For more than two decades, Jay Chandarana relied on commercial banks to meet the day-to-day working capital needs of his family business, sesame seed exporter Dhaval Agri. It was an agreement that basically worked: the company grew to have a share of 13% of the country’s total exports, making it the largest exporter of sesame seeds in the market. However, despite sending seeds to customers in 40 countries, it is still firmly a medium-sized company, with last year’s revenues of only $83 million.
And he was facing a problem: When Chandarana thought about how he could expand the operation, his bank-based financial arrangement came up short.
“Banking in India is based on collateral,” explains Chandarana. “Your volumes may increase depending on the business you do, but bank payments only increase according to the value of your collateral.”
So in 2019, Dhaval Agri decided to try to arrange working capital with Palo Alto startup Drip Capital as an alternative – and it paid off. Chandarana told TechCrunch that Dhaval Agri’s volume has increased 50% in the five years he’s been a customer of the startup.
Now Drip hopes to scale to meet this opportunity with more entrepreneurs in the country and abroad. It has raised $113 million in funding: $23 million in equity from Japanese institutional investors GMO Payment Gateway and Sumitomo Mitsui Banking Corporation; and $90 million in debt financing led by the World Bank’s International Finance Corporation (IFC) and the East West Bank.
The company has raised about $640 million in equity and debt funding so far, with Accel, Peak XV Partners and Y Combinator among its other investors.
Debt will be used to expand the number of working capital loans it provides to SMEs, while equity will be used for business and product expansion. It uses AI to automate and digitize processes and plans to use it for risk analysis as well.
Drip currently serves between 9,000 and 10,000 businesses, with about 60% from India and the rest from the US and a small amount in Mexico. It’s already profitable, and says it’s aiming for 40% annual growth over the next two years.
The challenge that Dhaval Agri faced is not unlike the capital hurdles that small and medium enterprises face around the world. SMEs typically work on very short capital turnarounds: They issue invoices to customers to generate revenue, but these can take time to be paid, and in the meantime these companies have to pay the suppliers themselves to continue operating.
Working capital provided by third parties becomes a common solution. These are essentially short-term loans issued on credit that companies repay when they themselves are paid (30, 60 and 90 days are common extensions), while these businesses need to pay suppliers quickly to maintain sufficient inventory . In India, despite the large proportion of SMEs – it has been described as the largest SMB market in the world, approaching 100 million businesses – traditional financial institutions have not relied on working capital arrangements designed to encourage growth, only maintenance.
Drip Capital addresses all of this for thousands of small and medium-sized importers and exporters like Dhaval Agri in India, as well as in the United States. While it initially started with a focus on companies exporting outside of India, it gradually expanded to include import-focused companies in India before expanding again to serve companies in the United States.
As with other working capital startups, Drip advances up to $2.5 million and essentially buys customers’ customer invoices at the same value (with a service fee on top). This allows companies to have money to pay their suppliers and run their business, even when their customers take more than two months to pay their bills. Drip also provides accounts payable financing of up to $5 million intended to help importers extend the time they have to pay their suppliers.
Drip Capital has also recently started serving companies in the domestic trade in the US and plans to expand this model to India. The startup has already applied for a non-banking financial company (NBFC) license to cover the domestic needs of Indian businesses.
“The thought process is that for us to be able to basically offer a holistic offer, it is important that we cover the domestic and cross-border needs of the companies we work with,” said Pushkar Mukewar, co-founder and CEO of Drip. Capital, in an interview.
One of its new products is the exchange. Mukewar told TechCrunch that many Drip Capital clients receive foreign remittance or send foreign dollars. The startup is targeting those customers by offering access to cheaper foreign exchange through its existing partnership with Barclays.
Similarly, Drip Capital is piloting a sourcing platform to help connect buyers with new suppliers using its buyer-seller network.
This latest investment comes nearly three years after Drip Capital raised $40 million in its Series C in October 2021.
“Since we have achieved profitability, we have raised only the amount of equity required for our next phase of growth while we look at dilution,” he said. He declined to divulge the valuation, but confirmed that it was not a once-in-a-lifetime decline.
“The last couple of years have really been around getting the economics of the business right to get to this point where we’re profitable,” he said.