn annually. The company’s long term vision is to become a true marketplace with plans to expand into the non-grocery retail market (700k+ retailers) by the end of Q1 2022. The non-grocery sector includes the food service and hotel industries (hotels, restaurants and cafes), electronics, clothing, pharmaceuticals, toys and more.
The global market for B2B commerce is more than $6.6 Trillion (annually). The MENAP (Middle East, North Africa and Pakistan) region’s market transacts over $1 Trillion annually. Dastgyr is building a playbook that can be easily replicated across the rest of the MENA region.
More Revenue Streams: Several, massive revenue generation opportunities at scale.
Dastgyr measures success through four KPI’s:
- Growth: Dastgyr measures growth WoW and MoM; targeting 10% WoW. Since inception Dastgyr has grown more than 40% MoM despite pandemic related lockdowns.
- Retention: In B2B retail, MoM retention typically falls in the range of 30-40%. Dastgyr has consistently shown MoM retention numbers exceeding that benchmark, currently standing at 65%+ in Lahore and 60% overall.
- Unit economics: Dastgyr’s unit economics consist of the sales take rate and logistics costs. Logistics cost has decreased from 5.1% of GMV at launch to 2.5% as of Feb 2021. By Dec 2021, the company is expected to have a significantly positive contribution margin.
- Wallet Share: A key indicator of customer satisfaction is how much of a retailer's wallet share does Dastgyr capture. To increase wallet share, the avg. order value for customers needs to increase over time. Dastgyr’s avg. wallet share has doubled from 2.8% at launch to 5.5% as of May 2021, while avg. order value has gone from $34 to $55 in the same period.
Dastgyr Capital: Allows retailers to purchase SKU’s on credit and frees up working capital for suppliers. Like Udaan, has the potential to be the most significant contributor to the bottom line.
Congratulations again to Zohaib, Muhammad, and their entire team. Onward and upward!
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